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What You Need to Know About Forex Trading as a Beginner
Nowadays, trading currency in the foreign exchange market or forex is relatively easy with three account types specifically designed for retail investors, including the micro lots, mini lots, and standard lot. “Forex” is the short term for foreign exchange market, wherein currencies need to be exchanged in order to facilitate international trade and foreign 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. The most liquid market in the world if Forex, with trades running up to two thousand billion US dollars, and all transactions are done online via computer, for 24 hours a day in different time zones. 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.
It is important to be familiar with these basic terms: PIP, base currency, currency pair, cross currency pair, and quote currency. The acronym PIP refers to Percentage in Point or Price Interest Point which is the smallest value of change in currency pair in the foreign exchange market. The value of the pips differs and it depends on the lot size when you are trading, and spread is the difference in pips between the bid and ask. Since forex brokers do not collect an official commission, they make money through the spread. 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. A base currency is considered as an accounting currency or domestic currency, which is the first currency quoted in a forex currency pair. A cross currency pair refers to pair of currencies that are traded in forex but not including the U.S. dollar. 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. A good example of pair trade is when a trader is not only selling euros, but he is also buying US dollars in EUR/USD trade. 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. Allow us to share more valuable information about forex by visiting our homepage or website today so you can learn the art and skills of foreign exchange trade for a more successful transaction every time!