Foreign exchange for freshers

09.11.2022

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What are the most effective trading instruments, and how should they be employed? This is a common question among rookie traders, and we're here to address it. Let's have a look at how to trade currency pairs as well as other characteristics of the foreign exchange market.

Overview

The foreign exchange market is based on converting one currency into another. A currency pair is an essential instrument for Forex traders. It consists of two currencies and their respective ratios.

As an example:

EUR/USD = 1.0224

GBP/USD = 1.1995

The first currency is the base currency, and the second is the quote currency. The more expensive currency in a pair is the first base currency. There is, for example, the GBP/USD pair and the USD/JPY pair. The British pound is more expensive than the US dollar, whereas the Japanese yen is less expensive.

They do not immediately swap if a base currency depreciates and becomes cheaper than the quote currency. For example, the EUR/USD pair has just fallen to around 0.9980. The currencies remained in their respective positions, with EUR serving as the foundation currency.

The exchange rate of a currency pair is calculated using the following formula:

One quotation currency unit / one base currency unit = exchange rate

It would be best if you kept in mind that the foreign exchange market is decentralized. It denotes the absence of a central exchange where currency pairings are traded. The market determines the base rate.

The EUR/USD rate, for example, is 1.0224. This means that 1 EUR equals 1.0224 USD.

The US dollar is the quote currency in the majority of currency pairs. The USD is regarded as a world currency and is used to calculate the exchange rate of other currencies.

The most widely traded currency pairs are:

  • USD/CAD
  • EUR/USD
  • USD/JPY
  • USD/CHF
  • GBP/USD

These are the world's most traded currency pairs. They have the highest daily trade volume.

Minor currency pairs are also available. Their market share is lower than that of major currency pairs.

Some minor currency pairs are as follows:

  • USD/NZD
  • USD/TRY
  • USD/NOK
  • USD/MXN
  • USD/SEK

What is the best way to trade currency pairs?

The foreign currency market is open 24 hours a day, seven days a week. This implies you can swap currency pairings whenever you wish. Foreign exchange trading may be especially appealing because stock market trading sessions are limited by stock exchange operating hours and business days.

Before we describe how to open a foreign exchange position, there are some facts to consider.

To begin, one currency lot is 100,000 units in size. The base currency is always units. When you trade one lot of USD/JPY, your contract size is 100,000 USD. 100,000 British pounds is a large amount of GBP/USD. You can always open a position on a lot with a fraction.

Secondly, mind the commissions. When you trade currencies, it is better to use intraday strategies — the reason for that is overnight fees called swaps. A swap is charged when you keep your foreign exchange position for the next day. The Specifications page of our website contains a description of these fees.

Open a position

Find the Market Watch panel in our web terminal and select the “Forex Majors” list. Then, choose a currency pair. We picked the GBP/USD as an example.

 

Select whether you want to buy or sell. A window appears once you click one of these.

Set your deal's volume, then your stop-loss and take-profit.

Congratulations! The transaction is now open.

Position illustration

As an example, consider the GBP/USD pair. Because the political situation in the United Kingdom has been volatile this summer, the pound sterling rose from 1.1188 to 1.2021 on July 18, as investors worldwide awaited any signals about who would be the next Prime Minister. Given that, consider the following:

You decide on one lot (100,000 GBP)

Your position's open price is 1.1188

1.2021 (+0.0833) is the closing price

Your profit might have been as high as $8330! When no leverage is used, this is a fair profit for one position.

How to Recognize a Trend

Because some events anticipate currency exchange rates, news research is helpful for trading decisions. For example, interest rate hikes cause national currencies to appreciate, whereas news of political or military turbulence causes national currencies to fall. On our Telegram channel, we share news and quotes every day. Follow it to anticipate market trends!  

Grand Capital's technical analysis section of the website is another dependable source of trading ideas. Every day, our finance specialists generate trading signals. Don't be afraid to employ it in your trade.

Try trading currency pairs with a 40% deposit bonus on a Standard account!

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