When you execute a Forex trade, you are purchasing an amount of currency, termed a lot. The amount of currency in 1 lot depends upon the type of account you have. In a standard account, 1 lot is usually equal to U.S. $100,000. In a mini account 1 lot is $10,000.
But Forex trading accounts are leveraged, which means you don’t have to own that expensive lot of currency, you just have to control it, and if you do, any profit it earns is yours. To obtain the right to control a lot of currency, you put up a much smaller amount of money in a sort of rental agreement called a margin deposit. In a standard account, to control that U.S. $100,000, you must put up $1,000 of your own money. In a mini account, to control $10,000, you need to put up $100.
The leverage influences the amount of profit you earn, as well. In a standard account, 1 pip of a currency pair that has the U.S. dollar as the base is equal to U.S. $10, in a mini account, 1 pip equals to $1. This means that, should you correctly forecast the movement of the market and execute a trade that earns you 200, if you have a standard account, your profit will be $2,000. If you have a mini account, it would be $200.
To maximize your profits in Forex trading, you don’t have to trade a standard account. If you believe you have a good forecast on the market, you can trade more than 1 lot. To continue the above example, if your successful trade earned you 200 pips and you had purchased five lots of that currency, in a mini account you would have put up $500 of your own money but earned a profit of $1,000. In a standard account, you would have put up $5,000 and earned $10,000.
There are 2 types of orders that can be placed in Forex trading. The most common type is called a market order, and it simply purchases or sells the currency pair at the going market rate.
The other kind of order is called an entry order, and it’s what you use when you want to purchase or sell a currency pair but only at a certain price.
But there are indications that the cable might soon break out of that channel. So, you could place an entry order to purchase but only after the price rises above a certain point. If the Cable breaks out, your entry order would be triggered, and you would purchase the currency pair when the price rises above your pre-arranged point. If it doesn’t, you aren’t stuck with a currency pair that’s going nowhere, and the still-dormant entry order would cancel after a certain length of time.
A stop, also called a stop-loss, is a pre-arranged point where you decide you would like to get out of a losing trade. A limit, also called a take-profit, is a pre-arranged point where you decide you would like to exit a winning trade. Although it may not seem so on the surface, both are important. Properly using stops and limits defines the extent of your risk and encourages disciplined trading.
The Complete Guide To Forex (1 of 10) – https://www.mastersofmoney.com/thecompleteguidetoforex1of10/
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