How To Trade Forex
Currency Pairs And Rates
All currencies in forex trading are quoted in pairs, one against another. Their names are given as a three letter abbreviation known as ISO code, where the first two letters represent the country and the third one is the name of the currency. Depending on how commonly they are traded, currencies can be divided into three categories: The most traded ones are usually referred as to majors and include the US dollar, the euro, the Great Britain pound, the Japanese yen, the Canadian dollar, the Swiss franc, the Australian dollar and the New Zealand dollar. Major pairs involve the US dollar and another currency from the list above, for example: EURUSD, USDJPY, USDCHF Cross pairs comprise of two major currencies neither of which is the USD dollar, for example: EURGBP, EURCHF, EURJPY, GBPCAD, GBPAUD and CHFJPY. Exotic pairs consist of a major currency and another less traded one, for instance EURTRY, USDSEK, USDDKK, USDHDK, USDSDG. Exotics tend to be less liquid and to have less tight spreads. Currency rate always represents the value of the base (first) currency expressed in the quote (second) currency. In Forex there are two prices given – Bid and Ask- the former shows how much of the quote currency is required to sell 1 unit of the base currency and the later represents how much will be required to buy it. Ask price is higher than bid. The difference between two prices is referred as to spread, which is usually measured in pips or points. Previously, when only 4 digits precision was available, pip, or percentage in point, was the smallest unit to measure price fluctuations. With the introduction of more accurate 5 digits precision pricing the smallest unit of price change is called point, however 1 pip is still calculated by 4th digits. For example, if Bid price is 1.11443 and Ask price equals 1.11449, spread is 0.6 pips or 6 points.
LEVERAGE, VOLUME, REQUIRED MARGIN
To open a position you need to have a certain amount in your balance, which is commonly referred as to required margin or just margin. The amount depends on the trading tool, volume and leverage. Trading tool is basically anything you can trade with, including currency pairs, spot metals, oil or indices. Volume is the amount you buy or sell measured in lots. 1 standard lot equals 100 000 units of the base currency. Depending on your balance and account type you can also trade mini lots (0.1) and micro lots (0.01). Volume defines the pip price, that is, the higher your volume is, the more significant each price movement will be. For example, pip price for EURUSD 1 lot is 10 USD, for EURUSD 0.5 lot is 5 USD. You can use this tool to calculate pip price for any position. Leverage is a virtual credit provided by the company. The higher your leverage is, the lower marginal requirements will be. For example, when you use no leverage (ratio 1:1), you will need 100 000 EUR to open 1 lot of EURUSD; if your account leverage is 1:200, only 500 EUR will be required. The maximum leverage World trade Investment offers is 1:500, that is, you will need only 200 EUR to open 1 lot. Note that if you have a USD account, the required margin will be calculated as follows: (Current price × Volume in lots × 100 000 units) / leverage For example, if your leverage is 1:200 and you open 0.5 lot EURUSD order at 1.12931, required margin is (1.12931 × 0.5 lots × 100 000 units) / 200 = 282.33 USD Required margin is always calculated automatically by the platform. To check how much approximately will be required to open a certain position, you can use our Forex Calculator.
HOW TO START TRADING
Basically, all you need to do to start trading forex is to open an account and download and install trading platform or sign in to the MT4 web based terminal. A demo account allows you to practice risk-free, while with a real account you will be able to experience real market with a minimum deposit as low as 5 USD. If you are not familiar with the trading platform, make sure to check our Manuals section for detailed instructions. More information on how the forex market works, what tools and techniques you can employ to predict the direction of the prices or strategies you can apply is available in the Forex Basics section. If you have any questions regarding the market, World trade Investment website or trading conditions you can check our elaborate and comprehensive FAQ. Whenever you encounter an unfamiliar term, word or market phenomena, you can check its definition and description in the Forex Glossary. Our award-winning Customer Service is always glad to answer any questions you have and is available 24/5.