Before we started trading currencies, we all attended a quick crash course on a Saturday morning, presented by Binni Ong from TerraSeeds Market Technician. This workshop was crucial in understanding the basic concepts of trading currencies.
Forex trading is a high-risk investment/activity, but you can start with a low capital and the payback can be high. Perhaps that’s why more and more young people are beginning to trade.
The workshop answers important questions pertaining to forex trading:
– What are those technical jargons I see??!
– When do I trade?
– What should I trade?
– Why do I trade?
– HOW do I trade?
We were given some tips here and there, and I’m going to share what I have learnt during the presentation.
|Tracy and I learning the tools of the trade (punny, heh)!|
Some of the major currencies traded in the world include the US Dollar (USD), British Pound (GBP), Euro (EUR), Japanese Yen (JPY) and Swiss Franc (CHF). However, we were only offered the first four currencies to trade. Dang, I wanted to trade Franc!
The first thing you need to know is that each currency trade is a simultaneous purchase and sale. Whenever you buy one currency, you’re actually selling another currency.
Which one am I buying, which one am I selling? You may ask. The stronger currency will always be placed first, ie.
EUR/USD (with Euros being the stronger currency and US Dollar the weaker one; former one called base currency, and the latter secondary currency)
In this case, you are using USD to purchase EUR. The base currency is what you’re looking to buy and will be using to sell that is equivalent to the amount in USD. The secondary currency is what you use to monitor your profit and losses.
Traders can choose to:
1) Buy a security. Also called going long, this means that you have bought a pair and looking for prices to move higher, in order to sell at a higher price than when you bough it before.
2) Borrowing the stock so you can sell it. Also referred to as going short, this means that you’ve sold the base currency ad bought the secondary currency. Reversely, you are now waiting for the pair’s price to move lower so that you can buy it back at a profit.
3) Go square. When you’re in this state, you have neither market exposure nor at any financial risk.
PIPS & SPREAD
The decimal points in the image above are known as points in percentage (PIP), which measures the smallest increment of price fluctuation in currency prices. Basically, it’s your unit of measurement when forex trading. The price on the left is called the BID and the right called the OFFER/ASK. The “bid” is the price at which you can sell the base currency, and “offer” is the price at which you can buy the base currency.
The difference between the bid and offer prices is called SPREAD. Online forex brokers such as GK Goh uses the spread as their compensation for being the market-maker and executioner of the trade. Spread varies from broker to broker, but the more liquid the currency pair, the narrower the spread and vice-versa. In simpler terms, pips and spread is your cost of transaction for a trade in currency pair.
During trading, don’t be surprised by the ever-changing points/pips. This rapid change is the above-mentioned “liquidity” of the market. Calculating your profits and losses can get messy here but luckily, broker GK Goh would automatically do that for me and reflect it immediately in the program. 🙂
The thing about forex trading is, one has to be constantly checking the prices as the liquidity if the market can be very high. More importantly, you have to keep your eyes peeled on global news to better predict the value of a currency.
If you’re serious about forex trading, do update yourself frequently with the news of the ongoing Europe debt on CNBC, monitor Switzerland mining news, note the level of exports in Australia and observe Japan’s economic revival.
There are also several methods to predict the movement of the market so that you can make the right decisions, such as plotting the graphs of the prices’ moving averages (can be easily done in the GK Goh program) and/or learning the candlestick patterns.
Even though I’ve been trading for a few weeks now, I am definitely no guru because I’ve been losing ‘money’ and still haven’t got the hang of it. My boyfriend has been of great help in helping me understand. Heh. 🙂 In fact, he found it interesting and exciting he brought home the computer for a night to keep track of the statuses of his purchases!
For more tips and information, do consult GK Goh on more forex trading strategies in their courses! The number to call is 6492 3196, or visit TerraSeeds.
To trade online, one has to log into the GK Goh program/application using the Windows system. That kind of put me off, considering I’ve been an Apple user for five years now. 😦 I had to turn to my dad for help, using his old, laggy and bulky laptop, which has to be connected to a power point all the time! And because of this inconvenience, I couldn’t trade whenever, wherever.
This is how the program looks like:
It reflects not only the real-time price changes, and has a little column that updates constantly when there is a breaking news that will likely affect prices. Handy, that one. 🙂 We were also told that the most active trading hours are 3-4pm and 8.30pm-12am Singapore time.
If all else fails, just remember that you have to trade in order to make money, so –
I always chant this four words when I trade. Heh.
Fun fact! Do you know that Singapore ranks number 4 in terms of active trading, right behind UK, USA and Tokyo? Now I know why we have so many millionaires here eh?
Oh, and one last thing! GK Goh has a free iPhone app “GOFX” to help you keep track of the market on-the-go. It doubles up as a trading and analysis tool for the foreign exchange market, and provides up-to-date information as well. Go download it!