Hi this is Henry, today we are going to talk about how to trade Forex.
Unless you have millions of dollars or work for a bank’s Foreign Exchange department, chances are that you are a retail Forex trader, and in order to trade in the Forex market, you’re going to need to open an account with a Forex broker or FCM, Futures Commission Merchant.
Before we get too attached to these acronyms, Forex broker is the common term and if you search it on google, you’ll find plenty of them…
The next logical question is, why do we need to use a broker? Here’s why… Because the Foreign Exchange market moves in PIPs, or the smallest price change for a currency pair (Percentage Index Point, or 100th of 1%), which is usually the 4th decimal on most pairs or 2nd decimal on Japanese Yen Pairs … (Ok, Don’t worry about it, I’ll explain PIP and Currency Pair in the future).
If USD/CAD’s current rate is 0.9780, or for each USD, you get $0.9780 of a Canadian dollar.
Now if the market moves to 0.9790, or 10 pips, if you exchanged $100 USD, you would have made 10 cents.
If you exchanged $1000 USD, then you would have made a whopping $1.00
If you really were adventurous and exchanged $10,000, you would have made $10
And to make a worthwhile return, you would have to exchange $100,000 to make $100 from this one trade…
Because most retail traders don’t have $100,000 to invest in order to make $100, brokers provide leverage, which is 50:1 in the U.S. and up to 500:1 outside of US, enabling retail traders to participate in the Foreign Exchange market.
So if you use a broker that gives you 50:1 leverage, or for every dollar you invest, your broker let’s you access $50 worth of trades, so you only need to put down $2000 to trade $100,000 contract, and if USDCAD moves 10 points, you would have made $100, or 5% return on your $2000… With the market moving anywhere from 30 to 200 points a day, you can see that the potential of return is extremely high…
To recap, to trade in the Forex market you’ll need to find a Forex broker, which provides leverage and access to the Forex market.
If you like this tutorial, please watch the video and leave your comments below and don’t forget to check out our other videos on the Forex Basics series.