Automated Forex trading explained:
Foreign exchange trading explained:
The basic language used by Forex traders.
Leverage: Forex brokers let you select a level of leverage which tipically ranges between 1:20 to 1:200. This leverage amplify both your profit and your loses.
Trading Pair: Several pairs are traded, i.e. EUR/USD, USD/JPY. Pairs are reported as rates resulting from dividing the first component by the second one. When you open a position in any specific pair you either buy or sell it depending on what you think the trend will be. This operation, whether it is a buy or sell order will be immediately taken from your account (the actual amount taken is a function of the leverage you trade with). Then when you close the trade your account will receive the resulting amount (after returning all the money borrowed from the leverage system).
Lot: Is the measure of currency traded. Conventionally a standard lot (or simply a lot) is the equivalent to USD$100,000. A minilot is USD$10,000 and a microlot is USD$1,000.
PIP: Short for percentage in point. The smallest number in the rate of a pair: i.e. EUR/USD pair=1.5526. Here pip is referring to the number 6. An increase of 3 pips is in this case will be EUR/USD pair=1.5529.
PIP value: is the translation in currency for each earned/lost pip.
Long: To take a long position means to open a trade with a buy order, hoping that the pair rate will further increase.
Short: To take a short position means to open a trade with a sell order, hoping that the pair rate will further decrease.
Stop Loss (S/L) Order: An instruction for the broker to close the trade immediately if the loss reaches a determinate number of pips, thus limiting the loss.
Take Profit (T/P) Order: An instruction for the broker to close the
trade immediately if the profit reaches a determinate number of pips,
thus realizing the profit.
Computer Equipment requirments for Forex trading:
Forex Money Management:
Money management is at the same time the guardian or the thief of your capital – you decide.
The problem is that it is not always a conscious decision, subliminal impulses fueled by greed and fear makes us decide wrong and whenever we realize it, it’s too late. Several works have demonstrate the futility of taking huge risks, this naïve approach of “getting rich overnight” will results always in big loses. And if once it does result in profit, further greed-fueled risk taking behavior will transform it in a big loss for sure. Let’s see an example of bad money management:
You decide to open a forex
trade: You have a USD$10,000 account. Therefore your margin is USD$10,000.
You decide to trade the EUR/USD pair. You are convinced that there is a
big LONG trend developing
Now you enter a LONG position (i.e. buy the EUR/USD pair hoping for it to increase). You buy 1 standard Lot of EUR/USD (you are buying a lot of this pair for the equivalent of USD$100,000). You have probably confidence due to the fact that your leverage is 1:100 so only $1000 from this money is really yours. Read more from Forex Robots
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