Understand Forex Trading Inside Out!

We believe in empowering traders by enlightening them about different terminologies and situations in the forex market. Every trade order is governed by basic forex specifications that include contract details along with the conditions for a successful trade. This includes:

  • Margins: The amount, out of your funds required to open a trading position
  • Spreads: Difference between bidding and asking price for a currency pair
  • Swaps: The interest calculated on the cost or profit of open position held overnight.
  • Pip Value:

    Pip value signifies the value of fourth decimal in currency pair exchange rate (except JPY and HUF currency pair for which pip value is equal to the value of second decimal).

    Majors, Minors, and Exotics:

    The currency pairs generally traded in the forex market are known as majors. They are often quoted against the value of USD that serves as the base currency. Majors are known for great liquidity, tight spread making them ideal for short, medium and long-term trading. Majors occupy a dominating position in the Forex market with a volume exceeding two-thirds of the total volume in forex.

    Minors are known as secondary currency pairs and are not frequently traded. They have less liquidity but are traded heavily in the global financial markets. A striking feature of minors is the ‘cross’- a phenomenon that involves majorly traded currencies against each other without dollar as the base currency.

    Exotics are rare currency pairs that are not generally traded in the market. They emerge from developing countries or market and signify a positive trading opportunity. Wide spreads in exotics make intraday traders repulsive to exotics.

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Calculating Profit and Loss

Metatrader 5 calculates profits and loss in real time and display the same in terms of account currency for every open and closed trade. You need to create a projected profit and loss for yourself using the following illustration.

Buy 1 Lot EURUSD at 1.4723
Buy (+) €100,000 Sell (-) $147,230
Sell 1 Lot EURUSD at 1.4796
Sell (-) €100,000 Buy (+) $147,960

Buy (+) €100,000 Sell (-) $147,230 + Sell (-) €100,000 Buy (+) $147,960
= +$730

In the above illustration, the trade resulted in a profit of $730. The same can be illustrated in pip terms as below”

1 Lot EURUSD pip value = $10
Buy at rate 1.4723
Sell at rate 1.4796
73 pips profit at $10 per pip
= + $730

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