Skip to main content

Beginning FOREX - How Are Lots Traded & What The Heck Is A Pip? 





If you are new to Forex, no doubt you are confused by all of the strange and unfamiliar terminology. For example, what is a pip? Also, you are probably already aware that Forex trading can be risky. How can you limit your loss and best protect your funds? This article briefly covers how currency lots are traded to help you better understand how to plan your trading strategy and manage your funds. 

In Foreign Currency Exchange (FOREX), earnings are expressed in "pips". Pip is short for Price Interest Point, also called points. Whereas the smallest denomination in USD is the penny ($.01), in Currency Exchange, funds can be traded in an even smaller denomination, $0.0001. This means that very small movements in currency prices can create large profits. 

So, a PIP is the smallest unit a currency can be traded in. The actual value of a pip is not a set price. If you are trading with a standard account, a pip is worth $10. If you are trading a mini account, a pip is only worth $1. 

The value of a pip changes based upon the size of your account, because the size of your account affects how much currency you can leverage. A standard full size trading account is 100,000 units of the base currency. If you are trading in USD, a standard account has a value of $100,000 USD. 

A mini lot is 10,000 units of base currency. If you are trading mini lots, you can leverage $10,000. This is why a pip in a mini account is worth less than a pip in a standard full sized account. 

While Forex trading allows you to leverage more funds than you actually have, this can be a double edged sword. While you can make profits on funds that you leverage (rather than own), you can also have losses amplified as well. There are several ways, however, to manage your risk when trading Forex. If you are interested in trading Forex, you should have a definite trading strategy. You must educate yourself to know when to enter and exit the market and what kind of movements to anticipate. 

You can also place something known as a stop loss order. Stop-loss orders the typical way traders minimize risk when placing an entry order. A stop-loss order to exit your position if the currency price reaches a certain point. 

If you are taking a long position, you would place the stop loss order below current market price. For a short position, you would place a stop loss order above current market price. This technique allows you to manage your risk and, just as the name suggests, stop your losses at a certain point. 

As you can see, Forex trading can be complex, but once you understand the basic fundamental principals of how lots are traded, its starts to come together for you. Foreign Currency Trading can be quite profitable and and exciting way to invest.



DeAndre Pennington Cashfxgroup.com







































Comments











Post a Comment























Popular posts from this blog





















An Introduction to Currency Correlation




























    A brief overview of how different pairs of currencies will affect each other. How the activity of a single currency may affect movement in a pair   Global currencies don’t ride the trends in isolation. The apparent technical movement between two currencies in a pair may cause an effect in the behaviour of each separate currency. A third currency will also have some bearing on the rise or fall of a seemingly unrelated pair, in the view of an intermediate or beginning trader. Even seasoned trend cowboys may miss the odd significant event that results in a trade loss.   Technical analysis often comprises the bulk of the independent speculator’s trade decisions, but some attention to fundamental news must be included for a complete overview of what is happening in the market at that particular moment. Neither weather, beetles, drought, hostile takeovers nor indicted CEO’s have much real bearing on currency values, but the timing of the release of economic reports should determine if a ...




















Post a Comment









Read more






























Better Understand Technical Analysis and Some Indicators




























  We’re focusing on technical analysis in this article with a description of some of the important indicators.  We could say, all wealthy traders use technical analysis but not all technical analysis traders are wealthy although T.A. is the most precise way of trading the Forex market. It’s also useful note that fundamentals play their part in indicating whether a price will move up or down. It gives you the edge over other traders.  Technical Analysis is so powerful because of a few reasons  1) it represents numbers. All information and its impact on the market and traders is represented in a currency’s price. 2) It helps to predict trends and the foreign exchange market is very ‘trendy’. 3) Certain chart patterns are consistent, reliable and repeat themselves. T.A. helps us to see them.  Here’s one way of putting technical analsysis into perspective (wish I had a dollar each time I said ‘technical analysis’). We all know that prices move in trends. Research has shown that those that ...




















Post a Comment









Read more






























Beginner’s Overview of Foreign Currency Exchange




























   Foreign currency exchange trading can be very rewarding, but can also be very intimidating to a beginner.  To get started, you will need to know some basics:     1. What is foreign currency exchange?    2. How is it traded?    3. What are the benefits?    4. What are the risks?    5. How can I get started?  What is Foreign Currency Exchange?  The Foreign currency exchange (FOREX) market is a cash (or “spot”) market for currency.  Unlike the stock exchange, the FOREX market is not located on a trading floor or centralized on an exchange.  Instead, it is entirely electronic within a network of banks and runs 24 hours per day Sunday evening (5:00 pm EST) through Friday evening (4:00 pm EST), excluding some holidays.  The fact that it is all electronic means that you can tap into it from your computer.  How is it traded?  FOREX is traded in currency pairs, for example EUR/USD is the Euro base currency and the US dollar counter (or quote) currency.  There are six major pairs: EUR/USD, GB...




















Post a Comment









Read more