Have you ever owned a foreign bill? Regardless of where you live when you get your hands on a new type of currency, it intrigues you. Currency is not just a piece of paper thrown together with the country’s logo on it. But it also represents the nation’s culture, history, and economic status. And currency trading is what gives it life and meaning.
More importantly, there is a business that can be conducted when dealing with currency trading. And because a large number of increasing stock traders trade in high volume it forces the stock market to move the currency market as well. Thus through that currency trading got its start. But how can you utilize the currency market in your favor? Moreover, how do you start trading away currencies?
Well, all those questions will be answered here as we discuss the simple basics of currency trading.
How Does Currency Trading Work?
The currency market is a 24-hour market that operates from Monday to Friday. However, do not be fooled by the 24-hour promise. As there are sessions that divide the trade sectors. Specifically, the European, Asian, and United States sessions.
Most of what is being traded during those sessions are during their market hours. For example: during the United States session is when most of the U.S. Dollar exchanges are being made. Thus that the current currency during the said session will have a higher volume than others. As a result, you should stick to a currency pair that you are comfortable in rather than buying and selling every single form of currency.
The lot that we are talking about is not the area size of a property. Instead, the lot that we are focusing on is all about securities trading. A security is the overall number of financial instruments, like a bundle. To put it simply, it is the minimum and maximum amount of shares or currencies you can purchase at any time. Think of it as purchasing a bundle packed together. Although you can order lots below 100 and those will be deemed an odd lot. And that in itself causes the trading price to dip.
With currency trading, there are 3 types of lots to be exchanged. These 3 types are named after their respective sizes such as a micro, a mini and the standard. And they are in lot sizes of 1,000, 10,000, 100,000 respectively.
Currency Trading Pairs
As mentioned earlier, currencies are traded in pairs. But what does it mean? Well, unlike the stock market where you can buy and sell as much stock as you want, the currency market requires you to buy one currency and sell the other. Regardless of the currency, an exchange of currency must be required.
A pip, on the other hand, is the smallest possible increment in a decimal point. The currency market constantly moves but you should note that you won’t be jumping from $1 dollar to $1,000 all in one night. With currency trading what you should be looking out for are the pips. And don’t let the small increments dissuade you from trading because the small increments can escalate into larger sums later on.
One pip is typically equal to 1/100 of a single percent.