How To Trade
Both trading and investing involve the exchange of money and include some risk. Conducting 'Fundamental' or 'Technical' analysis is one technique to attempt to mitigate risk while investing or trading.
FX Trading Overview
Fundamental analysis is a technique used to evaluate a company's performance and calculate its stock's intrinsic worth.
- FX is an acronym for 'Foreign Exchange,' and it is the world's biggest and most liquid market.
- Each pair is comprised of a "base" currency (on which transactions are conducted) and a "term" currency (quotation currency)
- The exchange rate indicates the value of one unit of the base currency.
- When you purchase a pair, you are simultaneously purchasing the base currency and selling the term. For sell positions, the reverse is true.
- The most frequently traded pairings are the major,' which represent the world's biggest economies.
- Traders "purchase" at the ASK price and "sell" at the BID price. Traders will "sell" at the BID price and will "close" at the ASK price.
- The 'Spread' is the difference between the Ask and Bid prices.
Trading Charts
- O-H-L-C denotes the Open, Highest, Lowest, and Closing prices for the specified time.
- Charts are generated using just 'bid' prices; the live 'ask' price may be added to charts as a horizontal line.
- Line charts are the simplest - they display simply 'closing' prices. -Bar charts cover all of the period's data.
- Candlestick charts are the most common and visually accessible chart type since they exhibit all of the period's data.
- Candles are made up of two components: a 'Body' (open and closing prices) and 'Wicks' (high & low prices)
Pips & Points
- Pips, points, and ticks are all terms used to indicate market price movements.
- In foreign exchange, a pip is often the fourth digit after the decimal point.
- A point is a fraction of a pip and is the last digit stated in a pair of numbers.
- The spread and PnL are determined by multiplying the pip value by the pip count.
- One pip equals ten of the 'term' money (for 4-digit pairs)
- Other asset classes use points and ticks differently.
