Your Ultimate Guide to Forex Trading
Today, trading currency through foreign exchange or forex is relatively easy with the three types of accounts which are designed for retail investors, including standard lot, mini lots, and micro lots. Currencies should be exchanged for facilitating international trade and international business. For instance, if a U.S. citizen wants to buy something in Japan, he needs to have his dollars exchanged into yen so he can do business transactions in Tokyo. 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. For beginners, they can start investing in foreign exchange or forex for as little as $50 with a micro account. It is important to familiarize yourself with the foreign exchange market and terminologies associated with forex.
The basic terminologies you have to learn include PIP, base currency, cross currency pair, currency pair, and quote currency. Thesmallest value change that a currency pair or exchange rate can make is referred to as PIP (acronym for Percentage in Point or Price Interest Point. There is varying value of pips for your trade depending on the size of your lot when you are trading, and spread refers to the difference in pips between the bid and ask. The spread is how forex brokers make money since they don’t collect an official commission. Remeber that when you trade is positive in pips, then you are making a profit, but if it is 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. The cross currency pair is any pair of foreign currencies but not including US dollars. The currency pair refers to the pricing structure and quotation of the currencies traded in forex, wherein the value of a currency is highly determined by its comparison to another currency.
The action is performed on the base currency when dealing with foreign exchange, and you’re actually buying and selling currencies. For example, when selling EUR/USD, the trader is selling euros and buying US dollars (pair trade). 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!