Forex basics – Foreign exchange | How to trade forex 2

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Forex basics
forex, FX, foreign exchange or the currency market is very interesting if you know the basics. In FX, people usually refer to the exchange rate as the price. It is really not the price but the exchange rate. Assuming 1EURO =1.21 USD then you say the exchange rate of EUR/USD = 1.21. The little or the smallest increment in the exchange rate is called the PIP.

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Foreign exchange rate

The EUR USD average daily range is greater than 100 pips in a day. 100 pip EUR USD = $1000. To be able to understand FX exchange rate, you will have to consider the base currency first and as one.
If we say the foreign exchange rate of EUR USD =1.2125 it means
1EUR=1.2125 USD. When the foreign exchange rate changes from 1.2125 to 1.2126 then the pip is =1 (that is the increment in 1 pip).

1 pip is equivalent to 1/100 of a penny but because of LEVERAGE, in a standard dollar account 1 pip = #10 this is why the leverage is very important in forex.

What is spread in foreign exchange.

Spread is the price difference you need to overcome in FX In order to make profit. Every trading system has a buying and selling price the difference in the two price tag can be called your spread. That is, spread is the cost of doing business in foreign exchange market. The spread is the main reason why most brokers or financial institution does not charge commission fees. That makes every trader’s goal is to overcome the spread.

What are the terminologies in trading FX

Terminologies used in trading (forex) are:

  • LONG: a trader goes long when he expects to make profit from a rising exchange rate.
  • SHORT: a trader goes short when he expect to make profit from a falling exchange rate
  • FLAT: a trader is flat when he is either long or short
  • ENTRY: this is the point a trader went long or short
  • TARGET OR TP: TP means take profit it’s the goal of the trade
  • SL: SL means stop loss its used to prevent a catastrophe in a trade
  • LOT: this is the trading unit. The higher your lot is, the higher the risk

Currencies have their various nicknames and are usually used in forex news and events. Some of these nicknames are:

  • USD-Buck or Green back
  • pound-sterling or the cable
  • EUR-the single currency
  • CAD-the loonie
  • NZD (new Zealand dollar)-Kiwi

How to Trade Forex (price tag)

When EUR USD  has sell and buy to be 1.2122 and 1.2125 consecutively, the spread here is 3pip so when you go long by buying , a 3pip move in your favor compensates for the spread and you can now start making profit.
When the market moves 3pip, the price tag is now 1.2125 and 1.2128 for sell and buys consecutively. Assuming you decided to exit the trade when the foreign exchange rate is 1.2135 and 1.2138 consecutively then the total pip moved is 13pip. Your profit will be your total pip-spread= profit that is, 13-3=10 pips

How to know the value of pips

The exchange rate and the value traded determine the value of pip. All pairs ending with USD has a constant pip value of $10 in a standard dollar account. Also in a standard pound account, the value of 1 pip is equal to one br.pound . Most trading platform has their pip cost column in a window called DEALING RATES.

How to Know Trading Day in Fx-Forex (foreign exchange)

Forex is traded 24 hrs. Of every days except the Saturday and Sundays. The forex market does not recognize the day light saving time. In addition, for a common point of reference, it’s usually expressed in GMT.
The foreign exchange market opens and closes at 21:00 or 22:00 GMT. In London, that’s 10Pm; in New York is 5Pm and morning in Australia

How to Know Active Trading Time in Fx-Forex

  • 10% of all fx volume is from Tokyo and 23:00 GMT is early morning in Tokyo
  • 30% of all FX volume is controlled by London and 7:00 GMT is morning in Europe London. Because of the large volume, London is often regarded as the capital of forex
  • Around lunchtime in London, the United States becomes active with overlapping market.
  • New York also controls 20% of all FX volume and 12:00 GMT is morning in New York.

How to Read fx-Forex Chart

Charting system is a very important tool in trading forex. Once you learn to read the graph perfectly it is sure to be a successful trader. Patterns that are common to equity and future trades are also present in the forex market

The forex chart also contain double tops, head and shoulders and other familiar technical information which makes it easy for anyone who has traded on any trading platform before.
Common properties of foreign exchange and other platforms are:

  • Channels
  • Trends
  • Tops and bottoms
  • Resistance and support level
  • Cups and handle formation etc.

There are different cultures in forex that makes trading easy some of this culture you can learn:

Fibonacci      EMA

 

 

 

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