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Basics of Forex Trading
Last modified: 19th May 2018
Your capital may be at risk. This material is not investment advice.
Those who believe that forex trading is not difficult might get it mixed up, as it requires skill, and is a bit complicated for novice traders. It is very important for you to be properly educated and to have enough experience so as to understand at least the basics of currency trading.
Forex is the world’s biggest investment market and it is continuously growing every year. This article representing some basics of Forex trading will help you understand Forex in a better way.
Trading in the Forex market can be done any time of the day as it remains open for the whole 24 hours on weekdays. This market remains closed from the evening of Friday till the evening of Sunday. During weekdays, three trading sessions are included – Asian, European and the United States. These sessions have some overlaps and the major currency in every market is mostly traded at that time. It means that some currency pairs have higher volume during some sessions. Traders having pairs based on dollars will witness the maximum trading volume during the United States trading session.
Currency trading happens in different sized lots. A micro lot involves 1,000 units of base currency. For instance, if your account has US dollars, then your micro lot will be $1,000. There are 10,000 units of the base currency in one mini lot whereas one standard lot has 100,000 units.
All trading in currencies takes place in pairs, you should buy a currency and sell another one in the forex market. The price of almost all currencies is up to the fourth decimal place. A “percentage in point” or pip is the smallest trade increment. One pip is usually equal to 1/100 of 1%.*
Micro lots are what retail traders usually prefer for trading Forex because a single pip in micro lot means only 10 cents movement in price. This way, any losses occurred can be easily managed. This pip is equal to $1 in the mini lot and $10 in the standard lot. There are some currencies which move up to 100 pips in one trading session. The potential losses of small investors are more manageable when trading is done in micro and mini lots.
The major volume of currency trading takes place majorly in 18 pairs of currency. There are also more pairs other than these 18 pairs, but a majority of trading happens in them. A less number of trading options means that portfolio management and trading will be carried out easily.
The forces behind the movement of currency markets are similar to the forces which move stock markets. The largest one is demand and supply. When world require more dollars, its value increases and when the dollar is too much in circulation, its price drops. Other factors which affect the currency prices are economic data of big countries, geopolitical tensions and interest rates.
If you are looking forward to being a trader, you should understand that learning trading in Forex market is not that difficult but much practice is required to get that real success with currencies.