In the foreign exchange market, it can be very easy for individuals to trade currency using these 3 types of accounts that are specifically designed for investors in the retail industry. These three accounts are micro lots, standard lots, and mini lots. In some cases, a beginner would be able to start off with a micro or small account starting at a low rate of $50. However, an individual does not want to just jump into the industry without first learning the terminology and getting familiar with the market. If the trader is already familiar with trading stocks online then it will make things easier for them to succeed.
Below is a list of information that someone who is interested in investing should use and learn to increase their profits.
PIP: This would be considered the smallest price used or given to make an exchange rate. The smallest way to change that currency would be to use the last decimal point. a very common exception to this rule would be the Japanese Yen which is quoted at the second decimal point
BASE CURRENCY: This particular currency is typically described as an accounting currency or domestic currency. it is the number one currency that is quoted in a currency pair.
CROSS CURRENCY PAIR: this type of currency is not traded within the US dollar. Tradegbp
CURRENCY PAIR: as discussed prior the base currency is the first currency of a currency pair and the second is called the quote currency. the definition of the currency pair is the amount of a quote currency is to purchase one of the base currencies.
QUOTE: described as the counter currency, domestic currency and secondary currency.
In the trading currency industry, you are always in a situation where you compare one currency to another. In some cases, currency research specialist only speaks about half of the currency pair. It is automatically assumed that the currency of the United States dollar is expected. When an investor is looking at the information on the screen for the very first time it can be very confusing for them. However, with a little bit of studying in the background, the trader will be able to understand the information easily.
It is advised that while buying currency you will first want to purchase the base currency and then proceed to the secondary currency also known as the counter currency. To make things easier to understand, when you try to decide to buy, the trader will not only buy in let’s say for example Euro’s but will automatically be buying in United States dollars as well. This is called a pair trade.
A pip is also a very important part of the process. All currencies are quoted in a unit also known as pips. Most currencies have a quote price that has four decimal places to the right, however, Japanese Yen is one of the exceptions. By counting the fourth spot after a decimal point the traders are able to count Pips.
As previously discussed there are 3 lot sizes that are very important within the trade industry. The most common lot size is the size of 10,000. This quote is also described as the mini lot. If for example, a trader decides to trade a mini lot of 10,000 Euro for USD, the amount of 10,000 will equal $1 per lot. However, some currency pairs can have different pip values, so please be sure to check with your broker tradesprime before finalizing any information in regards to the specific numbers.
One of the most exciting things about trading currencies is that it does not involve commissions. A broker will make his money based on the number of Pips between two currencies that are quoted. This is called the spread, and this is how the broker makes their money. This number can change throughout the day causing the spread to either increase or decrease depending on the broker.