UraniumFX Group

What is Forex? And Why Trade It?

You may not know it, but forex is actually one of the largest markets in the world, with over $4 trillion in average daily volume transacted.

So, if forex is so big, why have so few people heard of it?

The simple answer is you have probably used the forex market before, either directly or indirectly. Any time you take a trip to another country and exchange money, you just made a forex trade. Whenever you buy something in a shop that was made in another country, you just made a forex trade. You paid in your own currency and the manufacturer was paid in a different currency.

...you have probably already used the forex market before - directly or indirectly.

Mr. Bernard Lonsdale

Head of Forex, Chairperson of Credit, and Deputy Managing Partner.

People trade currencies all the time, but how can currency be an investment? Here's a simple example. Imagine that you took a trip from the United States to Europe in 2002. For the trip, you changed your US dollars into euros. At the end of a trip, you typically would change any extra euros back into US dollars. But what if you didn't?
In 2002, one euro was worth about 90 US cents ($0.90). Say that you decided to hold on to 500 euros, and left them sitting in your desk drawer for 5 years. In 2007, you took your euros to the bank and sold them for a 2007 price of $1.40. Since you bought the euros for $0.90 and sold them for $1.40, you made a $0.50 profit per euro. You would have made $250 just because you held on to those euros and had bought and sold at the right time. That's a 55% return in 5 years.

The $4 trillion forex market mostly runs on the same idea. Many of the world's giant banks, hedge funds, and insurance companies actively trade currencies as a way to make money. Since they do so in very large amounts, they record profits and losses in the millions every day for the smallest fraction-of-a-cent movements in exchange rates.

Things have changed

Like the online stock trading revolution of the 1990s, the Internet has brought forex trading within reach of the average person sitting at home. Thousands of individual traders around the world can now trade currencies from their living rooms, with nothing but a computer, an Internet connection, and a small trading account. You can now make trading and investment decisions to buy and sell British pounds or Japanese yen at any time, day or night (Sunday through Friday). This brief guide will show you how.

Why Trade Forex With Us?

Our Online forex trading has become very popular because it offers traders several advantages.

Forex never sleeps: Trading goes on all around the world during different countries business hours. You can, therefore, trade major currencies any time, 24 hours per day, 5 days a week. Since there are no set exchange hours, it means that there is also something happening at almost any time of the day or night.
Go long or short: Unlike many other financial markets, where it can be difficult to sell short, there are no limitations on shorting currencies. If we think a currency will go up, we buy it. If we think it will fall, we sell it. This means there is no such thing as a "bear market" in forex – you can make a profit but you can also lose money any time if the fundamental analysis is not conducted.
Unmatched liquidity: Because forex is a $4 trillion a day market, with most trading concentrated in only a few currency pairs, there are always many people trading. This makes it easier for us to get into and out of trades at any time, even in large sizes. But, we are always mindful of increased volatility as orders may be subject to slippage.
Assist in the production of full, fair, accurate, timely, and understandable disclosure in reports and documents that the firm and its subsidiaries file with, or submit to the appropriate agency and in other public communications made by the firm
International exposure: As the world becomes more and more global, investors hunt for potential opportunities anywhere they can. If you want to take a broad opinion and invest in another country (or sell it short), forex is an easy way to gain exposure.

Putting Your Ideas into Action

A currency's value will fluctuate depending on its supply and demand, just like anything else.

Currencies trade on an open market, just like stocks, bonds, computers, cars, and many other goods and services. A currency's value will fluctuate depending on its supply and demand, just like anything else. If something increases supply or lowers the demand for a currency, that currency will fall. For example, when Greece threatened to default on its debt, it threatened the existence of the euro, and investors around the world rushed to sell euros.

With a sudden dramatic rise in the number of euros for sale and a definite lack of demand for them, the euro dropped precipitously against the US dollar and other currencies. You can buy or sell at any time and in any order. So, if you think the eurozone is going to break apart, you can sell the euro and buy the dollar. If you think the Federal Reserve is printing too much money, you can sell the dollar and buy the euro.

You should also be aware that trading involves risk, therefore you should carefully consider your objectives, financial situation, needs, and level of experience prior to trading.

The Bulls and the Bears

When looking at the future, many traders will have an opinion on where a currency is going. If a trader is optimistic and thinks a currency will rise, he is said to be "bullish". If the trader is negative and expects a currency to fall, he is said to be "bearish". Every day, the bulls and the bears do battle and the price moves as one or the other get the upper hand. Our job as forex traders is to look at the currencies available to us and to buy the strongest while selling the weakest. So, if after conducting market analysis we became bearish of euros and bullish of US dollars, we trade that opinion by selling euros and buying US dollars.

Reading a Quote and Making a Trade

Because you are always comparing one currency to another, forex is quoted in pairs. This may seem confusing at first, but it is actually pretty straightforward. Below is an example of EUR/USD quotes. It shows you how much one euro (EUR) is worth in US dollars (USD). If you, instead, wanted to look at the euro in terms of the Japanese yen (JPY), you would look at the EUR/JPY rate. If you wanted to see the value of a US dollar in Canadian dollars (CAD), you would look at the USD/CAD.

Let's say that you sell EUR/USD at 1.4022. If the EUR/USD falls, that means the euro is getting weaker and the US dollar is getting stronger. Say the EUR/USD falls to 1.3522. In that case, you would have a profit. If it rose to 1.4522, you would have a loss. So just remember: if you sell a pair, down is good; if you buy the pair, up is good.

BUY EUR/USD at 1.4022
Down = Loss Up = Profit
SELL EUR/USD at 1.4022
Down = Profit Up = Loss

Pips, Profit, Leverage, and Loss

Over the years, professional forex traders have come up with some shorthand to make forex trading easier so you can quickly make decisions about your trading without needing to take out a calculator every time.

What is a "Pip"?

A pip is a unit you count profit or loss in. Most currency pairs, except Japanese yen pairs, are quoted to four decimal places. This fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count "pips". Every point that place in the quote moves is 1 pip of movement. For example, if the EUR/USD rises from 1.4022 to 1.4027, the EUR/USD has risen 5 pips.

But how do we know which currencies will rise and which will fall?

Over the years, our forex trading team has developed several methods for figuring out how far currencies will go.

Fundamental Analysis: Since currencies trade in a market, we look at supply and demand. This is called fundamental analysis. Interest rates, economic growth, employment, inflation, and political risk are all factors that can affect supply and demand for currencies.
Technical Analysis: Price charts tell many stories and at times we depend on them in making trading decisions. Charts can point out trends and important price points where traders can enter or exit the market if you know how to read them.
Money Management: An essential part of trading. All traders need to know how to measure their potential risks and rewards and use this to judge entries, exits, and trade size.

FOREX