Forex Trading Part 2

In the last post, if you missed it, the primary premise was to help you understand how the forex market works and more importantly, the basics of forex trading and how to trade currencies on the forex market if you are a beginner.

In this post, I am going to explain it a bit further....

I used a rather large overview to help you understand forex trading. I mentioned that if I was going to England and wanted to exchange my $2000 of US currency to pounds, and the english pound was worth $1.10, then I would be making money that way. In other words, I would be making 10 cents on the dollar.

Forex Trading is actually a little more complicated than this. The problem is that forex deals with quantities much smaller than a penny.


These are called PIPs or which is short for PRICE INTEREST POINTS. These "PIPS" are in very small increments (1/100th of a cent). Hence why you see numbers like 1.4002 or 1.1113.

And even a small movement from let's say 1.4002 to 1.4010 is where fortunes are made AND lost. And here is why.....

When you are doing forex trading, you are trading large volumes of currencies. And this is where the little guy with a few thousand dollars can get involved with the forex market.

Most forex brokers will let you trade on 100:1 ratio meaning that a "lot" of $100,000, you need just $1,000 on margin. A small pip move using a 100:1 margin can spell pure unadulterated elation or misery depending on what you are willing to lose.