Learn Forex: Important Concepts for New Traders

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.

Finally we will discuss the most basic concepts of selling and buying into forex positions. When you think and ponder about buying and selling in leaning forex pursuit you may fall into the trap that they are easy concepts to master. They are easy if you put a little consideration and forethought into your initial trades about your buying and selling foreign currency. You can make money on both sides of the trade – you can either have a long view – a view that the currency will increase or a short view where the currency will decrease. If you don’t believe you can make money when something falls in value, keep reading our articles to understand that you can also make money when the market falls. So when you buy into your forex trading position you are hoping the currency will rise in value. If you sell short to open a trade you want the value of the currency to fall.

So as you learn forex and understand how the foreign exchange markets work day to day, you are will be rest assured that these simple concepts will form part of your foundation of forex trading. You will need to remember and understand the definition of a pip, how gearing works for and against you, trading volume and finally how you enter a trade either with a long or short view.

George Polizogopoulos is a staff writer for MyShareTrading.com, an information hub for traders: forex, shares, derivatives, CFD's. MyShareTrading.com also provides free blogs for traders who wish to share their market experiences. More information about learning forex is available on our trading website.

This article "Learn Forex: Important Concepts for New Traders" can be found in our Foreign Exchange (FX) Markets category.

You may republish this article on the condition that it is not edited and all html links to our website is kept intact. MyShareTrading.com © 2006 All Rights Reserved.