Forex trading has grown in popularity over the years because of the potential to leverage trades and profit from moves in currency pairs.
Shaun Murison, senior analyst at IG Markets South Africa, advises newcomers to spend time educating themselves on the dynamics driving the forex market, and then to put their trading strategies to the test on a demo account, trading virtual rather than real money. Only when one is comfortable with the trading strategy should real money be put at risk.
Because scalpers are looking for many small profits, they will look for currency pairs such as the EUR/USD where the costs of trading are low. To trade a product such as the EUR/USD, your cost can be as low as 0.6 pips or 60 US cents . A pip is the lowest increment by which a forex pair can change price. For example, consider the EUR/USD at 1.0169 on IG Markets. Should the price move to 1.0170, that would represent a one pip increase in price, equivalent to a profit of $1 on a one lot contract size.
The general rule of thumb is: if the news is better than expected, this is positive for the base currency. A base currency is the first named currency in the pair. For example, USD would be the base currency in the USD/ZAR pair.Markets are often said to follow Newton’s laws of motion. In other words, a market will continue to move in each direction until acted on by an external force.