Starting Forex Trading- Lots and Leverage explained
Are you starting Forex Trading This Article quickly explains Lots, Leverage, & Pips. This will covers how currency lots are traded to help better know how to plan your trading system and manage your funds. Pip is short for Price Interest Point, also called points. This suggests that small movements in currency costs can create big profits.
The cost of a pip isn't a set cost. If you are trading with a standard lot in forex account, a pip is worth $10. If you are trading a mini lot, a pip is only worth $1, so the 1 micro lot trading is equal to 10 cents. The value of a pip changes based on the dimensions of your account, because the dimensions of your account has effects on how much currency you can leverage.
If you are trading in dollars , the standard account has a value of $100,000 USD . A mini lot is 10 thousand units of base currency. If you are trading mini lots, you can leverage $10,000.
This is the rationale why a pip in a mini account is worth less than a pip in the standard full sized account. While Currency exchange trading lets you leverage more funds than you have, this should be a perilous weapon.
While you can make profits on funds that you leverage ( rather than own ), you may also have losses amplified too. There are some methods to manage your risk when trading foreign exchange. If you've got an interest in trading forex, you have to have a definite trading plan.
You'll place something known as a stop loss order.
Stop-loss orders the classic way merchants minimize risk when placing an entry order. A stop-loss order to exit your position if the currency price reaches a certain point. If you are taking a long position, you would place the stop loss order below current market cost.
For a short position, you would place a stop loss order above current market cost. This strategy allows you to manage your risk and, just as the name implies, stop your losses at a certain point. Foreign Currency Trading can be quite profitable and and amazing way to invest.