Investment markets can rapidly take the money belonging to investors who think that trading is easy. It is rather difficult to trade in any investment market, but with education and practice a trader can be successful. Knowing how to trade within a new market is like learning to read and speak a new language. It becomes easier if a trader understands some basic concepts and ideas. Below is a look at some Forex trading basics.
The Forex market is the world’s largest investment market that continues to grow every year. As much as the market is large, the volume was from professional traders until recently. However, more retail traders are finding that Forex suits their investment goals due to improved currency trading platforms.
Forex trading is a round-the-clock market that only closes between Friday evening and Sunday evening, although the 24-hour trading sessions can be misleading. The market has the United States, European and Asian trading sessions. Despite there being some overlap in these sessions, in each market the main currencies are traded mainly during those market hours. Hence, certain currency pairs are likely to have more volume during particular sessions. Investors who stay with pairs on a basis of the dollar will get the most volume during the United States trading session.
Forex is traded in lots of various sizes. A micro lot is 1,000 units of a certain currency; a mini lot is 10,000 units while a standard lot is made up of 100,000 units. All trading is done in pairs. Unlike the case of a stock market whereby a trader can purchase or sell a single stock, in the Forex market the trader has to purchase one currency and sell another one. Pricing out of almost all currencies is done to the fourth decimal point. A percentage in point or pip is the smallest trade increment.
Often, beginning or retail traders trade currencies in micro lots since a pip in a micro lot means the price moves by 10 cents. This way, losses are easier to manage in case a trade fails to produce the intended results. One pip is equal to $1 in a mini lot, while in a standard lot that same pip equals $10. In a single trading session, certain currencies can move as much as 100 pips, making potential losses to a small trader much more bearable by trading in mini or micro lots. Despite currency trading not being easy, having less trading options makes portfolio and trade management easier.