The Basics of Forex Trading

Published On July 27, 2018 | By Carol Gilmore | Business

The financial markets can be very profitable for traders who have the guts to invest not only money but time and effort in it.  The forex market is one of the most lucrative investments you can do. However, it’s not all that easy, so it’s a must for you to learn the basics of forex trading.

How does the forex market work?

The forex market, or the currency market, is considered the largest market in the world.  This market continues to grow yearly.

The forex market, and therefore forex trading, works 24 hours a day.  However, though many investors consider these “24 hours” being seamless, it isn’t always the case.  You have three sessions that include the European, Asian, and United States trading sessions.

You can find that there are some overlaps in the sessions, making it look like you can trade for 24 hours straight in different sessions.  The thing is: the main currencies in those markets are traded mostly during their respective trading hours.

That means that specific currency pairs will witness higher trading volume during specific trading sessions.  For instance, if you’re a trader who invests heavily with currency pairs that are based on the dollar, you’ll probably find the most volume in the US trading session.

You can trade currencies is different sizes of lots.  One micro lot is equal to 1,000 units of a currency like the dollar.  A mini lot, meanwhile, is equal to 10,000 units of your base currency.  A standard lot is equal 100,000 units.

Currency Pairs and Pips

If you’re going to be a forex trader, you’ll do most of your trades in currency pairs.  In contrast with the stock market, wherein you can buy or sell or hold a single stock, the forex market requires you buy one Buy Cryptocurrency by selling another.

Meanwhile, almost all currencies are priced out to the fourth decimal point.  A pip, or percentage in point, is the smallest increment of trade.

Most of the time, rookie traders only trade currencies in micro lots since one pip in a micro lot represents just a 10-cent move in the price.  Because of this, losses can easily be managed if a trade doesn’t produce the desired results.

Major Currency Pair

The largest slice of the volume in forex trading is found in only the 18 currency pairs.  This is a high contrast to the thousands of stocks that are found in the global equity markets.  

Even though there exist other currency pairs aside from the 18 majors, the eight currencies that are most often traded are:

  • US dollar (US Dollar)
  • Canadian dollar (CAD)
  • Euro (EUR)
  • British pound (GBP)
  • Swiss franc (CHF)
  • New Zealand dollar (NZD)
  • Australian dollar (AUD)
  • Japanese yen (JPY)

This limited number of ideal currencies and currency pairs to Bitcoin Market for trade makes for a relatively easier task of trading in foreign exchange market.  Traders also find that portfolio management also becomes less of a heavy task than if they were investing in the stock market.

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