In the world of Forex Trading, you will be able to learn and apply many concepts. Some are new to you and others are already being used. New traders need to absorb these concepts like a sponge in order to succeed in the world of forex trading.
The concepts that you will encounter, as a newbie trader, are Pips, Volume, Buying & Selling Short. These are just three important concepts, not four. Buying and Selling Short is a single concept which may be two different things but have the same idea.
Pips
Even if you are a newbie in the market, you may have heard about, read about it or have been told about this already. This word is usually associated with trading system, what you can make in a day, or perhaps you may have been asked, “When you use a certain type of trading system, How many pips can you make in a day?”
Most currency pairs are priced to four significant digits. It is actually the smallest price that you can make in an exchange rate. One-pip would be the increase of a currency from the last decimal point, for example, from 1.5451 to 1.5452. This equates to 1 pip over 100%.
The worth of each pip is $1 for a mini account, and $10 for a regular account. If you made 1 pip in a day, and you have a regular account, what you earned is $10. If you made 10 pips, then you would have $100.
Volume
The Trading Volume, or simply known as “Volume”, represents the number of shares or contracts. It tells the forex traders the amount of money being traded at that certain time. Usually, the volume is measured on a daily basis, or depending on the volume, this can be measured in a longer timeline.
The Foreign Exchange market is known for high volume trading which is usually done when the markets are open. Let’s say you are an investor who buys 10,000 shares of stock from ABC Company. What’s going to happen is ABC Company’s volume will increase by the same amount that you put in. If you sold that amount of shares in the market, then you would have also put in that volume of shares back to ABC Company for that day.
Buying & Selling Short
Buying in Trading means to acquire or purchase a currency pair to initiate a trade. Selling short, on the other hand, sells a currency pair to initiate a trade. They both have the same idea but they’ve a different approach.
You earn by buying when the currency you bought increased. The idea is to buy the currency at a low price, so you can sell it at a higher price in the market.
Selling short is the opposite. You sell a currency that you forecast will decrease its value anytime soon. The idea here is you sell it at a high price and buy it back at a much lower cost. Once you get used to this concept, it will be very easy for you to buy and sell currencies in the market.
Understanding and applying these three concepts will eventually lead you to a successful forex trading career.
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