Forex Basics

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Forex Basics
Ed, I'm very interested in Forex trading but totally lack the knowledge to even comprehend the outcome. The TA side I have down cold due to 20-plus years of trading activity. The question - what is the value of a trade if the underlying moves up say 1 pip? OK, I buy a mini lot of 10k EUR/USD at say 1.3999. Now if the price moves to 1.4000 what is my gain on the trade? Discount commissions or bid/ask spread.


Pips & Lots
Great question! To answer this and other concerns, let me first explain the different types of accounts. The types of accounts are differentiated by the size of one lot in each account, with each level greater than the one beneath it by a factor of ten:

• Standard Account = 100,000 units per lot

• Mini Account = 10,000 units per lot

• Micro Account = 1000 units per lot
  

Referring to the scenario in your question, the value of one pip on the EUR/USD currency pair would be:

• Standard Account = $10

• Mini Account = $1

• Micro Account = 10 cents
  

Commissions
The part of your question that deals with commissions is a bit more difficult, since just like in the stock market, every Forex broker has their own commission structure. Many Forex brokers charge only the spread, with their commission and other fees included within that spread, but some charge a commission in addition to the spread.

Also, some Forex brokers offer fixed spread platforms, while others offer variable spreads (and some offer both). My recommendation would be to open and trade a Forex demo account (it's free) to get used to the values of the various currency pairs and how they move.

Everything that you already know about technical analysis applies to the currency market, so you are ahead of the game on that count. Trading a demo account will educate you on these other issues without the risk of loss.

Good luck!"

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