Along with the basic knowledge on how currencies are traded, you must learn these critical terms. They are, "Exchange rate or quote," "pairs," "pips," and "spread."
First let’s take a look at a Forex Quote:
EUR/USD 1.4779 BUY / 1.4775 SELL
Each quote is composed of two main parts, the pair and the rate. Pairs are the currencies traded on the market. E.g., EUR/USD, CAD/JPY, EUR/GBP. Each pair indicates two different currencies.
EUR/USD or the “Pair” of our example means "Dollars for Euro;" EUR/GBP, similarly, equals "Pounds for Euro." The rate is what you can buy or sell the pair for. 1.4779 BUY means, you can buy 1.4779 USDs for each euro, and 1.4775 SELL means you can sell 1.4775 dollars for each euro.
“Pip” represents the basic unit of profit in forex, so it's essential to understand it. A pip is the smallest increment of a pair. For the EUR/USD or any other pair it's 1/10,000th or the fourth decimal place. The yen is an exception, where the pip is 1/100th. Or the second decimal place.
If you noticed that the BUY/SELL rate wasn't equal, which is called the "spread." All forex markets have a spread of some kind, and habitually a broker will widen them slightly to make profits. This is the same as a stock broker charging per-trade. So in order to be beneficial, you will need to recover the spread.
Practice is one of the most important things in Forex trading. Most Forex Brokers offer practice accounts with fake deposit. Set one up, and play around and watch your funds disappear. After you have played around for a few days, open another practice account, but this time build up or use a precise trading strategy. Choose a method and stick with it. You may or may not make money this time as well, but you will begin to have a fuller understanding of the internal workings of the market. After several weeks, try a different strategy and get fluent at two or three strategies.
The most beginning traders lose their money by starting their account with all the money they have. After you have trained for some months, take the strategy you be familiar with best and some money you can afford to lose. It is definitely best to select a broker based on a comparison list or based on trustworthy reviews. Open a micro account, begin really small, use a disciplined method, and start trading. Know your own psychology and refuse to accept the persuasion to be driven by greed or fear.
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