Looking toward the stock market to make an income? To become involved in the biggest of these markets, you will need to learn how to trade in the Forex market. Forex is the biggest market because the trading that takes place in this market is equal to more than 3 times the total amount of the stocks and futures markets combined.
Forex trading takes place twenty four hours a day and is the most liquid of the stock markets. This is a global market involving every country in the world. Trading twenty four hours a day means that there is more risk since there is no way to monitor your investments constantly. As you learn more, you will come to know what a limit is and how to use it to minimize your losses.
Since this is a currency market, you are buying and selling different currencies when making trades. Currencies are always traded in pairs. Trading currencies means that you could be trading:
The US dollar and the euro (USD/EUR)
To make a successful trade, you must understand the value of foreign currencies. You will need to know the exchange rate between the currencies that you are considering trading. This means that you will need access to a currency converter with up-to-the-minute information. Oanda.com offers a free currency converter and lots of useful information.
Currency conversion uses a ratio known as the cross rate to express the ratio between the currencies. This ratio is a listing of the currency pairs normally in an xxx/yyy manner. In this expression, the xxx is referred to as the 'base' currency (or home currency).
As you get used to looking at these ratios and base values, the changes will become more obvious to you making it easier for you to make a profitable decision.
Another term that you need to understand is the Spread.
The spread is the difference between the bid price and the ask price. If a firm advertises their Forex trades to be - commission free, no service charge, no hidden cost, keep in mind that the spread is the "hidden cost" or the fee for the services. It is also the main source of revenue for the trading
firms. The cost of the spread may not seem to be much at all, but once you start adding up the costs for each the trades, you will see that this expense can climb quickly.
Always looking for the tightest spread possible can have it's drawbacks as well, you should be skeptical of anything that is far lower than typical. As with everything in life, "if it seems too good to be true, it probably is". Now that you know the spread is the main source of revenue for the trading firm, it should seem reasonable to you that if the firm isn't earning their money from the spread, there are likely to be some other hidden costs involved in the transaction.
Stop Limits
A Stop Limit is a request to sell a position when the price falls to a specified level. If you place an order and are unable to monitor the market frequently to keep on top of it, you should use a Stop Limit order to minimize any losses.