Little Known Secrets Of Day Trading Forex Currency
Understanding the basics of the forex markets is crucial information that all traders interested in day trading forex currency should know.
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 base currency is the first currency listed, and the counter currency is the second currency listed. When you talk about prices you are actually talking about prices in terms of the coutner 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.
Forex prices are talked about in terms of “pips”. One pip represents the smallest increment a currency pair price can change. E.g. If the AUS/USD prices goes from 0.8349 to 0.8350, then it has gone up by one pip.
We quote forex pairs on a bid-ask basis. The price the market is willing to pay a seller for a specific currency pair at a specific point in time is known as the bid. The price the market is willing to sell a specific currency pair to a buyer at a specific point in time is known as the ask. And the difference between the two is known as the bid/ask spread.
Forex prices are listed with the ask price second, and the bid price first.
The market makers in the forex market earn money from the spread. This is different to the stock market where they usually charge a commission.
There are many factors which influence the spread, including your broker (some have higher spreads), particular market conditions, and the specific currency pair traded.
There are 3 types of “lots” you can trade in forex, mini lots, micro lots and standard lots.
Micro lots trade 1,000 units. Mini lots trade 10,000 units. And standard lots trade 100,000 units.
Taking a real life example, if you were to buy a mini lot of AUS/USD with a quote of 0.8332/5, then you would be buying 10,000 Australian Dollars and short selling 8,335 US Dollars.
Understanding these basics of day trading forex currency puts you at the top of the class when it comes to knowledge of the forex markets.
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