Forex Trading – Some Common Questions Answered
Q. What is Pip?
Answer: PIP is an abbreviation for Percentage In Point. It is equal to 1/100 of 1 percent, or .0001. It is typical of forex trading to quote currency prices to the fourth decimal. For example, if the EUR/USD pair moves from 1.4410 to 1.4430 we say it has moved by 20 pips. And suppose if the EUR/USD goes up by 1%, we say it has gone up by 100 pips.
Q. What is a meant by forex spread?
Answer: The spread is the amount of pips between the bidding and the asking price. Forex brokers use spreads to make money on every forex trade placed through their network. The spread always stays around the actual price that the forex broker is paying. So when forex trading broker buys, he earns from one end of the spread and when Forex trading Broker sells he earns from the other end of it, and vice versa. By the time he closes the trade, he would have always paid the spread
Question: What are the best forex trading hours?
Answer: The best time to do trade trading in the forex markets is between 8:00 GMT and 16:00 GMT. The reason is that these are basically the hours of the London market where the last 5 hours are in overlap with the US market. This is the time when most traders, financial institutions, and banks are in the markets making their trades. It is widely accepted as the most potentially profitable time for forex trading.
Question: What is the US Dollar Index?
Answer: The US Dollar index was created to measure the value of the United States Dollar against a bunch or basket of foreign currencies. The basket of currencies generally comprises the Euro, Japanese Yen, Canadian Dollar, British Pound, Swedish Krona, and the Swiss Franc.
Question: Is forex trading risky?
Answer: Forex trading can be an extremely risky proposition if you don’t use proper risk management strategies and dive into it uninformed with a view to make a quick buck. In fact Forex trading is considered to be one of the riskiest forms of investing one’s hard earned money because of the availability of leverage. Forex traders who are novice at the game can minimize the risks by learning, and implementing appropriate risk management techniques and developing a fool-proof forex trading plan. Some people might also claim that there is nothing called a Fool Proof Plan, which is partly true. The basic point to remember is that risk management strategies have to be in place to minimize risk.
Question: How much money does one need to get started in the forex market?
Answer: The amount of money that an aspiring investor will need to open an account depends on the type of broker you have chosen. While some brokers will allow you to open an account with as little as $1 others that are slightly more expensive may require at least $300. Just in case you feel that are not yet ready to put in real money yet, you can always start with a demo account.
About Author Copyright 2009 – Vahid is a forex trader and forex market analyst. His website is the most reliable reference for advanced, intermediate and beginner forex traders: Trend trading in forex.
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