What You Need to Know About Forex Trading as a Beginner
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. It is important for a beginner to understand what forex means, which is the shorthand of foreign exchange market, wherein currencies are required to be exchanged in order to facilitate international trade and foreign business transactions. 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. First-time investors can get started with a micro account for only $50. If you are a first-timer, you need to equip yourself with the right knowledge about the forex market, and it will be a lot easier if you have been trading stocks online.
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. Depending on your lot size, the value of the pips varies, and the difference in pips between the bid and ask is referred to as the spread. Your broker makes money on the spread because they don’t collect an official commission. 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. The cross currency pair is any pair of foreign currencies but not including US dollars. 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.
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). 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. For more info about forex and ho to trade effectively, feel free to check our website or homepage now!