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Financial trading has its own language, which may seem difficult for beginners and trade learners. Once you understand how everything works, you can begin to build a reliable trading strategy, which is one of the most important factors for successful trading.
In Prime Capitals, we offer CFD trading (contract for difference), which is the most affordable way to start trading. Contract for difference allows you to speculate on the movement of major financial markets without buying real stocks.
Since CFDs require less cost, this means that more people can trade on the markets.
Forex trading is the act of buying one currency for another. They are presented in the form of currency pairs. Thus, when the price is indicated, it means that one unit of the first currency will buy the second currency.
Traders buy or sell these pairs depending on how they think currencies will act against each other. In the GBP / USD pair, if you think that the pound will grow against the dollar, you would buy GBP / USD.
If you think that the pound will lose value against the dollar, you will sell GBP / USD. However, you are not just buying several currencies, as if you were going to a currency exchange office near your office, for example. You invest in "many" currencies. Standard lot is 100,000 of any currency. You can also trade mini lots (10,000) and micro lots (1000).
But when you start trading forex, you do not need to buy 100,000 dollars. Instead, you use CFDs to speculate on the changing value of a total lot.
Let's say you have a trading account with $ 1,000 on it. You think that the pound will grow against the US dollar, so you decided to buy the GBP / USD for the difference (CFD) contract. Your broker offers you a 30: 1 margin.
This means that for every dollar you put, you have access to thirty dollars. This increased margin gives you leverage, that is, the ability to invest in a larger lot using smaller investments from your own account. Keep in mind that you are not “buying” an asset.
You simply buy a contract that says you are ready to invest in the movement of the market, which you hope will be upward. To work out the necessary stock. To understand how much you will need to deposit for 1 lot of GBP / USD, while the pound is worth $ 1,400. Of course, you only have $ 1,000, so in this case, you can trade on a mini or micro lot.
Margin on a mini lot: $ 2,142
Micro Lot Margin: $ 214
When you receive a CFD, you begin to look at the movement of the market in order to track your profits and losses. The movement of one unit in any market is called a pip (price index point). The pip is measured from the fourth decimal. The exception is the Japanese yen, where it is the second decimal number. As this number increases or decreases, it represents a profit or loss per unit of your investment. A pip always refers to the currency indicated second on your currency pair.
For example, if your account is in pounds sterling and you trade EUR / GBP, then one point is 10 pounds sterling (1 lot), 1 pound sterling (mini lot) and 0.10 pounds sterling (micro lot). Whatever your currency pair, the pips will be 10, 1 or 0.1 of the second currency, depending on your leverage / margin. To calculate the value in your own currency, simply divide the value in points by the exchange rate of your currency. Therefore, regardless of the overall movement of the pip in any direction, multiply it by the pip value to calculate your profit / loss.
When trading CFDs in other markets, margin and leverage are still applied. However, the size and cost of the lot vary. Lot size per share is 100 units. In merchandise and futures trading, it can vary depending on the commodity, while gold is 100 troy ounces or 5,000 troy ounces per silver.
As with any CFD, your profits and losses are determined by moving points or by changing the value of the asset. A detailed explanation of spreads and markups is available.