Forex

From my point of view, there are 2 types of transactions that you can do with forex:
1. Full invest
2. Trade

Full invest means that you bought certain amount of currencies with the full amount that you have. Example:
- USD/SGD Rate: 1.52 (USD 1 = SGD 1.5)
- You purchase USD 10,000 using SGD 15,200
- You can hold it as long as you like

Trade means that you bought certain amount of currencies with only small amount that you have. Usually 1 contract is just requiring about 2%-5% of the amount traded. Normally one transaction value is $10,000 of the pair currencies to be transacted. Take note that, forex trading must always in pair. Example:
- USD/SGD Rate: 1.52 (USD 1 = SGD 1.5)
- You purchase USD/SGD 10,000 (buy 1 Contract) using SGD 500

- If next day USD/SGD Rate is 1.55 that means you can close your transaction with profit of (1.55-1.52) * 10,000 which is SGD 300 (sell 1 Contract). After transaction closed your money will become 500+300 = SGD 800

- Another way, if USD/SGD Rate is drop to 1.50 that means you will lose SGD 200. If you close it, then your money will become 500-200 = SGD 300. If you didnt close your position, and next day it drop again to 1.48, you might receive a margin call (depend on % required for each pair) from your brokerage to top up your account or liquidate your position. If you do not top up, and at end of day your fund % is not enough to cover the required amount to hold up your position, then your broker might force sell/liquidate your position.

The major currencies pair that most transacted are:
- EUR/USD
- USD/JPY
- USD/CHF
- GBP/USD

Some important points that you need to know about Forex Trading:

- Risk --> Forex trading is trade a big amount with a small capital that you have so that it carries high risk, because just 1% to 5% drop of your transaction might completely wiped out your capital

- Cut Loss --> Cut loss is very important for all trading whether it is forex, stocks, commodities, etc. As for forex, you must set cut loss and be discpline to prevent a huge loss to your trading capital. I ever read 1 book about forex trading that teach trader to set profit target whenever they open trade positions and also set cut loss target at the same time which is half of the profit target.
Example: You buy USD/JPY at 95.50, and you set profit target at 96.50 (100 pips). That means it will be good that if you set your cut loss target half of it which is 95.00 (50 pips).
Note: pips is the point movement of the pair transacted. As for USD/JPY the movement is 0.01 (1 pips), so that 100 pips = 100 * 0.01 = 1

- Interest Rate --> When you open forex trading positions, you might either get or pay interest of your transaction. If the currencies you buy have a higher interest rate than its pair, then you will get interest. But if it has lower interest rate than its pair, then you will pay interest.

- Volatility --> Currencies pair will be very volatile when there will be critical reports or events to be announced or during the reports/events announcement. Some example are: Interest Rate Decision, Important meeting (e.g. FED, ECB, BoE, etc), President Speech, FED/ECB/BoE head speech, Jobless/GDP/CPI/PPI Reports and there are many more.

- Support and Resistance --> I can say that this is the most important that you need to observe before you open any new positions. Support is the level that the currency pair will be able to hold after certaint amount of drop, while resistance is the level that the currency pair unable to goes up further after certaint amount of increase. It will be good if you open buy/long positions at support level or sell/short positions at resistance level.

- Brokerage --> You need to choose the correct brokerage to do your trading as different brokerages will give you different advantage, such as Free Trading Commision (some brokerages might charge you trading fee/commision for using their service), Tight spread between buy and sell price (good one should be about 3-5 pips), Leverage/Margin Requirement (Different brokerages will require different % of money that you need to put to open new position).

There are a lot more information that you can find and read about currency trading. Since forex trading carries a very high risk, it will be better if you can read and understand more before you really trade on it. It will be even better if you start your trading with demo account so that you can understand more about it.

You can try use this Forexyard brokerage for DEMO account, as I feel that it is quite easy and convenient to use it. It also provide free trading commision, tight spread, good leverage and nice live chart.

Good luck and wish you the best..