Play the Game of Forex! (Summary)

Play the Game of Forex! (Summary)

After I write an explanation of game currency, the seven major currencies, reading the quote currency, the yen factor, pip, pipette, to calculate the value of one pip, lot size, up to leverage. See part one, part two, and part three.

This time I will summarize all the above exposition.

The foreign exchange market is the largest financial market in the world, with a trade value of more than US $ 4 trillion a day, once again in a day instead of one year. Although hundreds of currencies change hands every day, the majority of transactions conducted in the seven major currency pairs. Currency pairs most traded are the EUR / USD. Although this is not my favorite currency pair.

Quote currency is always displayed in pairs. Examples include EUR / USD, USD / JPY, and AUD / USD. The currency on the left is the base currency, the currency at the right hand is the counter currency. Nearly all currency pairs quoted to four decimal places, unless the Japanese yen as the counter currency. In this case, the quote appeared in two decimal currency.

A pip is the smallest price movement in a currency pair. If EUR / USD moves from 1.3457 up from 1.3456 into is called 1 pip. Similarly, if you move down from 1.3456 becomes 1.3455, this movement is called 1 pip movement. Each time the dollar as the counter currency, one pip generate USD 10 for a trader to one standard lot.

Some forex brokers go further by quoting prices with five decimal places. For brokers like that, quote EUR / USD is written as 1.34567. It is important for you to note that with five decimal figures are not named by pip, but pipette. Citations to the Japanese yen as a currency counter is displayed with three decimal places instead of two.

Broker gives leverage to retail traders to trade in the forex market. Without leverage, a trader must pay $ 100,000 to trade one standard lot currency. With 100: 1 leverage, a trader need only 1/100 of overall amount of capital, or USD 1000. This amount is called the margin. Margin basically allows a trader buys a contract without the need to mention the value of the contract completely.

The higher the leverage used, the smaller the margin required to trade one standard lot. Some brokers even offer leverage up to 500: 1, this means that trader only need $ 200 to trade currencies amounting to USD 100 000.

Leverage is a double-edged sword. Although leverage to help increase the profits of a trader, leverage can also magnify losses a trader. Therefore, it is very important for a trader to understand the leverage's  advantages and weaknesses before deciding the amount of leverage that is unfit for use.

Okay, in the next post I will write about make money in forex.