Forex Trading Always Works in Currency Pairs

Lesson No 10

There is an important question that how forex trading works?, so toady we will discuss this aspect of forex trading, that how it works.

During the process of forex trade one currency is bought while other is sold out, which means that you are buying one currency and selling other currency in the pair, e.g for the pair EUR/USD, AUD/USD, and USD/JPY in this example you are buying one currency and selling other currency.  In case of EUR/USD you are buying EUR and selling USD and vice versa.  Currency pairs are either bought or sold out, a stronger currency is always bought while weaker currency is sold out.  Strength or weakness of a currency depends upon its production, inflation, employment opportunities, political stability, its relations with other nations and law and order situation with in the country.

Division of Currency Pairs

Lesson No 11

Currency pairs are always divided into three major categories

Majors:          Those pairs in which atleast one currency is USD are called Major Currency Pairs like EUR/USD, AUD/USD, USD/JPY, GBP/USD, USD/CAD, USD/CHF, NZD/USD etc.

Cross:           All those pairs those dont any USD currency are called Cross Currency Pairs like NZD/JPY, CAD/JPY, AUD/NZD, EUR/JPY, EUR/GBP etc etc.

Exotic:           Currencies of developing countries are included in this group like, USD/HKD, USD/SEK, USD/DKK, USD/NOK, USD/ZAR, USD/SGD etc

What is Stop Loss and Take Profit?

Lesson No 9

In our lesson No 7 we have learned how to start our first trade through instant execution, there are two options in this case i.e Stop Loss and Take Profit.  In this lesson we will learn how to set stop loss and take profit limits and how these two options work. 

So, if you are going to buy any pair your take profit limit must be less than the price showing above sell button in case above sell button price is shown as 1.0525 then your take profit limit must be any value less than this e.g it may be 1.0500, now it is time to set your Stop Loss, if you have analyzed that market is fluctuating between 1.0495 to 1.0580 then your stop loss may be a little above 1.0580, it means that you have assessed that if price will go up till 1.0580 then there is chance that it will come back towards our take profit limit i.e 1.0500 and if it will go more beyond 1.0580 then there are chances that it will go more above this value and if it will keep going above it will increase our loss so we have set our loss on the limit very near to 1.0580 it may be 1.0585 so if market keep going on and it hits 1.0585 our stop loss limit will hit and our trade will be closed with a loss of almost 55 pips.  It will prevent your trade to incurred more loss if price goes upto 1.0700.  In case you have not set your stop loss limit and market goes upt 1.0700 then your loss will be 175 pips which is very high than 55 pips.

Stop Loss and Take Profit options make your trade automatic in case any of your limit is hit your trade will be closed automatically, in case you haven't set your take profit limit and price goes down till 1.0480 and you are not on your trade terminal and soon this price comes back to 1.0540 then it means you have missed a chance to earn profit, so either you have to stick to the screen to have keen eyes on your profit and you can close trade at any good profit or the other option is best i.e automatic trade with a take profit limit.  Same is the case with stop loss option.

Now its upto you that which options suites best if you have enough time and you are good to work online for more times and love to keep on looking market trends then you can chose other option i.e manual trading and you can close your trade at any time you earned good profit or can close at any point to avoid huge loss.  And if you are not so, then I will advise you to always do automatic trade with take profit and stop loss limits as it will not only save your time but will earn good profits for you.