How Does Foreign Exchange Trading Work



The Forex is interesting because it continuously score from Sunday evening to Friday evening. We distinguish different trading sessions due to the fact that these are different continents tradent according to time of day

Asian session : 11h am at 8h am (GMT)

European Session : 7h am to 4h pm (GMT)

North American session : 12h am to 10h pm(GMT)

Australian session : 10h pm to 7h am(GMT)

The Pips

A pip is the smallest change in the rating of a currency pair. Most currencies are quoted to four decimal places (5 for some streams) . A pip is the fourth decimal place : 0.0001 . For example the euro against the dollar (EUR / USD) 1.3074 rating. If you buy at this level and that it resells to 1.3078 we win 4 pips. There are some exceptions. The yen score differently. For example , EUR / JPY 105.54 rating . In this case the pip is 0.01.

Base Currency of a pair of Forex

for example EUR / USD , the currency of the left is called the base currency. The right one is the motto of negotiation. If the EUR / USD 1.3080 side this means that a euro is worth 1.3080 dollar.

The lots on Forex

A batch is typically about 100,000 dollars. The value of a dimension point is 0.0001 ( pip ) x 100,000 = $ 10 . This is a full batch. There is also the possibility to trade on mini lots ( $ 10k ) or batches microphones ( $ 1k ), for example with a account with Your Borker . For a mini lot 1 pip = $ 1 . For a micro lot, 1 pip = $ 0.1.


Rest assured, you are not obliged to buy for 100,000 dollars. Forex operates in effect at the margin. Your broker allows you to trade on a lot of $ 100,000 by having only $ 1,000 in your account. It is said that the broker requires a margin by 1% (100,000 / 1000). It is the initial margin. Usually at the end of the day, but as soon as the money in your account may not be enough to offset losses if you liquidiez positions, a margin call is made (margin call in the language of Shakespeare). If your open position is losing, you will need your account a percentage of that potential loss (not necessarily 1%), otherwise the broker closes the position and you actually lose money. Speaking of account: an account can be managed in euros or dollars. For the choice, depending on the conversion rate and what you think the future evolution of the dollar against the euro (to protect your winnings).

Forex Leverage

Due to the existence of the margin , there is a leverage when you trade Forex. Leverage is 100 / margin. We note the leverage : 100: 1. The big problem Forex ( and leveraged trading in general) is to survive a losing position . More leverage , the greater your account to be well capitalized . I advise you, at first not too hard to understand. All you need to know is that :

$ 1,000 enough for a micro account ( 1 pip = $ 0.1 )

$ 5,000 to $ 10,000 sufficient for a mini account ( 1 pip = $ 1)

$ 100,000 enough to a standard account ( 1 pip = $ 10)

The good news is that you can start having fun on the Forex with $ 1,000 .

Short selling

The advantage of Forex is that you can sell short , that is to say that one can sell without possessing a pair , to redeem later realizing a capital gain or a capital loss . Unlike stocks , it is winner down as well as up .

Forex spread

If EUR/USD at 1.3081 coast . If you buy , you will pay 1.3084 , 3 ??pips more. In fact it is the remuneration of the broker . On the Forex brokers do not charge commission fees, but only a spread : once you buy you are losing the value of the spread. Indeed, if you sell right away, you must sell back to the lower range , ie 1.3081 . Depending on the size of the lots on which you trade , your annual volume of trades , the broker , and especially the trading session ( it's cheaper in Europe Day ), and the currency pair you will have a spread of 0.5 to 10 pips. Depending on your type of trading : daily , swing trading , or intraday scalping , you need to pay attention to the value of the spread .