5 Essential Lessons in Currency Trading Basics

The Concept of Lots

The Concept of Lots

In forex trading, you trade in "lots". Usually, the standard size for a lot is 100,000 for any base currency. In other words, if you deposit USD 500 at a forex broker that offer 1:400 leverage, then you can trade 500 x 400 = 200,000 worth of currencies or 2 lots. Depend on your broker, they can also give you 10,000 lot size.

The Concept of Profit and Loss

It's just like any other trades in the world, you'll want to buy at low price and sell at high price. The only real difference here is you can sell first when the price is high, then buy later once the price has fell. As I have described above, it is possible since you always buy and sell at the same time.

The profit/loss formula for any currency pair with 4 decimal (such as EURUSD) is:

(pip difference x 0.0001) x lot size x lot volume

Note:

- Pip difference is sell price - buy price

- The result is in the right side of currency pair. Illustration: in GBPUSD, the result is in USD.

Illustration:

Buy 1 lot of EURUSD at 1.4500, then sell it at 1.4550

Pip difference: (sell price - buy price)/0.0001 = (1.4550 - 1.4500)/0.001 = 50 pips (profit).

Profit = (50 x 0.0001) x 100,000 x 1 = USD 500.

Learning forex trading basics is not as difficult as it may seem. An easier way to do it is simply open a demo account, then have a step by step lessons that you can practice immediately at the demo account. By using this method, you'll find it easier to comprehend the lessons and concepts. Have a look at forex trading course for totally free step by step course that cover the essential basics of forex trading.

If you willing to learn as you involved in real trades, see the details of a program that enable you to do it safely in Trader Outlook review.

5 Essential Lessons in Currency Trading Basics

By: Matthew Johnson

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