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Wednesday, April 10, 2019


What Is Forex?

The term Forex stands for foreign exchange market or currency market. It is a very fast developing market of currency exchange; whose daily turnover exceeds all the financial markets of the world.

At this time, Forex has the largest Trading Volume in its Currency Trading Market. 



How to understand Forex trading ?

forex trading

When you trade stocks, you can select how many stocks you want to buy or sell (if you plan to go short). With Forex you are trading a currency. You can’t select that you want to sell 7523 euros. Starting point is 1 lot which is equal to 100,000 units of base currency.

1 lot for EUR/USD = 100,000 euros

2 lots for EUR/USD = 200,000 euros

0.1 lot for EUR/USD = 10,000 euros

That's how you can decide how much base currency you want to invest.

Of course, you do not have to have all that money in your account.

Thanks to leverage you have only a division of that amount. In Forex, minimal movement is one pip. For standard basic when 1 lot (100,000 units) move of 1 pip it is equal to 10$ change.

Why people are losing money in Forex?

forex market

It is because they do not understand leverage. It is very powerful, yet very dangerous perk that you get when you decide to trade in Forex. With only some few hundred dollars you can open positions which are as big as 100,000 dollars or euros and larger. It is a game of your experience when you are right in your trade, then you make good money and  when you are wrong… well, you can be out of funds very soon. Because of this new traders should start from lower sizes – micro lots or even nano lots. This is similar to stock market. It is always a bad idea to start investing in stock market and learn how to invest with real 100,000 or 500,000$. The risk is too big. It is easier to learn on smaller capital. Same is with Forex.

Start small – Nano, micro lots

Keep in mind that you won’t get rich fast by trading micro and nano lots, but thanks to them you will stay in the game and you will have opportunity to learn from live trading. The reason why so many traders lose all of their money in the Forex is because :

• their trading capital is too small

• Since they do not understand leverage, they open too big positions.

So yeah, it is like in many advertisements that you could see in the past – “you can open account with just 100$. Leverage even 1:500”. In the end, you need to have one or few positions of 1 lot size to blow up your account.

You should keep in your mind that 1 lot is a base for calculating size of your position.

1 lot = 100,000 units of a currency

In MetaTrader4 you can see it on select list like:

metatrader 4

If you open short on EUR/USD with a size of 2 lots you will be shorting 200,000 euros. One pip will be around 20$. Magic of leverage (and the curse same time…).

There are also smaller base sizes like:

1 mini lot (0.1) = 10,000 units of base currency

If you open long position on EUR/USD with a size of 0.1 then you will be long with 10.000 euro.

In MetaTrader4 it will be as Volume list like:

• 0.1 (one mini lot)

• 0.2 (two mini lots)

• 0.3 …

One pip will be here around 1 euro.

1 micro lot (0.01) = 1000 units of base currency

In MetaTrader4 it will be as Volume list like:

• 0.01 (one micro lot)

• 0.02 (two micro lots)

• 0.03 (three micro lots)

• …

Going long with 0.01 lot on EUR/USD means that you are long 1000 euros. One pip is here around 0.1 euro.

1 nano lot (0.001) is equals to 100 units of base currency

In MetaTrader4 you can see it on select list like :

• 0.001 (one nano lot)

• 0.002 (two nano lots)

• …

Remember, not every broker offer trade sizes as small as nano lots or micro lots. You should check it first in the offer.

Trading sizes are simple. At the beginning you may get confused, because it is different than trade sizes in stock trading. Try to perform some operations on demo account, try different position sizes and you will understand quickly what it is all about with nano, micro, mini and full lots.