Understanding Forex: Introduction to Trading Forex Part 3

Understanding Forex: Introduction to Trading Forex Part 3

By AJ Garphy
Forex Guru

This brief introduction explains the basics of trading Forex online, a short explanation of the markets and the key benefits of trading Forex online. Here are also two scenarios describing the implications of trading in a bear as well as a bull market to better acquaint you with various of the risks and opportunities of the biggest and most liquid market in the planet.

Valuable Forex Trading Terms

Spread

The spread is the difference linking the price that you can sell currency at (Bid) and the price you can buy currency at (Ask). The spread on majors is as a rule 3 pips under normal market conditions. For more information on the trading conditions at Saxo Bank, go to the Account Summary on your Client Station and open the section entitled “Trading Conditions” found in the top right-hand corner of the Account Summary.
Pips

A pip is the smallest unit by which a cross fee quote changes. When trading Forex you will often hear that there is a 3-pip spread when you trade the majors. This spread is revealed when you compare the bid and the ask price, for example EURUSD is quoted at a bid price of 0.9875 and an ask price of 0.9878. The difference is USD 0.0003, which is equal to 3 “pips”.

On a contract or position, the value of a pip can simply be calculated. You know that the EURUSD is quoted with four decimals, so all you have to do is cancel out the four zeros on the amount you trade and you will have the value of one pip. Thus, on a EURUSD 100,000 contract, one pip is USD 10. On a USDJPY 100,000 contract, one pip is equal to 1000 yen, since USDJPY is quoted with only two decimals.

"Together Securing Your Future"

http://www.financialdistrict.info