How to start trading in forex? Forex trading is speculation on fluctuations and changes in currency prices, up and down, by buying when prices are high and selling when they are falling. When currency prices rise and fall, a forex trader seeks to take advantage of these movements to make money by buying and selling one currency at the expense of the other, in the form of a currency pair.
How to start trading in forex?
Here are some of the most important forex basics:
- Currency Pairs: It is the correlation of currencies in the form of one currency pair against another.
- As the trader either sells or buys the pair according to the low or high price of the pair, because the value of the currency rises and falls relative to other currencies.
- Currency pair reading: If the EUR/USD is equal to 1.1000, then this means that 1 euro is equal to 1.10 dollars.
- Base currency: It is the currency listed on the left side of a currency pair. It is the currency that a forex trader buys and sells. It is the EUR in the EUR/USD pair.
- Spread: This is the difference between the buy and sell price of a forex pair, expressed in pips. This is the cost paid to open a forex position.
- Pips (Pip): This is a forex pip and the smallest change in a currency pair’s quote, which is the fourth decimal place.
- How to start trading in forex? When EUR/USD moves from 1.1000 to 1.11001, it rises by 1 pip.
- Margin: This is the capital required and restricted to open the position. It is released when the deal is closed.
- Leverage: Increase the investment capacity of the trader. In forex trading it is possible to spend a small amount of money to invest more in the markets.
- Leverage causes gains to increase, but so do losses.
- Contract Size/Lot: A lot is a unit of measure for the size of a forex trade. In Forex, 1 lot corresponds to 100,000 units of the base currency (EUR, USD, GBP…).
- There are mini lots (0.1 lots) and micro lots (0.01 lots), of 10,000 and 1000 units respectively.
- Trading platforms: They are trading programs through which price charts are opened, market monitored, and deals are opened via the Internet
- Contracts for Difference: They are financial derivatives that allow you to buy and sell assets without actually owning them, but rather trading in actual price contracts.
- Ask Price: The buy price of a forex pair.
- Bid price: The selling price of a forex pair.
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Forex trading currency pairs
How to start trading in forex? To learn how to trade forex, one must start with analyzing the currency pairs as these are what the forex market is all about.
Any newcomer to the forex market should know that there are three groups of forex trading pairs: major pairs, minor pairs and exotic pairs. All major pairs contain the US dollar, either as the base currency or as the quote currency.
The major currency pairs are the forex trading pairs that have the lowest spreads and the largest trading volumes. But what are the major currency pairs?
Forex profits and losses
How to start trading in forex? Forex prices fluctuate constantly, and a trader places deals by buying or selling a foreign currency pair.
For example, by buying the EUR/USD pair at 1.1000, and rising to 1.1050, the trader accumulates 50 pips (minus the spread). The return of each point in profit depends on the number of contracts (lots) purchased.
On the other hand, if the same EUR/USD transaction drops to 1.0950, the forex trader loses 50 pips (plus the spread).
How to start trading in forex? The same logic is repeated for selling any currency pair. The Mini Terminal of the MetaTrader 5 Supreme Edition trading software calculates the pip value and margin before opening any trade. Click the banner below to download the free MetaTrader 5 Supreme Edition.