Who Knew There Was So Much To Know About Trading Forex?
After studying, practicing and demo trading Forex, you decide you’d like to try trading with a live account. You have one set up, but you admit that it’s smaller than small. Will the strategies you’ve been working on continue to bring you good results when you go live? Is it a good idea to look into micro accounts? Here’s some answers to those questions.
At Apex Investing Institute, you can learn many different strategies. When trading MicroFX, similar to any other market, you can use the things you’ve learned like:
- Apex Entries,
- Apex Add-ons,
- Apex MVP Reversals
- Apex BMX Reversals
- Momentum Scalps
- Profit Poppers
Some of the other strategies are better used on options such as: call/put/spread options/binaries.
If your account is “smaller than small”, looking into MicroFX, is a great idea. It’s the same thing as mini or lot sizes-- and it’s REAL! It may not be much, but it is real and that changes the psychology of your trading. Trading Micro is a great next step after demo trading, because you won’t get cremated and you won’t take it lightly like you might have done when trading demo. Remember while trading, it’s important to follow the money management rules for using 5% per day. If you do that, you will be off to a good start on helping your account grow. You will be able to trade and save faster than you might expect.
If you aren’t familiar with trading the markets, the following might fry your brain! The forthcoming information is easier than it seems, but at first, it seems very complex. Let’s make it as simple as possible. Basically, you need to know that if it’s an FX pair with USD, then each pip is $0.10 for a micro lot, $1.00 a pip for a mini lot and $10.00 a pip for a standard lot. Read on for further information!
Currency Conversion USD Quote Currencies
When you buy or sell Forex, you are trading the “base” forex currency pair. Left side is the base currency and right side is the quote currency. For example, when you look at EUR/USD, EUR would be the base and USD would be the quote. To clarify, if you bought a micro lot of 1,000 units of EUR/USD, you would be buying 1,000 euros at the currently quoted USD quote rate. If EUR/USD is 1.300, this is saying that for every 1 euro (base currency), you would get 1.30 USD (quote currency). This is to say that for 1,000 EUR (bought EUR/USD), you have bought 1,000 euros in exchange for giving 1,300 USD. In most cases in the United States, this means that you put up 50:1 leverage, or 2%. So, $1300/50=$26 in margin/leverage. If the currency fluctuates, you have an open P/L so that is added to or subtracted from your live account as well.
Pip Value and Margin
Here’s a fun fact for you! Pip stands for price action point for the smallest increment price change. There are even 1/10 and ¼ sized pips!
If you did a micro lot of 10,000 units on EUR/USD at 1.3000, then you would put up $26. Each pip would be worth $0.10 or ten cents.
1 divided by 1.3000 = .7 euros value per pip.
Here’s a little more math to help it make sense: 1.3000 x 1000 = 1300 USD
1.3000 is 13,000 pips x .10 (cents) = $1,300 USD = 1,000 EUROS.
If you did a mini lot of 10,000 units on EUR/USD at 1.3000, then you would put up $260. Each pip would be worth $1.
If you did a standard lot of 100,000 units of base currency of EUR/USD at 1.3000, then you would put up $2,600. Each pip would be worth $10.
USD base Currencies
It changes a little when you get into a USD base currency. For example’s sake, let’s look at USD/JPY, which is currently quoting at 101.80. Remember, the left side is the base currency and the right side is the quote currency. So, USD (Base)/JPY (Quote). If you buy a micro lot of 1,000 units of EUR/JPY, you are buying 1,000 USD at the currently quoted JPY quote rate. That is to say that for every 1 (base currency) USD, you would get 101.80 (quote currency) JPY. To figure out the worth of the pip on a Micro lot, you would do the following: 1/101.80 = .009823, which you can simply round to $0.10 or 10 cents.
Margin is super simple when working with a USD Base Quote currency because it is just the amount divided by 50. (Note: 50 is for 50:1 leverage, meaning 2%. You could also multiply the number x .02 and get the same number.) To show the simplicity of this, look at the following: $1,000/50 =$20 OR $1,000 x .02 = $20.
A mini lot would be ten times that so it would be $0.98 a pip. .009823 x 10 = .98
Margin for the mini lot = $10,000 x .02 = $200
A standard lot is ten times a mini lot, so that would be 100,000 units of the base currency (USD).
Again, .009823 x 100 = $9.80 per pip.
Margin on a standard lot would be $100,000 x .02 = $2,000
Hopefully, your brain isn’t feeling fried, because it gets a little more fun when figuring out Non-USD currencies. As an example, if you do GBP/JPY, you have to convert it into GBP and then convert the number of pound into dollars. Here is the way to figure this out:
GBP (Base)/JPY (Quote) is quoting at 172.90. For 1 GBP, you get 172.9 JPY. In order to convert GBP/JPY, you need to know the rate of USD/JPY. The numbers we will use for this example are as follows:
GBP/JPY 1,000 units at a price of 172.90 with the USD/JPY priced at 101.82.
(Think Mathematically now.)
GBP/JPY divided by USD/JPY =GBP/USD as the two JPY cross each other out.
So, 172.90 / 101.82 = GBP/USD 1.6980 at a value of 1/1.6980 = .59 GBP. Now .59 x 1.6980= 1, or .10 on a 1,000 micro lot.
1,000 Pounds at a USD quote of 1.6980 = $1698 USD x .02 x 1 = $33.96 in margin on a micro lot. That would give you $339 margin on a mini lot and $3390 margin on a standard lot. The worth of each pip would be 1.00 on a mini lot and 10.00 on a standard lot.
Trading on Nadex is easy because every pip is worth $1.00, no matter what the base or quote currency is! The smallest size is one, so the smallest pip’s value is $1.00.
If you can understand all of this, and your brain isn’t fried, then the greatest markets in the world are open to you to trade: The foreign exchange markets. That is the biggest market in the world!
To learn even more about how to trade Forex, go to www.apexinvesting.com. Apex Investing Institute offers free education, and free access to the Nadex Binary and Spread Scanner Analyzers. Member traders are invited to trade in the rooms, take advantage of trade signal services, have key indicators and access the Apex Forum. The forum content is updated daily and includes over 7000 members. In a supportive learning community of seasoned as well as up and coming traders, traders of all levels learn how to trade Nadex binaries and spreads in depth, as well as futures, forex, stock and options, and gain an edge for successful trading overall.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.