Key concepts for successful Forex trading
Successful Forex Trading Many newbies entering Forex, attracted by fast money, do not even take the time to understand the important concepts of this market.
They place their money, by chance, make a successful first operation, and suddenly imagine experts!
If you want to succeed in your operations and be viable in the long run, it will be important to spend some time to understand different mechanisms, some of which are specific to Forex.
Discover the keys to succeed on Forex trading:
Currencies Euro DollarThe value of any currency on the Forex market is relative to another, which gives the quotation. This quotation is expressed as follows: “Currency A / Currency B”, hence the notion of pair.
The first, or currency A, is the base currency or “cotante”. The second, or currency B, is the counterparty currency, also known as “quoted currency”.
For example, with the case EUR / GBP, the euro is the base currency, and the pound sterling is the counterparty currency.
We always buy or sell the base currency.
Remember that the base currency on the left is always a unit. For example, if you see EUR / USD = 1.35, this means that one euro is worth $ 1.35.
Any currency purchase on the Forex implies that there is necessarily a sale of another currency at the same time. Remember that when you buy, you also sell something in return.
Bid, Ask, Spread and PIP
Forex: Bid & AskThe first notions that we will see on this sheet may seem all stupid for some, but when we are used to simple transactions with the terms: purchase and sale, it becomes weird to see other expressions.
For any transaction on the Forex market, there is a purchase price or “bid”, and a sale price or “ask”.
Your purchase price is the amount required in quoted currency to pay to buy a base currency unit. And vice versa.
For example, if you have EUR / USD = 1.35, and you buy this pair, then you will have to shell out $ 1.35 to get 1 €. With this same quote, if you sell the pair, it means that you will get $ 1.35 for every euro sold.
Spread and Pip
Forex currencies For all currencies, quotations are expressed with 4 decimals, except for the yen, which has only 2 decimal places.
For example, at many brokers we can see EUR / USD: 1.3550 – 1.3553.
We have 1.3550 which corresponds to the sale price and 1.3553 to the purchase price. The difference between the sale price and the purchase price corresponds to the spread. This “spread” is expressed in “pip”.
The pip is the smallest variation possible on a currency. For example, in our case, we have a spread of 3 pips.
In almost all cases, brokers are only compensated for this “spread” and have no other commission. Based on this observation, you understand that the moment you make a purchase on the Forex, the latter is losing the amount of the spread. The spread applies to the purchase, but not to the sale.
Not all brokers have the same policy, some apply small spreads, while others will post large spreads that often vary by currency pair. In general, spreads are low on the most common currencies, but higher on the exotic currencies.
One of the decisive criteria for choosing the broker is precisely the spread. On small transactions, the difference is not really visible, but in the long run and with a certain volume of transactions, the difference can be significant!
Forex Lots Generally, there is no minimum amount of trading on the Forex market, and when there is one, it is very small. Note that some brokers do not allow you to invest from 50 or 100,000 units (€, $, £, etc.), which is not within the reach of all beginners.
There is a specific jargon in the Forex environment with the notion of lot.
This notion expresses the volume of capital placed after the application of the leverage effect.
1 lot = 100,000 units
1 mini-lot = 10,000 units
1 micro-lot = 1,000 units
1 nano-lot = 100 units
For example, if you place $ 1,000 with a leverage of 10, you bought a mini-lot.
You now know the key points you need to master to become a good trader in plus500 review and succeed in the financial markets, you just have to get to work!