Do you want to start forex trading? We will guide you through the most important steps in the process.
Welcome to this chapter. We are going to go through all the most important concepts you should know as a budding Forex trader. This includes concepts like pips, spreads, lots and leverage.
We will also be talking about charts and signals, how to read them correctly, and how to use them to your advantage. When you are done, you will be capable of choosing a good broker without external help.
The term "pip" stands for "percentage in point" or "price interest point". What this means, in practical terms, is that the term "pip" is used to describe the smallest possible change in the price of a particular currency. Sometimes this is also referred to as a "basis point" or "BPS".
It's important to understand this concept, as so many other concepts going forward in Forex will depend on it. In this article, you will learn to calculate the value and position size of pips. You will also be able to use this concept to calculate price moves.
The term "spread" can be used for many similar concepts in the financial world. In the case of Forex, the spread is simply the price difference to buy or to sell any particular currency. Of course, there is always a buy price and a sell price for any currency in Forex.
Also, naturally, the buy price will always be higher than the sell price. This is important in Forex because you will have to learn how to beat the spread in order to profit from a transaction.
Very often, currencies trade in batches called lots. A lot can be of any size, potentially. But the standard lot is 100,000 pips (see "pips" above).
Other common lot sizes are 100, 1,000, or 10,000 units. The latter two of these numbers are often referred to as micro and mini-lots, respectively. Here, you will learn naturally to think in terms of pips and lots.
Leverage means being able to use other people's money to back your trades and positions in the Forex market. It works by you putting down a deposit, known as a margin. This margin will then be a percentage of your maximum trading power.
Leverage carries with it a degree of risk, but often it is an essential tool. Many Forex strategies and tactics depend heavily on leverage to work properly. You also have to have good credit in order to get good leverage in Forex markets.
Charts are very important in the world of Forex. We will show you a bunch of different charts, and how to read and understand them effectively. This will allow you to do a proper risk assessment and probability assessment for your trades and positions.
A signal could be any specific type of data. That is, when you read a chart, once you learn how, you will be able to spot signals. In our chapter on signals, you will learn tips and tricks for signal analysis.
After having studied all of the above subjects, you will be ready to move on to more advanced concepts. Make sure to read every section thoroughly. Don't move on to the next section until you understand the material fully.