Forex trading is one of the largest and highly trusted trading platforms in the world. As the abbreviation suggests, it means foreign exchange. That essentially means trading of the currencies. When you travel to the USA and exchange your Euro to the dollar, you are also participating in the Forex.
However, if you are planning to trade professionally, then you should know the basics of Forex Trading and that would help you in making better trading practices.
Forex trading is all about trading one currency against another. It is always in relation to another currency. You can trade the USA dollar against the Euro. That means your pair should be USD/ EUR. Each country’s currencies have specific symbols.
For instance, Australian dollar=AUD, Swiss franc=CHF Canadian dollar=CAD, New Zealand dollar=NZD, British pound=GBP, Japanese yen=JPY.
If you are trading the Australian dollar against USA dollars, then you should be at the AUD/ USD pair. Since it is always being dealt with pairs, it becomes highly important to understand the currency pair as part of your basic knowledge.
Let’s find out how it works. If the pair price of EUR/ USD is 1.09, then it means that it takes 1.09 USA dollars t buy 1 Euro.
Similarly, if you flip it, then the USD/ EUR would be trading at 0.92 that means, you can buy 1 USD at the cost of 0.92 Euro. The equation remains so for all the other currencies. Here at this point, you need to understand and remember the fact that the currency rate fluctuates every hour and it can be traded every 24 hours during the week.
Understanding market pricing:
After you get a fair idea about forex currency exchange pair, you need to now understand the trade profit, which is essentially the market price.
Most of the currencies often move with about 50 to 100 pips. PIPs stands for a point in percentage. This often denominates the fourth decimal place or point in the currency pair. However, with the Japanese yen, it can be the second decimal place.
The ratio can fluctuate once in a while. That means that it does not necessarily stay at 50 to 100 pips. In fact, it depends upon the market situation.
For, instance, if you have traded EUR/USA at 1.9200 and the price moves to 1,9250, then you will get profit of 50 pips.
However, the calculation depends upon how much you have bought. For instance, if you have bought a thousand units, which is often referred to as the micro-lot, then you can simply calculate the profit by multiplying 50 pips into $0.10, which means your profit will be $5. And the price also goes up depending upon the units. If you have bought 100, 000 units, then you will get a profit of $500 given that you have a USD account.
The calculation remains the same for all other trading currency pairs. All you need to do is to understand mathematics.
A few more tips:
- Since the currency market is volatile, you need to get real-time data to make the best decision. All your profit depends upon how good you are in decision making process
- You can take advantage of websites and online portal that help traders through their smart mobile and web apps. You might be able to get insightful information without having to pay a lot of money
- You can seek help from the exert trades. They can tell you what to do. In fact, you can learn a lot from others success and failures and the same is the case here too
If you are planning for a career in forex trading, then these basic skills should ideally help you. And as you keep on trading, you will learn more insights and skills too.