Professional Forex Traders
Pips, Profit, Leverage, and Loss
Over the years, professional forex traders have come up with some shorthand to make forex trading easier so you can quickly make decisions about your trading without needing to take out a calculator every time. Learning Forex Signal Market
What is a “Pip”?
A pip is the unit you count profit or loss in. Most currency pairs, except Japanese yen pairs, are quoted to four decimal places. This fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count “pips”. Every point that place in the quote moves is 1 pip of movement. For example, if the EUR/USD rises from 1.4022 to 1.4027, the EUR/USD has risen 5 pips.
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How Leverage Works
As mentioned before, all trades are executed using borrowed money. This allows you to take advantage of leverage. Leverage of 200:1 allows you to trade with $10,000 in the market by setting aside only $50 as a security deposit. This means that you can take advantage of even the smallest movements in currencies by controlling more money in the market than you have in your account.
While leverage can be advantageous in increasing your profits, it can also significantly increase your losses when trading, so it should be used with caution. Start trading in small sizes so that you don’t take on too much risk.
But how do you know which currencies will rise and which will fall?
About Us Over the years, forex traders have developed several methods for figuring out how far currencies will go.
- Fundamental Analysis: Since currencies trade in a market, you can look at supply and demand. This is called fundamental analysis. Interest rates, economic growth, employment, inflation, and political risk are all factors that can affect supply and demand for currencies.
- Technical Analysis: Price charts tell many stories and most forex traders depend on them in making their trading decisions. Charts can point out trends and important price points where traders can enter or exit the market, if you know how to read them.
- Money Management: An essential part of trading. All traders need to know how to measure their potential risks and rewards and use this to judge entries, exits, and trade size.