Online Foreign Currency Trading
Before we go into serious online foreign currency trading, let’s get ourselves familiar with the jargon that is used in this industry. Amongst the major currency traded in the forex market, the most popular are United States Dollars (USD), Great Britain Pound (GBP), Japanese Yen (JPY), European Dollars (EUR), Canadian Dollars (CAD) and Australian Dollars (AUD). These currencies are mostly traded in pairs e.g. USD/JPY, EUR/USD, USD/JPY, GBP/USD and so on. The currency listed to the left before the slash (“/”) is known as the base currency whilst the currency listed to the right after the slash (“/”) is known as the quote currency. For example, the rate for this pair USD/JPY = 90.82. This means that you need 90.82 Japanese Yen to buy 1 United States Dollars. Online Foreign Currency Trading
To start off, we absolutely must know the term ‘pips’. PIPS are an acronym for ‘percentage in point’. To put it simply, a pip is the smallest unit of price for a currency. It is the last decimal point in a currency pairs. You will most certainly hear forex traders say ‘I earn 44 pips today’. So, what is the value for 1 pip? Let’s take a look at the USD/JPY pair at the rate of 90.82. For this particular pair, 1 pip = 0.01. And what is the value for 0.01? Before we go into the value of 0.01, we will talk about Lots. Foreign currency trading, or known as forex, is traded in Lots and the standard size for one lot is 100,000 units. Now we will calculate the value of 0.01. (0.01/90.82)x100,000 = USD 11.01. Therefore, when you hear a trader say she earned 44 pips today; she had earned USD11.01 x 44 pips = USD484.44.
Before you place a trade, you have to decide if you want to Buy or Sell. The uniqueness of forex trading is such that not only can you buy low, sell high; you can also sell high, and buy low. Yes, you can Sell first and buy back later. Therefore, if you have decided to buy, you are “going long” or “taking a long position” and if you have decided to sell, you are “going short” or “taking a short position”.
Next, we will look at the term “bid” and “ask”. The “bid” is also known as the broker’s selling price and the “ask”, the broker’s buying price. Therefore the ask price is always higher than the bid price. The difference between these two prices is then known as the “spread”. Online Foreign Currency Trading
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