How to trade in the Forex market

In the forex market a trader will always buy one currency and sell another. The trading in this market is executed in pairs, and that is also one of the biggest advantages of this market: it is a two way market. This means that a trader can profit from the fact that a currency is gaining value against another currency or a trader can profit from that movement in the other direction, so there is no difference which currency is gaining value against the other- the trader can always make money out of it. For example if a trader spots a potential gain of value of the USD against the EUR and this prediction has occurred he will profit, on the other hand if a trader spots a potential gain in value of the EUR against the USD and this prediction has occurred he will profit.

A pip:

A pip is the smallest increment of a currency pair and it is one ten thousandth of a euro, dollar or pound and one hundredth of a yen. A market move from 1.4480 to 1.4481 represents a move of one pip. The trader controls the value of the pip by determining the amount of the trade. For example in 1 lot (100.000 units of the base currency) of the EUR/USD a pip is worth $10, in a $10.000 position a pip is worth $1 and in a $5.000 position a pip is worth $0.5.

In forex the trader can trade with Majors, cross and metals.

Majors:

EUR- European Euro, GBP- British pound/sterling, AUD- Australian dollar, NZD- New Zealand dollar, CAD- Canadian dollar, CHF- Swiss franc and JPY- Japanese yen when trading against the USD are the majors. The major currencies are always quotes in the following order: The first currency in the pair is known as the base currency, while the second currency is called the counter. The bid price (the cost of selling the base currency) or the ask price (the cost of buying the base currency) is based on the base currency. This means that if a trader asks EUR/USD he has bought Euro’s (which of course means he just sold the USD).

Cross:

Cross currencies are all of the currencies traded against each other and not against the USD.

Metals:

Some forex companies offer to trade with metals like XAU (Gold), XAG (silver) and other metals traded against the USD.

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