Cerita Pelit Majikan, Makan Siang Cuman Dikasih Makanan Kayak Gini
ntroduction to Forex Trading
If you’ve ever traveled internationally, you’ve touched on
the world of forex trading, though you may not know it: When you stepped off
the airplane, one of your first stops probably was to exchange your money for
the local currency.
What is forex trading?
Forex trading turns that little airport or ATM currency
exchange into a sport. When investors trade forex — commonly called FX —
they’re buying and selling currencies over the foreign exchange market. It’s
the largest financial market in the world but one in which many individual
investors have never dabbled, in part because it’s highly speculative and
complex.
A little healthy trepidation serves investors well. Active
trading strategies and complex investment products don’t have a place in most
portfolios. We strongly recommend low-cost index funds for long-term goals like
saving for retirement.
But maybe you have that balanced portfolio in place, and
now you’re looking for an adventure with some extra cash. Provided you know
what you’re doing — please take those words to heart — forex trading can be
lucrative, and it requires a limited initial investment.
Trading forex is different from stock trading in several
ways:
Forex trades are made over the counter — trader to trader
or through forex brokers or dealers — rather than through a central exchange.
Because traders work across time zones, the forex market is
open 24 hours a day, five days a week.
Currencies are always traded in pairs, and prices are
quoted in pairs.
Currency prices fluctuate rapidly but in small increments,
which makes it hard for investors to make money on small trades. That’s why
currencies almost always are traded with leverage, or money borrowed from the
broker.
Because forex is traded in pairs, you’re always exchanging
one currency for another — buying one, selling the other — just like you would
at a currency exchange kiosk. There are seven currencies known as the “majors,”
or the most often traded: the euro (EUR), U.S. dollar (USD), Canadian dollar
(CAD), British pound (GBP), Australian dollar (AUD), Japanese yen (JPY) and
Swiss franc (CHF). The “major pairs” are these currencies paired with the U.S.
dollar.
Understanding forex lot sizes
Forex is traded by the “lot.” A micro lot is 1,000 units of
currency, a mini lot is 10,000 units, and a standard lot is 100,000 units. The
larger the lot size, the more risk you’re taking on; individual investors
should rarely trade standard lots. If you’re a beginner, we recommend sticking
to micro lots while you get your footing.
And hey, this seems like a good place to note that
reputable forex brokers almost always give investors access to a demo trading
account. It’s much more fun to lose play money than real money, especially
while you’re learning the ropes.
How to read a forex quote
Being able to read and really understand a forex quote is,
unsurprisingly, key to trading forex. Let’s start with an example of an
exchange rate: EUR/USD 1.12044.
The currency on the left (EUR) is the base currency and is
always equal to one unit — 1€, in this example.
The currency on the right (USD) is called the counter or
quote currency.
The number is what the counter currency is worth relative
to one unit of the base currency. When that number goes up, it means the base
currency has risen in value, because one unit can buy more of the counter
currency. When that number goes down, the base currency has fallen. In this
example quote, 1€ is equal to $1.12044.
You’re always buying or selling the base currency. Within a
pair, one currency will always be the base and one will always be the counter —
so, when traded with the USD, the EUR is always the base currency. When you
want to buy EUR and sell USD, you would buy the EUR/USD pair. When you want to
buy USD and sell EUR, you would sell the EUR/USD pair.
Bid and ask prices
As with stock trading, the bid and ask prices are key to a
currency quote. They, too, are tied to the base currency, and they get a bit
confusing because they represent the dealer’s position, not yours. The bid
price is the price at which you can sell the base currency — in other words,
the price the dealer will “bid,” or pay, for it. The ask price is the price at
which you can buy the base currency — the price at which the dealer will sell
it, or “ask” for it.
The ask price tells you how much of the counter currency
(USD, in our example) it will take to buy one unit of the base currency (EUR).
The bid price tells you how much of the counter currency
you can buy when you sell one unit of the base currency.
The difference between these two prices — the ask price
minus the bid price — is called the spread.
The bid and ask are typically shown as EUR/USD bid/ask, and
the ask is represented with only the last two digits. For example, EUR/USD
1.12044/57 means that the bid is 1.12044 and the ask is 1.12057. You could sell
1€ for $1.12044 (the bid) and buy 1€ for $1.12057 (the ask).
The bid price is always lower than the ask price, and the
tighter the spread, the better for the investor. Many brokers mark up, or
widen, the spread by raising the ask price. They then pocket the extra rather
than charging a set trade commission.
The last salient point about pricing is that the spread,
earnings and losses are measured in a unit called a pip.
What the heck is a pip?
Remember when we said forex trading was complex? We weren’t
lying. In stock trading, you might hear or read that a stock’s share price went
up a point, or $1. A pip is the forex version of a point: the smallest price
movement within a currency pair.
A pip’s value depends on the trade lot and the currency
pair. If you’re trading a pair that has the USD as the counter currency and
you’re using a dollar-based account to buy and sell, the pip values are:
Micro lot (1,000 units): pip = 10 cents.
Mini lot (10,000 units): pip = $1.
Standard lot (100,000 units): pip = $10.
If the USD is the base currency, the pip value will be
based on the counter currency, and you’ll need to divide these values for
micro, mini and standard lots by the pair’s exchange rate.
To figure out how many pips are in the spread, subtract the
bid price from the ask price: That gives you 0.00013 in our EUR/USD example.
For most pairs, the smallest price movement happens in the fourth digit after
the decimal, so the spread here is 1.3 pips, or $1.30 on a mini lot. That’s the
cost of the trade.
How forex investors make (and lose) money
If the above explanation has you thinking you might be the
next George Soros, you’re probably equal parts optimistic and fearless.
As noted at the start of this post, forex trading is risky.
You’re making a bet that what you buy will go up in value. With forex, you want
the currency you’re buying to go up relative to the currency you’re selling. If
you bought a mini lot of a currency and it goes up 1 pip in value, your
investment would be worth $1 more. If it goes down 1 pip, your investment would
be worth $1 less.
That’s easy enough to understand — after all, whether
you’re buying a house or the euro, you want what you buy to be worth more than
you paid for it. Where things get hairy is that leverage mentioned earlier.
Using your leverage
Leverage allows you to borrow money from the broker to
trade more than your account value. Many brokers offer leverage of up to 50:1
on major pairs, which means you can initiate trades up to 50 times larger than
the balance in your account.
Let’s go back to our earlier example. Let’s say you want to
buy EUR/USD at 1.12044/57. To trade a mini lot, or 10,000 units, you’d need to
pay $11,205.70 for 10,000 euros. You might not want to put up that much on one
trade, so you’d use leverage to enter the position with a smaller amount:
10:1 leverage would require $1,120.57 from your account
(one-tenth of the trade value).
20:1 leverage would require $560.29 (one-twentieth of the
trade value).
50:1 leverage would require $224.11 (one-fiftieth of the
trade value).
The upside? Because currency movements typically are small
but frequent — often under 100 pips a day — leverage allows you to buy more
with less cash upfront, increasing your return if the currency you’re buying
goes up.
The downside, you may have guessed, is that leverage also
increases your losses if the currency you’re buying goes down. The more
leveraged your account and the larger the lot size you’re trading, the more
exposed you are to a wipeout.
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