Your Ultimate Guide to Forex Trading
Nowadays, trading currency in the foreign exchange market or forex is relatively easy with three account types specifically designed for retail investors, including the micro lots, mini lots, and standard lot. Currencies should be exchanged for facilitating international trade and international business. For instance, if an American wants to buy something in Japan, his dollars need to be converted to yen before he is allowed to do so. The most liquid market in the world if Forex, with trades running up to two thousand billion US dollars, and all transactions are done online via computer, for 24 hours a day in different time zones. First-time investors can get started with a micro account for only $50. If you are a beginner to the foreign exchange market, you need to learn and familiarise yourself with the different market and terminologies involved in the forex market, and it will be a lot easier if you have already tried trading stocks online.
The basic terminologies you have to learn include PIP, base currency, cross currency pair, currency pair, and quote currency. The acronym PIP refers to Percentage in Point or Price Interest Point which is the smallest value of change in currency pair in the foreign exchange market. The value of the pips differs and it depends on the lot size when you are trading, and spread is the difference in pips between the bid and ask. Your broker makes money on the spread because they don’t collect an official commission. When your trade is in the positive pips, you are making a profit, but if the pip is in negative, your trade is under water. As an accounting currency or domestic currency, base currency refers to the first currency that is quoted in a forex currency pair. A cross currency pair refers to pair of currencies that are traded in forex but not including the U.S. dollar. Currency pair includes the base currency and the quote currency, which is the pricing structure and quotation of the currencies traded in forex, and the currency value is highly determined by its comparison to another currency.
Keep in mind that you are actually buying and selling in a foreign exchange in a currency pair, and the action is performed on the base currency. An example of pair trade is selling EUR/USD, wherein the trader is not only selling euros, but he is also buying US dollars. An example of forex is when GPB/USD rises from 1.5024 to 1.529, the GBP/USD has risen 5 pips which is a positive pip, and it means you are earning. For more info about forex and ho to trade effectively, feel free to check our website or homepage now!