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Learn Forex: Important Concepts for New Traders

Posted in Forex Trading, Submitted by Trading Critic on Sat, 2006-04-08 06:47.

The forex market can be a daunting arena for new traders; and for some, simply not knowing simple concepts means huge losses. So it is important to learn forex concepts that are important in trading successfully. As you learn these forex concepts you may find some concepts familiar while others foreign. All it takes is a bit of effort and determination to master a few basic fundamental concepts of forex trading.

As you lean forex one piece of jargon will keep popping up. “Pips? is the vocabulary word that we are talking about. It is perhaps the most used word in forex trading. Traders make money from pip movement. In learning forex you may have noticed that forex currencies are quoted to four decimal places. If you remember your high school maths the first decimal place to the right of the decimal place is the tenths column, the second is the hundredths and the last is the thousandths column. One movement plus or minus one thousandth is one pip movement. It can also be interpreted as a hundredth of a cent. This may be a little confusing so let’s follow up your forex learning with a few examples. If one currency pair is quoted as $1.1278, a one pip increase is $1.1279 while a one pip decrease is $1.1277. When I said that the one pip can also be interpreted as a hundredth of a cent, here’s what I meant: If the currency pair is quoted at 0.7465 cents then a one pip movement either way is simply a hundredth of a cent.

It is important that as you learn forex that you understand the implications of pip movement. In forex you are usually geared in your trading positions. You have a choice between a regular or standard account or a mini account so each pip could have the value of $10 or $1 depending on the amount of leverage you are utilising. So according to your gearing a positive 10 pip movement can either mean a $100 profit for a standard account and a $10 profit for a regular account.

If you are a share trader or have traded in your past you may already be aware of the importance of trading volume. For those who are using this article to learn forex, well here it is for your benefit. Trading volume is used by traders as an indicator of how much money is being traded at any moment in the charts. A general rule of thumb is that high volume indicates market consensus on a price and low volume indicates the opposite. Highest volumes of forex are traded during the time at which the major markets are open for trade.

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