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.

How to Make Money with Forex?

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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➤ Maximize your Forex Trading profit through new Technical Indicators

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??

How to Make Money with Forex?

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:

Why Trade Forex: Forex Vs. Stocks

There are approximately 2800 stocks listed on the New York Stock exchange so will you check all 2800 stocks to know which one you will trade on ??

In currency trading, there are some of currencies traded, but market players prefer to trade the four major pairs.

Four pairs are  easier to trade than thousands of stocks, aren't they ??

Here are some of advantages of Forex market over Stocks market:

1- 24 Hour Market 

The Forex market is open for 24-hour. Most brokers are open from Sunday at 4:00 pm until Friday at 4:00 pm , with customer service usually available during this period.

also with ability to trade in U.S., Asian, and European market hours.

2- Minimal-No Commissions  

Most Forex brokers charge no commission or additional fees to trade currencies online or in the phone.

Forex trading costs are lower than other market.

3- Instant Execution of Market Orders 

Your trades are instantly executed under normal market conditions. Under these conditions, usually the price you see when you execute your order is the price you get.

Keep in mind that many brokers only guarantee stop, limit, and entry orders under normal market conditions.

Forex Trading Order Types

4- Short Selling 

Unlike equity market, there is no restriction on short selling in currency market. Trading opportunities exist in the currency market whether a trader is long or short, or whatever way the market is moving.

Since currency trading always involves buying one currency or selling another, there is no structural bias to the market. So you always have equal access to trade in a rising or falling market.

5- No Middlemen 

One of the most problems in exchanges is middlemen and any third party between trader and buyer will cost them extra money "time or fees".

On the other hand, Spot currency trading is decentralized, which means quotes can vary from different currency dealers.

6- Buy-Sell programs don't control market 

How many times have you heard that “Fund X” was selling “Y” or buying “U”? The stock market is very susceptible to large fund buying and selling.

In spot trading, the large size of Forex market makes the probability  of any one fund or bank controlling a currency very small.

 Maximize your Forex Trading profit through new Technical Indicators