What You Need to Know About Forex Trading as a Beginner
Foreign exchange or forex trading currency is easier as before because of the existence of three types of account namely the micro lots, mini lots, and standard lot. Currencies should be exchanged for facilitating international trade and international business. For instance, if a U.S. citizen wants to buy something in Japan, he needs to have his dollars exchanged into yen so he can do business transactions in Tokyo. 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. If you are a beginner to the foreign exchange market, you need to learn and familiarise yourself with the different market and terminologies involved in the forex market, and it will be a lot easier if you have already tried trading stocks online.
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. 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 your trade is in the positive pips, you are making a profit, but if the pip is in negative, your trade is under water. The base currency is the first currency quoted in a forex currency pair, which is considered an accounting currency or domestic currency. When it comes to cross currency pair, this is a pair of currencies traded in foreign exchange excluding 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.
Keep in mind that you are actually buying and selling in a foreign exchange in a currency pair, and the action is performed on the base currency. An example of pair trade is selling EUR/USD, wherein the trader is not only selling euros, but he is also buying US dollars. Let’s say, if the EUR/USD rises from 1.5025 to 1.529, the EUR/USD has risen 4 pips which is positive, and it means you’re earning. For more info about forex and ho to trade effectively, feel free to check our website or homepage now!