Starting from the bare basics...

Hi guys,

Wonderful website. Quite a lot of useful information regarding forex.

I'm new to the whole forex thing, and have just signed up a demo account. Most of the "beginner" information I've found though requires a little basic knowledge of trading. I myself don't like to learn something unless I know the in's & out's behind how it works. I guess what I'm trying to find out is the whole concept behind trading currency.

This is my understanding;
You start with an investment, say $xx,xxxUSD.

If you wanted to trade USD/YEN, you would buy some YEN when the $USD is strong. Lets say, USD/YEN 118.10

The idea is then to trade the YEN back for USD, when the YEN is stronger then the initial trade (USD has got weaker). Say, USD/YEN 117.50. This outcome would make you a profit.

I need to get a handle on the concept, before I learn all the technical terms & calculations. Any help would be appreciated, thanks.

Hi Johnny,

Welcome to Forex Factory.

It's a very good move, in my opinion, that you started demo trading first.
If I may suggest, you keep demo trading until you're profitable with demo consistently for at least, let's say 3 months.. Since that's the common number being used.

Anyway, enough of that blabber... And since you're only asking for the basics, and I think that's up to where I am capable of giving.. That's what I'll try to give. I hope this answer helps:

When you say you're buying the USD/JPY pair, it means you believe that the USD will strengthen against the yen (or the yen will weaken against the dollar).

When the base currency (the currency on the left of the "/" character) strengthens (appreciate in value), the price that you see in the charts will go up. And the price will go down when the base currency weakens (depreciates in value).

(Okay, this feels like I'm having an exam or something.. )
If you buy the pair to, let's say 117.00.. You are buying USD dollars with that exchange rate (117 yen to a dollar) or the price displayed in the chart.
Basically it just means that you bought $1 with 117 yen.

By the way, no actual exchange really happens. I'm really not familiar with what really happens, but it's in my studies..

For you to make a profit, that price must eventually go up to let's say 118.00. Remember, you're holding $1 right? So when the price goes to 118, you will then sell the dollar to realize a 1 yen profit.

By the way, don't let it confuse you... When they say "YEN" in forex, they are referring to the "USD/JPY" pair..

Whew.... If I confused you more, then please disregard this post..

Regards,
East

P.S.
By the way again, I've also been in your shoes and this is the place where I mainly got my education. I think this very first thread I started will help:
http://www.forexfactory.com/forexfor...ead.php?t=2644

Best of wishes to your studies..

Hi eastmaels,

I sincerly appreciate the time you've taken to explain this concept to me & advice. Thank you!

Ahh, okay... I think my concept was backwards.

So the base currency is the currency you're buying (and also on the left of /). Lets take AUD/USD for example then, at say AUD/USD 0.7555. In this instance you'd be buying AUD$1 for USD$0.7555 -- Now I have A$1. When USD goes above my initial investment (of 0.7555), that's when my profit begins, because i'm buying back more $USD then I started with.

So with your USD/JPY example, where you're buying USD with YEN... How do you start with YEN when your actual money is $USD ?

Thanks again, cheers.

No problem.. I'm glad I didn't confuse you..
Basically, that's the concept behind foreign exchange..
Well, as far as I know, the currency of your actual account does not have any bearing on it.. You are not actually buying the USD with the actual money in your account..

I may be wrong here.. So I'm afraid this is where my knowledge ends..
Sorry..

I hope others could help..

Regards,
East