New to Forex
Basic Concepts of Forex Trading
Learning to trade in a new market is like learning to speak a new language. It's easiest when you have a good vocabulary and understand some basic ideas and concepts. So let's start with the basics of forex trading before moving on to learn how to use FXCM's Trading Station II platform.
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- WHAT IS FOREX?
Forex is a popular term that means foreign exchange or currency trading, which is the buying and selling of currency. A forex trader purchases currencies that are undervalued and sells currencies that are overvalued; just as a stock trader purchases stock that is undervalued and sells stock that is overvalued. The familiar expression, "buy low and sell high," certainly applies to forex trading as well.
- HOW DO YOU TRADE FOREX?
Today, forex trading is primarily done online through software or web-based trading platforms. If you have access to a personal computer or a cell phone, you most likely have everything that is required to trade forex with FXCM.
One of the best ways to learn how to trade forex is by learning from FXCM's DailyFX course instructors. The course instructors have nearly 100 years of combined experience between them. FXCM also offers free forex trading demo accounts, with $50,000 of virtual money, to help new traders learn to use FXCM's Trading Station II platform, risk-free.
- WHAT DOES IT MEAN TO "BUY A CURRENCY PAIR?"
Each forex transaction involves the buying of one currency and the selling of another. For example, you might buy euros (EUR) while selling US dollars (USD). This transaction is often referred to as buying the EUR/USD currency pair.
Currency pairs are needed to create exchange rates, which tell you the value of one currency relative to another. For example, if the EUR/USD currency pair had an exchange rate of 1.3500 it would take $1.35 to exchange for 1 euro. If the EUR/USD currency pair had an exchange rate of 0.9500 it would take $0.95 to exchange for 1 euro. Forex traders essentially speculate on exchange rates by buying or selling currency pairs. The decision to buy or sell is determined by whether they think the exchange rate will go up or down.
- WHAT IS A PIP?
A pip is a common term that is used in the forex market. It refers to the smallest movement (not considering fractional pips) that a currency exchange rate can make. For example, if the GBP/USD exchange rate changed from 2.0010 to 2.0012, you could say that it increased by 2 pips.
Most currency pair exchange rates are priced to the fourth decimal place, frequently making the fourth decimal place represent the pip value. However, for currency pairs like the USD/JPY, which are only priced to the second decimal place, the pip value is not the fourth decimal place but instead the second. So a two pip increase could be represented by a change of 85.35 to 85.37.
Calculating price changes in pips helps you determine transaction costs, profit and loss on trades, among other things.
- WHAT IS A LOT?
A lot is the smallest trade size available and is determined by the account type. FXCM offers standardized trade sizes and the lot determines the trade sizes available as well.
For example, with an FXCM Standard account, the smallest lot size is 1,000 units of currency. Therefore, the smallest trade size is 1,000 units of currency. Additionally, Standard account holders can place trades of any size, so long as they are in increments of 1,000 units like, 5,000, 20,000, 30,000, 100,000, 310,000, etc.
- HOW TO DO I PLACE A TRADE?
FXCM's Trading Station II platform is very intuitive, which means placing a forex trade with FXCM is a simple process. In addition to watching the educational video below, which will visually explain how to place a forex trade, we encourage new traders to call one of our platform specialists today and request a free platform walkthrough.
FXCM's highly trained support team is willing and ready to provide personalized platform walkthroughs over the phone, free of charge. Call a platform specialist today to request your free platform walkthrough at 1800 109 751.
- HOW CAN I LIMIT THE RISK ON MY TRADES?
FXCM offers two order types, stop orders and limit orders, that allow you to control the risk on your trades, and we recommend that you use these orders whenever possible. A limit is placed on the winning side of your trade and a stop is placed on the losing side of your trade. If the market price reaches either the stop price or the limit price that you define, your live trade will attempt to be closed.
- WHAT IS LEVERAGE?
One of the reasons forex trading is attractive to some individuals is because it can be traded with leverage. Leverage allows an individual to control market positions that exceed the equity available in the trader's account. For example, a trader may have $5,000 of equity in their account, but still open a trade size with a value equivalent to $10,000. This would represent a position that is leveraged 2:1 because the market position is twice as large as the equity in the account.
FXCM AU offers a maximum of approximately 200:1 leverage. Leverage is a double-edged sword and can dramatically amplify your profits. It can also just as dramatically amplify your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.