Important Forex Knowledge you need to (Margin/Leverage)

Like any new skill you learn, you should learn it's basics to better practice this skill and to make a good path on it.

There are many important things you should know about Forex trading. may be you know it so no problem at all as you can review this knowledge again.

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Major Currencies

The major currencies are the most eight traded currencies"the most important currencies"and of course the most widely used in the world.these currencies are:

• USD
• EUR
• JPY
• GBP
• CHF
• CAD
• NZD
• AUD

Minor Currencies  

Minor currencies are any other exist currencies "Not Major" so we can say that all currencies are minor except the eight major we mentioned previously.

Margin 

  

When opening a new margin with any trade broker"trading platform" you should have amount of money"beginning deposit" and this amount varies from a platform or a broker to another, it could be 50$ or 100$ but for sure 50$ is the minimum possible deposit in most of the platforms.

The maximum deposit is unlimited as you can trade up to 100,000 or even millions.

What is a Pip and a Pipette in Forex?

When you open a new trade an amount of your money goes a side as initial beginning deposit for this margin.

This amount is based on:

• The currency pair you choose to trade on.
• It's current price.
• Number of units to trade.

For example, if you were to open one mini lot so instead of having to provide 10,000$ you would only need 50$(10,000$*0.5%=50$) with a (200:1) leverage or  0.5% margin.

Leverage

 Leverage is the ratio of the capital amount to used to the required security deposit "margin".

This means that you can control large amount of dollar with a small amount of capital.

Leverage varies with different brokers and in different trading platforms ranging from 2:1 to 500:1

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What is a Pip and a Pipette in Forex?

There are some concepts that you need to know when trading in Forex. these concepts seems small and unimportant to you but actually it's very important.

You don't need to just know these concepts but you should understand them as well like:

• Pip
• Pipette
• Lot

What the pip is ?

The pip is a unit of measurement to show the difference between two currencies.

If EUR/USD moved from 1.4356 to 1.4357 so this 0.0001 is one pip. this means that the pip is usually the fourth decimal place of price quote.

  

What the pipette is ?

• Fractional pips are called pipettes.
• Is equal to a tenth of a pip. 

For example, if USD/GBP moved from 1.46757 to 1.46758 so this 0.00001 is called a pipette.

Here is how fractional pips "pipettes" look like in a trading platform 

Do you know how to read pips and it's values??

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How to calculate the value of a pip ?

Value of a pip is different in every currency pair as each pair has their own relative value.

Example:

• Lets take USD/CAD = 1.0200 
• Pip value in terms of base currency = the value change in counter currency*the exchange rate ratio
• Pip = (0.0001 CAD)*(1 USD / 1.0200 CAD) = 0.000098 USD per unit traded

What is a Lot in Forex ?

In the past, Forex was only in specific amounts called lots which are the number of currency units you will buy or sell.

Standard size for a lot is 100,000 units but there are another types of lots:

• Standard 
• Mini
• Micro
• Nano 

Some people show quantities in lots and others show it in units but no problem for you now in dealing with any of them.

To take advantage in the pip's minute change rates"values" you need to trade with large amounts of specified currency to find a touchable profit or loss.

Let's assume we will use Mini lot size (10.000) and we choose to trade in USD/CHF  with exchange rate of 1.4555

This will give us = (0.0001 / 1.4555)*10,000 = 0.69 $/pip.

Here are some examples of pip value for USD/JPY and EUR/USD with the four types of lot sizes:

What Is a Currency Cross Pair ?

In the past, if you wanted to change currencies you would convert them first to US dollars then convert these US dollars to the currency you desire.

For example, if you wanted to change Japanese Yen to UK sterling you would first convert Japanese Yen to US dollars then convert US dollars to UK sterling.

The invention of Currency Crosses made this process very easy as you don't have to convert to US dollar in every exchange"middle process".

Examples of cross pairs:

• EUR / GBP
• EUR / JPY 
• GBP / JPY
• EUR / CHF 
• EUR / USD
• USD / JPY

Calculating Currency Cross Rates

Do you want to know how currency crosses are calculated ?

It's all about numbers so if you like numbers, you will find this part interesting.

Of course trading platforms do this process automatically and you don't need to think about that but here we will explain the method and currency cross rates.

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For example let's take EUR / JPY and we want to find the bid/ask price for them but why these 2 pairs ??

The answer is because both of them have USD as their common denominator.

• First we will look at the bid / ask price for both EUR and JPY.
• Let's say we found EUR/USD : (1.5230)(bid) / (1.5235)(ask).
• And for USD/JPY : (89.38)(bid) / (89.43)(ask).

To calculate the bid price for EUR/JPY you multiple bid prices of EUR/USD and USD/JPY which in our case will be ((( 136.13 ))).

To calculate the ask price for EUR/JPY we will do the same process by multiplying ask prices of EUR/USD and USD/JPY which in our case will be ((( 136.25 ))).

Is Forex Trading Tax Free?

Why Trade Currency Crosses ??

The US dollar is the reserve currency in the world so, about 80% of exchanges in Forex market contain US dollar.

Most agricultural and commodities like oil are priced in US dollar.

But why US dollar and not any other currency??

When countries want to buy stocks like Oil they have to own US dollar"Oil pricing in US dollar" so countries even large ones like China and Japan keeps reserve of US dollars in hand for easy buying and not to be in need to convert every time they wanna buy. that's why US dollar is so strong and considered the leading currency in the world.

Forex Traders and trading orders types

In real life people are different from each other and not the same as some people are tall, others are short "fat and thin" and so on.

People personalities are also different and varies from one to another, it's the same in Forex there are several types of Forex traders and trade orders.

Forex Traders Types

There are four types of Forex traders:

 1- The Scalper 

Scalpers are Forex traders who deal or trade for short periods per trade that lasts up to 2 - 3 min max and their main objective is to deal short timing trades with small amount of profit or loss for several times.

Lots of people consider this way as the best way for beginners or from the perspective of safety for the following reasons:

• Single trade takes seconds to 2-3 minutes max.
•  you can trade for several times as long as you have time.
• Although its small profit but also a small loss and it's known you won't earn for good or loss for good.

 2- Day Traders 

Day traders are Forex traders who start their trades at the beginning of the day and finish at the end of the day with profit or loss.

these types of traders don't like to hold tradings overnight "day by day trades".

 3- Swing Traders

Swing traders are Forex traders who like to hold their  trades for several days.

This type will suits people who don't have time to decide on their trades through daylight so they make these decisions every night after analyzing the market.

 4- Position Traders

Position traders are Forex traders who have their trades for weeks, months or even years. these traders are considered experts traders who have large experience about trading and Forex.

That was the main types of traders but what are types of trading orders ??

Maximize your Forex Trading profit through new Technical Indicators

Forex Trading orders Types

The word "order" means how you will enter or exit a trade.

 1- Market Order 

Market order means to take your action"buy or sell"  according to the best available price 

Foe example, the bid price for EUR-AUD is at (1.3140) at the moment and ask price is at (1.3145) so if you want to buy EUR-AUD then it will be sold to you at (1.3145).

If you click buy then the trading platform will execute buying order at that price.

then you can buy more or sell what you have according to increasing or decreasing of price"your decisions".

 2- Limit Entry order 

Limit entry is an order which you place to buy below market or sell above market at certain prices.

For example, EUR-AUD is trading at the moment at (1.3140) and you want to sell when it hits (1.3160) so you can wait and sit until it hits this price and sell or you can make sell limit at (1.3160) and leave.

The trading platform will auto make sell when the price reaches (1.3160), you can also make the same when buying.

  3- Stop Entry order 

Stop entry is an order which you place to buy above market or sell below market at certain prices.

For example, EUR-AUD is trading at the moment at (1.3140) and heading upward.

You think the price will continue to increase until it hits (1.3150) so you can wait, sit until it reaches this price or make stop entry at (1.3150) the trading platform will do it automatically.

  4- Stop Loss  order 

Stop loss order is a type of order linked to a trade for  preventing additional losses if the price goes against you.

A stop loss order remains in effect until the position is liquidated or you cancel the stop loss order.

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