Currency trading takes place thru major banks, market makers, and brokerage hourses around the planet, who together make a marketplace for trading currencies on a near 24/7 basis.

The foreign exchange market is always’open’ ; it’s the 7-Eleven of the trading world and is the largest finance network in the world with daily average turnover totaling trillions of dolaars.

it is also an expanding market, as more traders turn to foreign exchange trading and away from stocks.

At its simplest, trading foreign currency involves 2 currencies traded similtaneously, called a ‘pair’. Fore example, the EUR/USD pair, trade the Euro against the US greenback. In this example, a buyer of this pair would be ‘buying’ the Euro and ’selling’ the US Dollar.

currency exchange pairs are described in the following format : XXX/YYY

XXX, the 1st currency in the pair, is called the ‘base’ currency. YYY, the second currency in the pair, is called the ‘counter’ currency in the pair. Prices are always expressed in terms of the counter currency.

For example if the current cost of the EUR/USD pair is shown as 1.3667, this would imply that one EU Dollar ( the base currency ) equals $ 1.3667 US dollars.

Most major pairs are priced to four decimals, or 1/100th of one %. The exception to this is the japanese Yen pair, which trades only to 2 decimals. This is because there are usually over a hundred Yen to the dollar.

In an instance where the US Dollar is the base currency, the USD/JPY pair for example, costs here are expressed in japanese Yen. If this price is 108.02, this means that the base currency, the US dollar, equals 108.02 jap Yen.

Forex costs are expressed in pips. What’s a pip? A pip is simply the minimum increment that a currency pair price can change. For instance, if the EUR/USD price changes from 1.3790 to 1.3791, the costs is said to have gone up by 1 pip.

currency exchange pair quotes are on a bid-ask basis. The bid is the price the market is prepared to pay a seller at the point in time for a specific currency pair. The ask is the price the market is ready to sell to a buyer at a [point in time for a specific currency pair. The difference between the bid and the ask is called the bid/ask spread.

Currency exchange  costs are always listed as Bid price first, Ask price second.

for instance, a standard EUR/USD quote coule be 1.3784 Bid // 1.3787 Ask in which case the quote price is alleged to have a spread of three pips.

The spread is how market makers are compensated, vs ‘commissions’ paid for trading stocks or options. The spread can and will vary depending on a number of factors, including but not limited to : current conditions, the particular broker or market maker you use ( some do charge higher spreads than others ), the currency pair being traded ( more thinly traded currencies frequently have higher spreads ).

For the EUR/USD example above, the quote would be expressed simply as 1.3784/1.3787 or 1.3784/87.

very similar to buying shares of stock, currency exchange trades in ‘Lots’. There different types of lots, including : standard, mini and micro.

Standard lots trade 100,000 units of a currency pair. Mini lots trade ten thousand units and micro lots trade 1,000 units.

for example, for a standard lot purchase, if the EUR/USD quote was 1.3784/1.3787, then buying this pair would mean buying 100,000 Euro dollar dollars and selling short 137,870 US greenbacks.

Forex is different from trading stocks, but the benefits and risks are similar

The Forex markets are quite different from the stock markets largely because the price behavior of the Forex pairs is different and entails abrupt price swings. This means traders should utilize trading methods different from those that are used to trade or select stocks so that traders may fully realize the profit potential Forex offers while still minimizing risk.

Both Forex and stocks, however, are similar in that they develop repeatable price trends that give traders enormous profit opportunities for those traders with strong trading methods, disciplined trading mindsets and sound money management tactics.

One of the reasons Forex has gained in popularity is the concept of Leverage, which allows traders to take Forex positions with a much smaller account size than would be required for trading stocks, and because the margin requirements for Forex are smaller than they are for stocks. This increases the reward ratio for profitable trades, but it also increases the risk.

For example, most brokers offer at least 100:1 leverage, which is more than enough to generate significant profits while maintaining sound risk management. Other brokers will offer up to 400:1 leverage — but the risk reward ratio is not in the trader’s favor with this type of leverage.

Leverage, combined with reduced margin requirements and high profit potential are the real driving forces of the expanding Forex trading market.

One of the questions I am frequently asked is what constitutes a good trading methodology. In this post, I’ll show you what most techniques look like ( and why they are bad ) and show you a simple way to evaluate a trading method.

If you take a detailed look at the majority of the so-called forex trading strategies and systems on the market, they constantly share identical lacks :

- They are incomplete. Too many courses teach hours of ‘in theory’ – but spend small to no time teaching a step-by-step plan to help trade.

- they don’t include risk management. This is the number one mistake most traders make – not handling risk in their trades. If the system or method you are considering doesn’t teach risk management consistent with their technique, you would do well to run away from it.

- They focus strictly on fundamental research. Methods that focus only on fundamental analysis are incredibly time consuming and subjective and require much deeper understanding of more complex economic and financial issues. If you don’t understand them, you will not succeed with such methods.

- They need you to’day trade’. Lots of the methods and systems I’ve seen require you to be in front of your personal computer nearly 24/7 to be in a position to ‘react’. Reality should tell you how most unlikely this is.

what is a’good’ method?

based mostly on the methods and systems I’ve seen over the last many years, I’ve created a simple 4-part measurement that I use to determine if a trading method is good for me :

- the strategy must be complete and teach the setup conditions, entry rules, initial stop rules and exit system rules while leaving no decision to chance.

- the strategy must teach and include express guiding principles for risk management and money management as per its methodology.

- The technique must utilise technical research, but it may not be a completely mechanical or mechanical system.

- the method must be practical in terms of time expended applying it : I favor strategies that only require 20-40 minutes a day.

The steps above have helped enormously in removing the ‘pretenders’ among trading techniques and focusing only on the ‘contenders’. Methods which provide thorough clarification of the simple way to apply, protect and trade the methods are the sole types you must use in your trading.

If you need to become a Forex Trader, select one of these mindsets.

The Independent trader or the Dependent trader

Which type of trader you are will drastically affect the potential money you can make in the markets. In fact, it may well determine what the remainder of your life will look like, if it is how long you work for someone else, when and where you vacation, or where and how you live.

you may think that is’s an exaggeration, but the reality is those who take initiative can definitely affect the result of their lives ( and their trading ) versus those that let others determine the course of their lives for them.

it is critical to note that anything requiring little to no effort will produce limited, temporary or no results. Inversely, anything requiring you to think and act for yourself will produce lasting and lasting results.

Trading, whether forex, stocks, or other markets, particularly proves this true. Returning to the 2 kinds of traders, they illustrate very common mindsets – which one represents you?

The Dependent trader is looking for the easy way, wants to make a fast buck, or make it big – but never wants to put any effort into the process of achieving such things ( if such things even exist, and it should be contended that they do not ).

Dependent traders will follow the crowd, trade based on hot tips, seek out automated ‘millionaire-making’ trading programs, hear all the reports professionals and blindly place ‘can’t lose’ trades ( which do lose ), all with no plan, no thought and no understanding of what they’re doing.

Naturally they will become frustrated with their losses and mess ups and do the single thing they can think to do : they give up.

Dependent traders are the trading equivalent of lottery ticket buyers ; they know full well the chances stacked against them, but they believe anybody can get lucky, so why not them?

of course, Dependent traders exert small control over their lives and have little chance for finance success.

On the other end of the spectrum is the Independent trader. This trader wants to have control over their financial future and has learned ( or will learn ) how the markets work, which approaches to trading the markets truly work, and the easiest way to sanction themselves to trade without relying on others for advice or tips or stories.

An Independent trader understands and believes that only they can maximise their chances for success and only they can achieve their monetary and life dreams. They will search out and learn from others, educate themselves, learn from failure and attempt to accomplish bigger things.

It should be observed , however , that everyone has a little bit of the Dependent trader in them at some point. The difference being, the person on track to become Independent may take up with a mentor or lean on a reliable education source at the outset – but as their information grows, the Independent trader will start to apply what they’ve learned completely on their own.

The Dependent trader never will .

three straightforward steps to becoming an Independent Trader :

Step One : Create and execute a trading plan. Whether you want to day trade or trade at the end of hte day, or once a week – decide what fits BEST in your daily plan and then determine what sources form two and three below best align with your intention. Don’t try and apply day trading methodologies to end of day trading and vice versa, as you will probably discover they don’t and will not work.

Step Two : seek out 2-3 reputable education sources. We will provide some to you – but the goal is to spot one that you can understand and trust. Learn all you can from those sources. Then, learn how to use it on your own.

Step three : Learn from and test out multiple methods for trading. You are unlikely to be successful wihtout some foundation in trading methodologies, particularly when employing technical or basic indicators.

The steps above will require time and cash investment.You should consider them your trading education costs – it is way better to invest in yourself than to lose money too simply in the market.

One phenomenon that derails amateur forex traders time and time again is method complexity syndrome. They research a trading method, get it and the minute they receive it, they jump ahead to what they consider to be’the guts’ of the technique. In doing so, they absolutely ignore all of the other aspects of trading, including risk management, discipline, and psychology.

They get into the’guts’ of the strategy only searching for that large, mysterious, slap-your-forehead, jaw-dropping’secret’ that will suddenly unlock the puzzles of the forex universe and make them Master and commander of every currency exchange pair. All too often, they find themselves completely disappointed or the’guts’ reveal something they’d already heard about ( but had not practiced ). Amateur traders will then dismiss the strategy as ‘too simple’.

Or, the amateur trader will look for that complex formula, cryptic mixture of indicators and all too frequently what they really discover is a collection of straightforward indicators working together in an uncommon way, and they are saying,’Well I could have done that!’ – and they become disappointed or frustrated, because they wrongly think that any strategy MUST BE complicated, it can’t possible be SIMPLE! So, they postpone the strategy or return it and whinge that it’s’not complicated’ enough.

This is a major mistake – as the beginner trader will then repeat this error technique after method and they may never make the effort to learn and understand the full process of trading.

Don’t make this mistake. Understand that most trading methods out there are not complicated. They weave a smaller set of rules together in a straightforward manner ( straightforward enough that anybody can apply them ) but apply them in a rare way. Complicated systems are for computer geeks and enormous banks – if you can’t understand something, you can’t probably apply it.

Never skip ahead when learning a tough new technique for trading forex. Make certain you learn the setup, entry and exit rules ( which should exist ) ; that you learn how to defend your trade with stops ; and you learn the way to apply your method on a timely basis ( be it hourly, daily or weekly ) to get the maximum out of the strategy and to learn how all facets of what you learn work cooperatively to make you a better trader.

Remember, simple but tough – using some indicators or rules applied in a non-textbook approach – is the key to getting an edge in the markets.