The Basics of Forex Trading

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The Basics of Forex Trading

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You may have heard about the forex trading market, but are you familiar with how it works? If not, then you should read up on some of the basics of forex trading. Learn more about spreads, Lot size, Margin rates, and cross-currency arbitrage. These concepts are vital for successful forex trading. Listed below are some of the most important factors you should consider before starting your trading career. The following article will introduce you to the basics of forex trading.

Lot Size

When it comes to forex trading, you must know about lot sizes. Standard lots are equal to 100,000 units of the base currency. That means you would buy 100 units of EUR with 130 units of the quote currency. However, there are exceptions. In some cases, it is okay to use smaller lots, such as micro-lots. Depending on your preference, you can use larger lots, or even small ones. In either case, the standard lot is an ideal choice for new investors.

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Spreads

The main cost associated with forex trading is known as the bid-ask spread. Traders can choose between fixed and variable spreads. These spreads represent the difference between the buying and selling price of a currency pair. Ultimately, you make money when you buy or sell currency in the margin. In forex trading, spreads will differ from broker to broker. There are some tips that can help you choose the best spreads for your trading needs.

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Cross Currency Arbitrage

What is cross-currency arbitrage? Simply put, currency arbitrage is when the price of one currency changes significantly higher than the price of another. For example, say Bank A’s euro/dollar exchange rate is $1.25. You could then exchange one euro for a dollar at Bank B. The difference would result in a profit of 1/8 euro without incurring trading fees. This strategy can be extremely profitable for traders who are looking to make a quick buck.

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Margin Rates

One of the most important factors to consider when you are considering the margin rates for forex trading is how much you are willing to risk. Forex trading requires you to make large deposits and take on large positions. This means you must have a large capital, to begin with, but the margin rates for Forex trading allow you to trade with smaller amounts of money. Margin rates for Forex trading vary by currency pair and are calculated in the main account currency. In this way, you can have a larger position while limiting your risk.

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Currency Pairs Traded

While you can trade dozens of currency pairs at a time, new traders are often better off focusing on just five or two currency pairs. Currency pairs that are cheap and offer the best opportunities for profits are GBP/USD and EUR/JPY. EUR/USD has a strong correlation with GBP/USD and the Swiss franc and is often recommended by Forex traders. USD/JPY is another popular pair for new traders and is often accompanied by a smooth trend.

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Cost of Forex Trading App

One of the biggest concerns when looking at the cost of forex trading is whether it is worth the investment. The cost of developing a trading application can run anywhere from $50,000 to $150,000 depending on the functionality and features. A good developer will be able to give you a trading app with ground-breaking features without compromising security and reliability. Read More

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