When you execute a Forex trade, you are purchasing an amount of currency, termed a lot. The amount of currency in one lot depends upon the type of account you have. In a standard account, one lot is usually equal to U.S. $100,000; in a mini account, one lot is $10,000.

But Forex trading accounts are leveraged, which means you don’t have to own that expensive lot of currency; you just have to control it, and if you do, any profit it earns is yours. To obtain the right to control a lot of currency, you put up a much smaller amount of money in a sort of rental agreement called a margin deposit. In a standard account, to control that U.S. $100,000, you must put up $1,000 of your own money; in a mini account, to control $10,000, you need to put up $100.

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Currencies are traded on a price/ point (pip) system. Each currency pair has its own pip value.

When you see a FOREX price quote, you’ll see something listed like this:

EUR/USD 1.2210/13

Explanation:

a) If you want to BUY the EUR/USD ( meaning you BUY EUROS and SELL US$ ) you buy 100,000 EUROS and you SELL 122,130 US$, or in other words you receive
122,130 US$ for 100,000 EUROS.

B) If you want to SELL the EUR/USD ( meaning you SELL EUROS and BUY US$ ) you buy 122,100 US$ and sell 100,000 EUROS, or in other words you receive 100,000 EUROS for 122,100 US$.

The difference between the bid and the ask price is referred to as the spread. In the example above, the spread is 3 or 3 pips.

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Today I would like to talk with you about a few very important rules of investing in the Forex market.  If you follow these rules, you will most surely come out on the winning side in the long run.

Rule one is never risk more money than you can afford to lose.  No trader is perfect, you are going to have losing trades.  There is no system you can learn that wins all the  time. So expect to lose some money.

Rule two is to cut your loses short and let your winners compound to greater gains.  The secret to not losing your shirt is to use stop loss orders consistently and not let your emotions rule your trading.  It’s better to lose a little and get out of a trade than to hope that things will turn around and suffer a devastating loss.  If you are using the proper techniques and strategies on how to trade, you can usually tell right away if your trade is going in the right direction.  If it’s not, get out of the trade.  There are always more opportunities to get into the market and try again.  So be a smart trader, not an emotional one.

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