The Secrets Of 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 first currency, AAA, is known as the base currency. The second currency, BBB, is known as the counter currency. We always talk about prices in terms of the counter 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.
“Pips” are how we talk about forex prices. A pip is the littlest movement a pair price can move. For example, a movement of 1 pip in the AUS/USD pair might be from 0.7934 to 0.7935.
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.
We always list forex prices with the bid price first and the ask price second. E.g. A quote for AUS/USD might be 0.8332 // 0.8335, where 0.8332 is the bid price and 0.8335 is the ask price. In this case the spread is 3 pips.
Unlike the stock market, where commissions are paid, when you are day trading forex currency the market makers make their money from the spread.
The spread is not set in stone and there are a number of influences on it which include the specific conditions of the market, your chosen broker, and the currency pair you are trading.
Forex trades in “lots” similar to the stock market, and you can trade in a variety of lots, including: micro, mini and standard.
Micro lots trade 1,000 units. Mini lots trade 10,000 units. And standard lots trade 100,000 units.
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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