Trading on Forex

When trading currency on Forex, it is necessary to remember that all currencies are traded in pairs. Moreover, abbreviations are widely used (for instance, GBP stands for a British Pound, EUR stands for a Euro, JPY stands for a Japanese Yen, CAD stands for a Canadian Dollar, USD stands for a US Dollar, etc.). These and other abbreviations can be shortened on specific software related to currency trading. For instance EUGB can be a shorter version of EURGBP.

The first currency in the pair is called the "Base" currency. The second one is the "Quote" or “current” currency.

Base Currency Quote Currency Exchange Rate
EUR JPY 227.325

This abbreviation defines the amount to be paid in the quote currency in order to get one unit of the “base" currency (in this example, 227.325 Japanese Yen for one Euro). A pip or a point is the minimum rate fluctuation. 1 pip is 0.01 (for currency pairs with JPY) and 0.0001 for other pairs. LVMexchange proposes fractional pips. That’s why you can see 3 or 5 figures (for JPY) after the point (0.00001/0.001) on your fx trading platform.

Base Currency Bid Price Ask Price
EUR/JPY 227.305 227.325

Bid:This is the rate at which the base currency can be sold (in our example, this is the Euro), and the quote currency can be bought (the Japanese Yen).

Ask (or Offer):This is the rate at which the base currency can be bought (in our example, this is the Euro), and the quote currency can be sold (the Japanese Yen).

Spreads:This is the difference between the two prices - Bid and Ask.

Currency rate:This is the value of one currency that is expressed in terms of another. The rate of fluctuation depends on many factors that include the supply and demand on the relevant market and/or market operations opened by the central bank or the government.

Lot:The contract size is usually based on a lot system. 1 lot for the majority of currency pairs is 100,000 units of a base currency.

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Essential

Trading on Forex, traders always trade a composition of two currencies. This composition is called a currency pair. Traders specializing in foreign exchange earn their profits or suffer losses by purchasing one currency. In fact, it does not matter whether the currency rises or falls. It can be a long process for Forex Traders (or sometimes for Forex trading systems that work automatically) to purchase a currency at one price and then sell it at a higher price. However, there is a shorter way including currency selling. They feel that the currency will devaluate and aim at buying it at a lower price.

All in all, the basic currencies that are traded come from the countries with constituted central banks and steady governments that thoroughly study their home economies. Above all, they include the Euro, the Swiss Franc, the U.S. Dollar, the British Pound, and the Japanese Yen. However, other currencies are available, too. Please, check out forex spreads in order to get a full list of the currencies that are traded with the aid of LV.

In spite of the fact that Forex is the most liquid market of all, there are still a lot of factors that can directly affect the trading liquidity of a specific currency. The Forex trader also has to make decisions about the level of trading risk. At the same time there are methods to avoid losses for more cautious traders. The limit order is one of them. It ensures that the position is closed as soon as the price level has been achieved on the market. The stop order automatically closes the position at the level of the price that has been chosen. At the same time changeable markets can lead to prices gapping. It can prevent the trader from executing such forex trades orders (stop loss, sell stop, buy stop) at the stop price that was requested.

Keep in mind...

Foreign exchange trading online has become extremely popular in recent years. Automated Forex trading executed with the aid of providers of Forex trading signals and Forex trading robots are widely used. Forex traders that trade online have the unique chance to download an efficient online trading platform. You can easily test forex trading strategies by opening a forex trading account. Besides, a lot of brokers propose special training packages attached to their systems related to currency trading. You can use them to learn all the required information about foreign currency trading.