Little Known Secrets To Day Trading Forex Currency
If you are interested in day trading forex currency then it’s crucial you understand the basics of the forex markets.
The forex market is the biggest financial network in the world, with trillions of dollars being turned over every day. And it is open almost 24 hours a day, 7 days a week.
While many other trading markets are stagnant or even shrinking, the forex markets are getting bigger every year, with more and more money to be made.
The the most basic level, day trading forex currency is composed of a trading a “pair” of currencies at the same time. E.g. You might trade the Australian Dollar against the US Dollar, shortened to AUS/USD. If you were the buyer of this pair you would be buying the Australian Dollar and selling the US Dollar.
As you have just seen, we describe forex pairs using the format — AAA/BBB.
The base currency is the first currency listed, and the counter currency is the second currency listed. When you talk about prices you are actually talking about prices in terms of the coutner currency.
If 0.8349 is the current price of the AUS/USD pair, then that means 1 Australian Dollar (which is the base currency) is equal to All of the major pairs other than the Yen are priced to four decimal places. The Yen is only priced to two decimal places because there are more than 100 Yen to the Dollar..8349 US Dollars.
Forex prices are talked about in terms of “pips”. One pip represents the smallest increment a currency pair price can change. E.g. If the AUS/USD prices goes from 0.8349 to 0.8350, then it has gone up by one pip.
Forex pairs are always quoted on a bid-ask basis, the bid being the current price the market will pay for a specific pair, and the ask being the current price the market will sell a specific pair for. The gap betwee nthem is called the bid-ask spread.
Forex prices are listed with the ask price second, and the bid price first.
The market makers in the forex market earn money from the spread. This is different to the stock market where they usually charge a commission.
There are many factors which influence the spread, including your broker (some have higher spreads), particular market conditions, and the specific currency pair traded.
In our AUS/USD example used above, instead of writing “0.8332 // 0.8335″ you would express the quote simply as 0.8332/5.
There are 3 types of “lots” you can trade in forex, mini lots, micro lots and standard lots.
Mini represents 10,000 units, micro 1,000 units and standard 100,000 units.
Taking a real life example, if you were to buy a mini lot of AUS/USD with a quote of 0.8332/5, then you would be buying 10,000 Australian Dollars and short selling 8,335 US Dollars.
If you can grasp these basic principles you’re not only ahead of most amateur traders, but you’re well on your way to understanding the systems used for day trading forex currency.
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