Currency trading is a very complicated and difficult field and it takes a lot of knowledge and practice to stand out in this field. In this article I will discuss about the basics of forex trading.
Pips and Pairs
The trading of all the currencies is done in pairs. In the forex market the trader has to buy one currency and then sell another currency. All currencies are counted till the fourth decimal point. Percentage or a Pip is the smallest increment of any trade. One pip is basically equal to 1 / 100 of 1 percent. Retail traders trade currencies in small or micro lots. One pip in a micro lot represents 10 percent increment in the price. This makes loss management easier. 1 pip is equal to 1$ in a mini lot and in a standard lot 1 pip is equal to 10$. Sometimes currencies move more than 100 pips in a single session, making the traders to manage their losses far more easily.
Far Fewer Products
The major part of the currency trading is restricted to not more than 18 currency pairs compared to thousands of stocks available in the global equity market. There are also other trading pairs other than mentioned 18 pairs, the eight currencies, which are most often traded are the Canadian dollar (CAD), U.S, dollar (USD), euro (EUR), British pound (GBP), Swiss franc (CHF), New Zealand dollar (NZD), Australia dollar (AUD) and Japanese Yen (JPY). Currency trading is not easy, but less trading options make portfolio management and trading easy.
Reason for Currency Movement
Stock traders take a huge amount of interest in currency trading; this is because most of the forces in the stock market are involved in currency markets. Demand and supply is one of the huge factors of currency trading. E.g. If the demand of dollar increases, then the value of the dollar will also increase and vice versa.