The number one lesson I learned as a trader, and believe me I learned it the hard way, was to understand the inner workings of the specifc market I was trading. During my stint as a stock options trader, I did not care about Black-Sholes, delta's, and other technical jargon regarding options. I was a good stock picker and options, as I thought, would be just another highly leveraged trade, right? Boy was I wrong! In my experience and in my opinion FOREX is no different. It was crucial I understand how the FOREX market works under the hood and how foreign currencies relate to each other.There are 7 major currencies traded in the FOREX market.
USD: US Dollar
UR: Euro
GBP: British Pound
CAD: Canadian Dollar
JPY: Japanese Yen
CHF: Swiss Franc
AUD: Australian Dollar
However, you don't just buy/sell individual currencies, you buy/sell pairs of currencies. Below are the "majors" traded in the FOREX.
EUR/USD
GBP/USD
USD/CAD
USD/JPY
USD/CHF
AUD/USD
I can hear your next question, why pairs? Well, when exchanging currency you are using one currency to get another, right. For example, let's say you are going on vacation and have $300 US Dollars to convert to Euros. Then you are basically asking a bank to "exchange" USD for EUR. As of this writing the exhange rate for EUR/USD is 1.3141. Which means you get 1 Euro for every 1.3141 US Dollars. So your $300 USD is exchanged for $228.29 EUR. When you see a currency pair, the first currency is the base currency and the second is the quote currency. So in our example, the EUR is the base currency and the USD is the quote currency.
As with any trading strategy there are still risks. No trading strategy is entirely risk free.
Go to The Profitable Traders website to find out more about our trading strategies.
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