The Secrets To Day Trading Forex Currency
October 22nd, 2009
If you are interested in day trading forex currency then it’s crucial you understand the basics of the forex markets.
The forex market is the biggest financial network in the world, with trillions of dollars being turned over every day. And it is open almost 24 hours a day, 7 days a week.
And as more and more traders move away from stocks and into foreign currency trading the forex market is only getting bigger.
When you day trade forex currency you actually trade two currencies at the same time, know as a “pair”. For example, AUS/USD represents trading the Australian Dollar against the US Dollar.
Forex pairs are always listed in the format AAA/BBB.
The base currency is the first currency listed, and the counter currency is the second currency listed. When you talk about prices you are actually talking about prices in terms of the coutner currency.
Let’s take a look at a quick example:
If 0.8349 is the current price of the AUS/USD pair, then that means 1 Australian Dollar (which is the base currency) is equal to While most pairs are listed to 4 decimal places, the Yen only has 2 decimal places. This is simply because there are often more than 100 Yen to the Dollar..8349 US Dollars.
“Pips” are how we talk about forex prices. A pip is the littlest movement a pair price can move. For example, a movement of 1 pip in the AUS/USD pair might be from 0.7934 to 0.7935.
We quote forex pairs on a bid-ask basis. The price the market is willing to pay a seller for a specific currency pair at a specific point in time is known as the bid. The price the market is willing to sell a specific currency pair to a buyer at a specific point in time is known as the ask. And the difference between the two is known as the bid/ask spread.
We always list forex prices with the bid price first and the ask price second. E.g. A quote for AUS/USD might be 0.8332 // 0.8335, where 0.8332 is the bid price and 0.8335 is the ask price. In this case the spread is 3 pips.
Unlike the stock market, where commissions are paid, when you are day trading forex currency the market makers make their money from the spread.
The spread is not set in stone and there are a number of influences on it which include the specific conditions of the market, your chosen broker, and the currency pair you are trading.
In our AUS/USD example used above, instead of writing “0.8332 // 0.8335″ you would express the quote simply as 0.8332/5.
Forex trades in “lots” similar to the stock market, and you can trade in a variety of lots, including: micro, mini and standard.
Micro lots trade 1,000 units. Mini lots trade 10,000 units. And standard lots trade 100,000 units.
Taking a real life example, if you were to buy a mini lot of AUS/USD with a quote of 0.8332/5, then you would be buying 10,000 Australian Dollars and short selling 8,335 US Dollars.
If you can grasp these basic principles you’re not only ahead of most amateur traders, but you’re well on your way to understanding the systems used for day trading forex currency.
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