Lesson No 15
What is Leverage: I hope you have heard about leverage, you can understand leverage with an example of a big stone which cannot be moved by five men but one man can move it very easily with the help of a LEVER. Likewise if you have only 50 dollars you cannot buy a lot which costs more than 50 dollars but if you have a leverage of 1:50 you can buy a lot of 2500 dollars, which means that you have borrowed 1:50 ration from your broker (means you have borrowed 50 dollars for each of your 1 dollar). But remember leverage is like a two way knife which can cut you from either of its side, if you don't have good money management your can loss all of your capital / equity in one trade. So don't think that leverage is very good, although it is very helpful in buying or selling big lots but it has very high risk of loss too. So always select leverage according to your available balance and your money management skills.
When to Make a Trade: There is no doubt that market remains open for 24 hours but it doesn't means that it is suitable for trades all the day. Forex Market moves in three directions i.e upward, downward and side-ways. If market is moving upward or downward then you can earn profit and trading is easy in this situation but if market is moving side-ways then trading is very very difficult and you cannot assess that at which point market will move to which direction. Forex Market can be divided into three main markets which are also called as sessions:
1. Tokoyo Session
2. London Session
3. New York Session.
Opening and Closing Timing of Forex Market: These three markets / session have different timings of opening and closing which are shown in following table. Timings are different for April to October and November to March, both are shown in the table given below:
April to October
Market Zone
|
Time (GMT)
|
Tokyo Open
Tokyo Close
|
11:00 PM
08:00 AM
|
London Open
London Close
|
07:00 AM
04:00 PM
|
New York Open
New York Close
|
12:00 PM
09:00 PM
|
November to March
Market Zone
|
Time (GMT)
|
Tokyo Open
Tokyo Close
|
11:00 PM
08:00 AM
|
London Open
London Close
|
08:00 AM
05:00 PM
|
New York Open
New York Close
|
01:00 PM
10:00 PM
|
Closing of one market and opening of other market is called overlapping. In first table Tokyo market closes at 08:00 while London market opens at 07:00 in this one hour between 07:00 to 08:00 both markets remain open and trading is on full swing. Likewise, London session closes at 04:00 pm while New York session opens at 12:00 pm, so in these four hours trading remains on full swing and a lot of trading is made during these overlapping periods.
What is PIP: Mostly all currency pairs have 4 digits after decimal e.g 1.3245 when moves one point in upward direction and reaches 1.3246 we said that one pip has been increased. Mostly traders calculate their profit and loss with the increase or decrease in pips. Pips of different trades have different values but mostly it depends upon your volume of the trade if your volume is 1 (Standard lot size) then mostly your pip will be for one dollar but if your volume size is 0.01 then your pip may be of 10 cents. And if your lot size if 10 then your pip will be of 10 dollars and if there is move of only 5 pips in market you can earn 50$ dollars with this move of 5 pips, but on the other hand if move is against your prediction your loss will also be of multiple amount.
