2.
Trading Foreign Exchange.
How to read a currency pairing? Lot sizes vs
amounts...
When we trade in the markets, we buy or sell in
round amounts of the
‘base currency’
in any currency pairing, and our profits or losses
are calculated in the
‘secondary currency’,
as the amounts of secondary currency will vary when
we trade at different exchange rates. e.g. in GBP/USD,
the base currency is GBP and the secondary currency
is USD.
As the price, or exchange rate of each currency pair moves, we
will have opportunities to buy and sell and to make money.
Here the price has dropped to 1.9536/41 giving an opportunity to
buy if we think the market will then move higher.
We can choose to trade in any number of
‘lots’
by selecting this in the drop down box under the price, with one
lot being equal to 100,000 of base currency. The maximum number
of lots we can trade in is determined by the amount of margin we
have in our account. With US$25,000 margin, we can trade a total
open position of up to 12 lots or US$1.2 million.
In GBP/USD, for each ‘pip’ or ‘point’ that the market moves in
our favour, we will make US$ 10 profit if we take a position of
one lot.
So when we buy 1 lot in GBP/USD at 1.9541, we are buying 100,000
sterling each time, in exchange for USD 195,410. If we
subsequently sold the same 1 lot at 1.9551, our profit
would be 10 ’pips’, and we would have made US$100.
3. Trading equipment and basic setup to begin trading
PC Setup
You will need:
-
a fast PC with plenty of RAM to run several programs
simultaneously
-
a sound internet connection
-
Preferably 3 screens to give you plenty of display acreage
-
Online technical analysis subscriptions
-
A margin broker account, demo to begin then going to live
account trading
ISO
codes