Practical and Helpful Tips: Finances

Beginner’s 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 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. It has been said that the most liquid in the market globally is Forex. 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.

It is important to be familiar with these basic terms: PIP, base currency, currency pair, cross 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. Since forex brokers do not collect an official commission, they make money through the spread. When trading, a positive pip means your trade is earning, while a negative pip indicates that your trade is not in good shape. A base currency is considered as an accounting currency or domestic currency, which is the first currency 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!

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