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WHAT ARE THE TYPES OF FOREX INSTRUMENTS?
1. Stocks and Bonds e.g. Nasdaq100, Apple, Nikkei 225, Google, Microsoft etc.
2. Currencies e.g. EURUSD, AUDUSD, GBPJPY, GBPUSD etc.
3. Volatility Indices e.g. V75, v100, v25, Boom and Crash etc.
4 Options
TYPES OF FOREX TRADING
1. Scalping - opening and closing positions within second or minutes and taking small profits based on the lot size. its an expert skill although its attractive to many traders. not recommended for beginners
2. Day Trading - Day trading is all about buying and selling on the same day without holding over night. Day traders hold trades for hours as opposed to scalpers. A day trader closes out all trades before the market closes.
3. Momentum or BreakOut Trading - Momentum trading is where by traders identify the stock that is about to breakout and jump in on the perceived market direction. Momentum trading take several hours to days depending on the stock momentum
4. Swing Trading - Swing traders attempt to maximize gains on stock from 1 to 7 days using technical analysis and price trends. Swing trading requires a significantly large deposit and can potential lead to huge profits / gains. Swing trading is suitable for a person with a full-time job since trading period is in days
5. Position trading - Position traders hold their trades for weeks and months they are not concerned about short market direction or fluctuation. this type of trading leads to considerable gains of between 500 pips to 1000pips
WHAT IS A PIP OR PIPS IN FOREX?
In foreign exchange markets a percentage in profit or price interest point (pip) is a unit of change in the exchange rate of a currency pair. All major currencies expect the Japanese YEN are priced with 4 decimal places or points, a pip is one unit of the forth decimal place / point. for the Japanese YEN is one unit of the second decimal place, because a yen is much closer in value to one hundredth of major currencies. See table below
Currency Pip Position
EURUSD 0.0001
GBPUSD 0.0001
USDJPY 0.01
AUDUSD 0.0001
USDCHF 0.0001
Example 1. If EURUSD rate rises in value from 1.0966 to 1.0967 it has gained value by 1 pip
Example 2. If EURUSD rate rises in value from 1.0966 to 1.0976 it has gained value by 10 pips
WHAT IS A STANDARD LOT IN FOREX?
A standard Lot in foreign exchange markets is equivalent to 100000 currency units. A lot is a standard unit of measure in the forex markets.
If EURUSD rate is 1.0966, one standard lot of the base currency (EUR) will be 109660. That is you need 109660 of quote currency to by 100000 units of the euro
Based on example 1 and 2 above a rise in 1 pip in the EURUSD pair is equivalent to a $10 profit if you bought by 1 standard lot and a rise in 10 pips is equivalent to $100 in profit if you bought by 1 standard lot
Here is how it is calculated for both example and 2
1 pip x 1 lot x 100000 units = 0.0001 x 1 x 100000 = $10
10 pips x 1 lot x 100000 units = 0.0010 x 1 x 100000 = $100
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