The Basics of Forex

Leverage in forex is basically the ability to control larger trades using small amount of capital. The very basic rule of leverage you must always remember when trading forex is that leverage is not there to be used all the time. In this part, we are going to understand more about leverage and how we can use it effectively.

Leverage is usually stated in certain amounts, typically 50:1, 100:1, 500:1, and so on. The largest forex leverage is now being offered by InstaForex; the forex broker offer a maximum of 1,000:1 leverage on standard account. This means you can control $1,000,000 worth of trades with only $1,000 capital.

Higher leverage means higher stake you need to cope with. This is why you must not use leverage if you don’t have to. With a capital of $1,000 and 100:1 leverage, controlling 1 full lot means losing $10 for every pip loss. Your capital can only withstand 100 pips of movements to the opposite direction max before you are forced into margin call.

An effective use of leverage can help you gain more profits out of your trades. If you have proper calculations and accurate predictions, you can use leverage to increase the size of your trades and reap more profits along the way. If you are not certain about your positions, using too much leverage will only cost you more.

Now that you know the basics of leverage and how to use it effectively, you can incorporate this instrument to help you be even more profitable in forex trading.

One of the most important things to understand when you want to enter the forex market is currency pair. There are several major currency pairs commonly traded by forex traders. In this part, we are going to take a look at these major currency pairs and the average daily range of these currency pairs. Shall we get started?

The first and probably the most traded currency pair is EUR/USD (Euro vs. US Dollar). It is a very liquid currency pair with an average daily range of 100 pips. If you are relatively new to forex trading, this is the best currency pair to study first. Not only will you be able to understand EUR/USD quickly, you can also find a lot of forex trading strategies designed for trading EUR/USD.

GBP/USD or Great Britain Pound vs. US Dollar is another widely trader currency pair. The risks of trading GBP/USD are often considered high because the pair is very volatile and has a daily range of 150 pips. Until you have certain amount of experiences trading forex, you should avoid trading GBP/USD.

USD/JPY is also a popular currency pair. The US Dollar vs. Japan Yen pair is often considered unique, because you can see its movement quite the opposite of general market movements frequently. With a daily range of 100 pips, you can certainly make big money trading USD/JPY once you mastered this currency pair.

Now that you know several popular currency pairs, you can look into the right forex trading strategies for each of them and get started right away.