How Does Forex Trading Work – Here are a Few Things to Keep in Mind

Forex trade is a connection between a buyer and seller who exchange currencies as per need. Previously, forex trading [เทรด forex, which is the term in Thai] was done through a forex trader. Since there have been rapid technological advancements, CFDs have taken control. CFDs are products that are leveraged which open a fraction of the trade or exchange. This is highly beneficial but equally risky. There are some key phenomena that you must know about forex trading.

Spread in Forex Trading

For a forex pair, there is a difference in prices to quote. This difference is called spread. When you open a forex position, you will have two prices. A position opened for long has to be traded on the buy price. It is slightly above the market price. For a short opened position, you have to trade at the selling price, slightly lower than the market price.

Forex Trade Lots

Currency in forex trade is exchanged in batches. The batch can be as small as 100,000 units. Since it is not possible for a trader to have so many currency units, most trades are leveraged.

Forex Trade Leverage

Leverages allow a trader to get full exposure to currency but the gain is a fraction of the asset. You place a small amount called margin but get a profit according to the full value of the asset once the leveraged position is closed.

Forex Trade Pips

A method that measures movement in a forex pair. The fourth decimal place in both currencies of the pair moves a single unit. For example, if GBP/USD moves from $2.98612 to $2.98722, it has moved one pip.

Before you get into forex trading, it is important that you know some basic phenomena included in a trade. If you know the basics, trading will become easier.