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July 24, 2018

Learning the Basics of Currency Trading

Currency trading has a massive turnover, and this is a market that had a daily average turnover of $4 trillion in 2010 and over $5 trillion in 2016. Trading in currencies can be very lucrative, or it can cause a trader to lose all of their money.

It’s important to know the basics before diving into trading currencies.

The Eurozone is considered one of the “eight majors,” and you’ll also find the trading markets in the United Kingdom, United States, Australia, Canada, Japan, New Zealand and Switzerland are the most active.

But since these countries have complex financial markets, they’re a great option for trading in currency.

Trading is 24-Hours During the Week

Currency is traded day and night, and there’s some overlap in the three sessions available. Asia, US, and European markets all have their own trading sessions which keep markets open. Trading does come to an end on Friday evening through Sunday evening when it restarts.

Volumes change during sessions so you can expect a higher volume of the USD during United States trading hours as an example.

Pairs and Pips

Pairs are what you’re trading, so you’ll be buying one currency and selling another. Pips are the increment of a trade, and this is often 1% per pip, or 1/100. Lots are what currency is traded in. So, using the USD as the currency, a micro-lot would be $1,000 or 1,000 currency units.

Trades then, using a pip in a micro lot would be $0.10.

Mini lots are 10,000 units, or $1 while a standard lot is 100,000 units, or $10. When using a pip, you’ll be able to make losses easier to manage in the micro lot because the currency will move up or down in pips.

Losing $0.10 is not much compared to a $10 loss. Pips can vary by as much as 100 in a session so the losses can be massive for anyone with a standard lot.

18 Currency Pair Norm

Trading is often done in the major 18 currency pairs. This means a lot less research involved with the investor compared to stocks. Yes, other currencies may be added, but the standard 18 pairs are most common.

Less trading options is a good thing for beginners.

Politics Plays a Major Role in Currency Trading

Currencies are highly dependent on politics and the economy. A good example of this can be seen just this past week in the United States. US President Donald Trump stated that economic growth was being hampered by the strength of the greenback and higher interest rates.

The comments sent the dollar falling.

New economic data from across the world can change the direction of a currency. When there is too much currency in circulation, currencies will also fall which needs to be considered. So, while it’s easier to keep track of just 18 major pairings versus thousands of different stocks, it’s also difficult to keep on top of all of the potential data releases which may have a negative impact on currency pairings.

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