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. “Forex” is the short term for foreign exchange market, wherein currencies need to be exchanged in order to facilitate international trade and foreign business. For example, if a US citizen who wants to purchase an item from Japan, he should first exchange his dollars to yen before he is able to do so. Forex is said to be one of the most liquid markets worldwide with trades running as high as two thousand billion US dollars a day. 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.
You have to know and understand the basic terms in the foreign exchange or forex market, including PIP, base currency, currency pair, cross 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. 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. 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. A base currency is considered as an accounting currency or domestic currency, which is the first currency quoted in a forex currency pair. When it comes to cross currency pair, this is a pair of currencies traded in foreign exchange excluding 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.
Always remember that when you’re engaged in forex, you are actually buying and selling currencies, and the action is being performed on the base currency. For example, when selling EUR/USD, the trader is selling euros and buying US dollars (pair trade). A basic foreign exchange trade is when GPB/USD rises from 1.5023 to 1.529, the GBP/USD has risen 6 pips which is in positive pips, and that means your trade is earning. Allow us to share more valuable information about forex by visiting our homepage or website today so you can learn the art and skills of foreign exchange trade for a more successful transaction every time!