Tag Archive : Currency Pairs

Beginner guide for crypto trading

 

For those seeking to enter the world of trading, it can be a challenging and intimidating experience. However, with the right approach and knowledge, anyone can become a successful trader.

In this article, we’ll share some information that beginners can use to start trading and succeed in the market. From determining your trading style to opening a brokerage account and starting to trade, this guide aims to give you a comprehensive roadmap to help you embark on your journey with confidence and informed decision making.

Determine your trading style

The first step is to determine the type of trading that best suits your personality, capital, and lifestyle. There are different trading styles, such as day, swing, position trading and so on. Each of these styles requires a different skill-set and amount of time commitment, so it is essential to make an informed decision that suits your personal needs.

Learn the basics

Take the time to learn the basics, such as how financial markets work and the different types of securities that can be traded. Start by researching the markets and assets that interest you, as this will give you an idea of which securities you’d like to trade in the future. You’re going to need to grasp crucial concepts such as risk management and how to carry out fundamental and technical analysis.

Choose a mentor or class

Find a mentor or take a class to learn the more advanced skills required to be a successful trader. Utilize free online resources, such as webinars or tutorials, through your brokerage firm or educational organizations.

This will support your training and help you stay up-to-date with the latest market trends and news. A good mentor will guide you on the platforms to use, the best strategies to employ, and how you can achieve long-term success in trading

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Learn the Basic of Forex Trading and make $10,000 weekly

What is FOREX?
Forex is usually abbreviated as FX, derived from Foreign Exchange. It
means simultaneous buying and selling of currencies.
Currencies are the instrument with which transactions are conducted.
Every nation in the world has its own currency peculiar to it

As long as people will continue to travel from one nation to the other,
the exchange of one currency with the other will continue to happen.
This therefore erases the doubt in our mind about the lifespan of Forex
trading.
Forex Trading will always involve two currencies at a time.
For instance:
EURUSD buy means that we are buying EUR and at the same time
selling USD. By this, we are saying EUROPE economy is stronger
than United State Economy. Forex market is dynamic in its movement
and this is as a result of different macro and micro economic activities
that play out in the country at that particular point in time. This also
goes a long way to give indication of the strength of the currency under
consideration.

  1. Currency Pairs

A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.

Currency pairs compare the value of one currency to another—the base currency (or the first one) versus the second or the quote currency. It indicates how much of the quote currency is needed to purchase one unit of the base currency. Currencies are identified by an ISO currency code, or the three-letter alphabetic code they are associated with on the international market. So, for the U.S. dollar, the ISO code would be USD.

Major Currency Pairs

A widely traded currency pair is the euro against the U.S. dollar or shown as EUR/USD. In fact, it is the most liquid currency pair in the world because it is the most heavily traded.1 The quotation EUR/USD = 1.2500 means that one euro is exchanged for 1.2500 U.S. dollars. In this case, EUR is the base currency and USD is the quote currency (counter currency). This means that 1 euro can be exchanged for 1.25 U.S. dollars. Another way of looking at this is that it will cost you $125 to buy 100 euros.

There are as many currency pairs as there are currencies in the world. The total number of currency pairs that exist changes as currencies come and go. All currency pairs are categorized according to the volume that is traded on a daily basis for a pair.

The currencies that trade the most volume against the U.S. dollar are referred to as the major currencies, which include:

Minor Pairs

Currency pairs that are not associated with the U.S. dollar are referred to as minor currencies or crosses. These pairs have slightly wider spreads and are not as liquid as the majors, but they are sufficiently liquid markets nonetheless. The crosses that trade the most volume are among the currency pairs in which the individual currencies are also majors. Some examples of crosses include the EUR/GBP, GBP/JPY, and EUR/CHF.

Exotic Pairs

Exotic currency pairs include currencies of emerging markets. These pairs are not as liquid, and the spreads are much wider. An example of an exotic currency pair is the USD/SGD (U.S. dollar/Singapore dollar).

2. BASE AND QUOTE CURRENCY
You can recall that in our definition of Forex, we did say that it is a
simultaneous buying and selling of one currency against the other. The
buy or sell action taken, affects first currency in the pair and the
second at the same time. For instance, if we buy EURUSD, we are
actually buying the EUR and at the same time selling the USD.
In this case, the first currency is the base while the other currency
that appears at the back is the quote currency. The quote currency
serves as reference point to determine the value of the base currency.
If the current price of EURUSD is 1.20000, it means that for every 1
EUR you need 1.20000 dollar to buy it.
If the price of EURUSD increases to 1.2100 therefore means that more
units of USD is needed to obtain one unit of EUR.
By implication, the EUR has strengthened against the USD and the
same way we can say the USD weakened against the EURO

3. PIPs AND POINTS

“PIP” stands for Point in Percentage. More simply though, a pip is what
we in the FX would consider a “point” for calculating profits and loss.
It’s a standardize unit and a smallest amount by which a currency
quote can change.
For USD related currency, it is always 0.0001
For JPY related currency, it is 0.01

4. Bid

A bid is the exchange rate that a market maker quotes to buy a specific currency pair. 

5. Offer

The offer is the exchange rate that a market maker quotes to sell a particular currency pair. A market maker’s offer rate will generally be higher than their bid rate.

6. Spread 

Unless you tell them your desired trading direction, forex market makers and brokers generally provide bid and offer quotations for the exchange rate of the base currency expressed in terms of the quote currency. The difference between this two-way quote is known as the dealing spread or the spread. Widening the dealing spread relative to the Interbank forex market provides an income stream for forex brokers. Some brokers also charge additional trading costs, such as a commission or a per-trade fee.

7. Lots

A lot is a trading unit that represents a minimum transactable amount of a currency pair traded at an online broker or on a futures exchange, although lots are generally not

 used among those operating in the over-the-counter Interbank forex market. As a retail forex trader, common lot sizes include standard lots of 100,000 base currency units, mini lots of 10,000 units, micro lots of 1,000 units and nano lots of 100 units. 

6 Simple Tips for Making Money Trading Forex (make $50,000 monthly)

Forex traders take positions by buying or selling one currency against another since currencies trade relative to each other in pairs at a quoted rate of exchange or exchange rate. 

If you’re bullish about a particular currency pair, you might open a long position in that currency pair at an advantageous exchange rate and wait for the currency pair’s exchange rate to increase before you lock in profits. If the exchange rate you close the position at is higher than where you bought the pair, you’ve earned a profit equal to the difference between the two exchange rates.

The inverse applies to shorting a currency pair. If you believe the value of the base currency will decrease relative to that of the other currency in a pair, you might sell it or go short. The goal is to sell the currency pair at the highest exchange rate possible and then close the position once the exchange rate drops. Closing the short position at a lower exchange rate than where you sold it will earn you a profit. 

Beginners need to ensure they follow several key measures to increase their chances of being profitable forex traders.

1. Learn the Basic Forex Trading Terms

Understanding the jargon that forex traders often use helps you to communicate with other traders accurately. It can also help you gain a foothold on what’s required to analyze currencies effectively. 

Currency Pairs

In the forex market, currencies are traded relative to one another in pairs. Currency pairs are categorized as majors, minors and exotics depending on the volume traded. When the U.S. dollar is not a part of a currency pair, it is known as a cross. Majors typically have the largest trading volume, tighter dealing spreads, higher liquidity and lower volatility compared to other currency pairs. The most actively traded major currency pair is the euro quoted in U.S. dollar terms that is written EUR/USD in market shorthand. Minors include the commodity currencies and the Scandinavian currencies quoted against the U.S. dollar, such as the New Zealand, Canadian and Australian dollars. Exotic currency pairs involve less-traded currencies from developing countries such as the Mexican peso and the South African rand.

Point in Price (pip) 

A point in price or pip is the conventional minimum exchange rate movement allowed in a particular currency pair. For most pairs, a pip is a 0.0001 move in the fourth decimal point of an exchange rate, although for some pairs, like USD/JPY, a pip is a 0.01 move in the exchange rate. Using EUR/USD pair as an example, the smallest unit move this currency pair exchange rate can make is $0.0001.

Base Currency and Quote Currency 

The left currency in a currency pair is known as the base currency and the right currency is the quote or counter currency. Charts reveal the movement of a base currency compared to a quote currency. If the price on a chart rises, it means that the base currency has strengthened against the quote currency, which has weakened. The opposite applies when the price decreases.

Bid

A bid is the exchange rate that a market maker quotes to buy a specific currency pair. 

Offer

The offer is the exchange rate that a market maker quotes to sell a particular currency pair. A market maker’s offer rate will generally be higher than their bid rate.

Spread 

Unless you tell them your desired trading direction, forex market makers and brokers generally provide bid and offer quotations for the exchange rate of the base currency expressed in terms of the quote currency. The difference between this two-way quote is known as the dealing spread or the spread. Widening the dealing spread relative to the Interbank forex market provides an income stream for forex brokers. Some brokers also charge additional trading costs, such as a commission or a per-trade fee.

Lots

A lot is a trading unit that represents a minimum transactable amount of a currency pair traded at an online broker or on a futures exchange, although lots are generally not

 used among those operating in the over-the-counter Interbank forex market. As a retail forex trader, common lot sizes include standard lots of 100,000 base currency units, mini lots of 10,000 units, micro lots of 1,000 units and nano lots of 100 units. 

2. Find a Reputable Forex Broker

Trading profitably may be worthless if you’re unable to withdraw your trading gains. Some unregulated and disreputable online forex brokers scam their unsuspecting clients by unfairly restricting them from accessing their margin account funds, so be sure to choose a reputable broker.

A good forex broker will show its commitment to securely handling its clients’ funds by submitting to regulations from established financial authorities. Being regulated also indicates that a broker aims to abide by high ethical and financial standards. 

3. Start With a Demo Account

Seeing a professional trader make money trading forex can make you eager to start immediately with a live account. Replicating those positive results with your own money and lesser experience level can be challenging, however. 

To get a good grasp of how the forex market moves and how a trading platform functions, beginners should start trading in a demo account first. Losing virtual money is easier to handle emotionally than losing your hard-earned cash, but demo trading does give you a taste of what to expect when you go live. 

As a novice, you can use a demo account to practice trading so that you can avoid the discouraging experience of losing large amounts of money while you are learning to trade. Even experienced traders will often use a demo account to check out a new broker and to test and practice using a new trading strategy in a real-time environment. 

4. Begin With a Small Investment

Even if you’ve already grasped the basics of trading forex using a demo account, it’s best to initially only put a small amount of your trading capital at risk when you first open a live account. Don’t risk more than you can handle losing. It’s easier to accept losing a small amount of money than a large amount, regardless of how much money you have.

5. Learn Strategies to Help Maximize Trades

Don’t expect to become a profitable forex trader after attending a weekend trading course. Learning different trading strategies, market analysis and how exchange rates move requires time. Take as much time as you need to practice in a demo account, and ensure you’ve been consistently profitable for several months before switching to a live account.

You’ll also want to learn how to read charts, use technical indicators and employ different trading strategies to optimize your chances of success. Also, study the fundamental factors that impact currencies and make their exchange rates move.

6. Keep a Trading Journal

To avoid repeating mistakes, you need to keep and refer to a trading journal. Keeping a record of your trades provides valuable insight into how you viewed the trade and your thought process before you entered and exited it. Those are valuable metrics for you to use for making better future trades. A trading journal also provides you with the ability to learn from unsuccessful trades.

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