Currency trading

Foreign currency trading on the retail level is based on speculation on changes in the exchange rate between two currencies. Changes in the exchange rate are due to changes in the value of each currency relative to the other in the pair, and are measured in points in percentage, or pips.

The foreign currency exchange market is a global market, in operation every week from Sunday at 5:00pm EST to Friday at 4:00pm EST. In every trade, one currency in the pair is borrowed in order to buy the other, typically in lots of 100,000 units each.

Currencies and actions are chosen in expectation of a particular outcome. This expectation is usually derived using two kinds of analysis of the market: technical and fundamental. Technical analysis refers to the use of various statistical studies of charts of the past behavior of any currency pair in order to predict future movement.

Fundamental analysis involves the use of different economic indicators as well as all news with the potential of influencing the forex market to predict future movements of exchange rates. The chances for profit are equal regardless of whether an exchange rate is increasing or decreasing, as long as the appropriate corresponding action is taken. For every currency pair there is a ‘bid’ and an ‘ask’ price.

The bid is the price at which a trader can sell the currency pair, and the ask is the price at which the trader can buy it. The difference between the bid and the ask is known as the ‘spread,’ and is the cost of the trade, or the amount that the trade will have to make to break even.

Trades are made on margin, with a minimum requirement of 1%. This allows for much more leverage than other markets, as well as security against losses.
source: gocurrency