FOREX TRADING: IT'S ALL IN THE EXCHANGE
FOREX TRADING: IT'S ALL IN THE EXCHANGE
For anyone who has travelled overseas, there is a high chance that you have made a forex transaction. When you visit Egypt for instance, you will need to convert your Euros to Egyptian pounds. So what happens is you go to the counter with your Euros and you will notice a screen that shows the various currency pairs and their exchange rate. Your Euros in this case might be exchanging at the rate of 18 Egyptian pounds and you think to yourself, “Wow! So my one Euro is worth 18 Egyptian pound?! And I have a thousand Euros! I’m gonna be filthy rich!!!!!”
When you complete this trade, you will have taken part in the forex market. The Forex exchange rate between the two currencies will influence the amount of Egyptian pounds you get the end of the transaction. There are many factors that can affect the exchange rate of any currency and by far the law of supply and demand applies. Nevertheless, the exchange rate keeps on changing continuously.
What Is the Forex Market?
So what’s the fuss about the forex trading market? Just like any market, forex exchange market is the place currencies are traded. I mean, currencies are very important to a larger majority of people around the world, notwithstanding whether they understand it or not. Look at it this way, assuming you live in Germany and are in need of a Japanese car, you will need to purchase the car from Japan in Japanese Yen (JPY). This means that either you or the merchant you buy the car from will need to pay the Japanese car owner in Japanese Yen. In simple terms, you would need to exchange a proportionate estimation of Euros into Japanese Yen.
The equivalent goes for travelling and tourism. Take for instance an American tourist visiting Kenya. He/She can’t pay in Euros to experience a safari walk. This is obvious, US dollar is not the acceptable currency in Kenya. The American tourist will need to convert the dollars into Kenya Shillings at the exchange rate of that time.
This, is the Forex trade we will dissect in this article.
One unique characteristic of the Forex market is that there is no central commercial center where foreign exchange is done. Rather, it is done wirelessly over-the-counter using electronic devices such as computer networks or mobile phones. The market never closes. It is open all day for five and a half days every week with currencies exchanging around the globe in London, New York, Zurich, Frankfurt Tokyo, Singapore, Hong Kong, Paris and Sydney—crosswise over pretty much every time zone.
So what this means is as the trading day in the U.S closes, the forex market starts in Tokyo and Hong Kong. All factors considered, the forex market is very dynamic throughout the day, with currency value quotes changing continually.
MAKING A FOREX TRADE: HOW TO BUY AND SELL CURRENCY
Forex exchanges involve two currencies and generally has got everything to do with wagering on the value of one currency against another. Take the EUR/USD currency pair for instance. It is the most-exchanged currency pair in the world. So in this case, EUR is the base currency while USD is the counter. The currency value quoted on the MT4 platform is the amount one Euro is worth in US dollars. There are two quotes that appear on the platform: The buying price and the selling price. Now, the difference between these two quotes is the spread. When you click buy or sell, you are buying or selling the first currency in the pair.
Supposing your pair is EUR/USD and you anticipate the Euro will increase in value against the USD. Since the Euro is the first currency in the pair, and you figure it will go up, you purchase the EUR/USD. However, in the event you figure the EUR will decrease in value against the USD, you will sell the EUR/USD.
Further, let’s take it even farther. Assuming the EUR/USD buying and selling price are 0.70644 and 0.70640 respectively, the spread in this case is 0.4 pips. In the event that the trade moves as you had anticipated (or against you), you will either make a profit or a loss when you cover the spread on your trade.
MetaTrader 4 (MT4)
All Forex transactions take place in the Meta Trader 4 (MT4) platform. It is basically a trading platform used by traders and brokers. Here’s how:
Traders use it to check currency quotes in real time, open or modify orders or get expert insights and trade analysis.
Brokers on the other hand use it to reach out to an extensive trading audience.
The good thing about the MT4 platform is that it comes with several currency pairs and valuable indicators that you can look over.
In addition, it comes with beginner friendly charts that can be interpreted by virtually anyone. What’s more? You can customize it to suit your preference. For instance, you can connect your EAs to the MT4 platforms and trade in your style!
Please note: You can’t navigate the MT4 platform through a website. You will need to install the platform on you PC or Cell phone before accessing your trades and currency prices.
To Install the MT4 platform, follow the following steps.
Step 1: Signing up for your MT4 account:
- Download and install MT4 software
- Fill in the account details carefully
Step 2: Keep a record your account details
- Keep a duplicate of your login data before leaving the sign up process
With MT4, you can create and access various accounts without leaving the platform. Make sure to check which account you are using before submitting trades and orders.
There you have it folks. Forex trading explained in plain language. We hope this information will help you as you take the leap of faith into forex trading. Welcome to our world of limitless possibilities.