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Basics Of Forex Trading
In a Bullish market Traders are optimistic, they
expect prices to RISE and make money by going “Long”. In a Bearish market
Traders are pessimistic, they expect prices to FALL and make money by going
“Short”.
When taking out a “Long” position a Trader BUYS a
Currency pair hoping the price will RISE and when taking out a “Short” position
a Trader SELLS a Currency pair hoping the price will FALL.
A PIP (Percentage In Point)equals a 1/100th % price
movement and it is the smallest movement a Currency pair can RISE or FALL by.
For Currency pairs quoted to 4 decimal places, e.g.
EURUSD, a 1 PIP movement is 0.0001 so a move from 1.4505 to 1.4520 would
represent a 15 PIP RISE in EURUSD.
For Currency pairs quoted to 2 decimal places, e.g.
USDJPY, a 1 PIP movement is 0.01 so a move from 91.34 to 91.14 would represent
a 20 PIP FALL in USDJPY.
When BUYING or SELLING (going
“Long”/“Short”) trades are conducted in “Lots” – A
Standard Lot is 100,000 units (of the Base currency), a Mini Lot is 10,000
units and a Micro Lot 1,000 units. When trading a Standard Lot (trading a USD
Currency using a USD account) a 1 PIP movement is equal to a $10 Profit/Loss.
Note: UK Traders who Spread bet trade
in £’s per Point which means a 1 PIP movement is equal to a £10 Profit/Loss if
trading at £10 per Point (PIP).
A Trader taking a “Long” Position in a Bullish
market trading a Standard Lot will make $150 if BUYING EURUSD at 1.4505 and
Selling it back at the higher price of 1.4520 (+15 PIPs)
A Trader taking a “Short” Position in a Bearish
market trading £10 per Point will make £200 if SELLING USDJPY at 91.34 and
Buying it back at the lower price of 91.14 (-20 PIPs)
These are the Basics Of Forex Trading; Bull/Bear,
Long/Short, PIPs, Lots/£’s Per Point. These basics, when combined together,
determine how a trader makes a Profit or a Loss.
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