Just What Is Forex Trading? by Bart R

With Forex trading you are buying one lot of currency or more. With standard accounts, you can purchase a single lot of currency at $100,000. With a mini account, you can purchase a lot of currency at $10,000. The margin you maintain in your account determines how many lots you can trade at once. Also included are pending profits and trades that are outstanding.

You do not need to produce all the money needed to control the currency due to the fact that Forex trading accounts are leveraged. All you need to do to make a profit is control the currency. Any profits then belong to you. What is needed to control the currency is one thousand dollars in a regular account and as little as one hundred dollars in the mini account.

Your account's leverage will have a lot to do with how much profit you can make. Using a standard account will allow you to earn more money than using a mini account. The earning potential of your Forex trading account per pip would be $10 in a standard account. If you have a mini account, the per pip price would be $1. For example, a trade that earns 200 pips in a standard account would get you a profit of $2,000 and, in a mini account, your profit would be $200.

Not every beginning trader can afford to have a standard account. However, if you want to maximize profits in a Forex trade, you can use a mini account and trade more than one lot. If you purchased five lots of currency in a mini account, you would have had to put up $500 of your own money, but would have earned $1000 in profit. If you did the same in a standard account, you would have to put up $5000 and would have earned $10,000.

There are two different types of orders in Forex trading. The Market Order is the one most commonly referred to. With this order, you are merely buying or selling currency at the current market rate. This kind of trade is fast and simple to arrange. As long as you have an online brokerage account, one single mouse click will get you in.

An entry order is one type of order. If, for example, the GBP/USD is moving sideways in a range bound market but not enough to get you to want a trade. However, a price break could occur, so you place an entry order. This will authorize a purchase after the price rises above a certain point. When the point is reached, the entry order is triggered. The currency pair would then be purchased. If the currency pair does not go over the point, the entry order will cancel after a period of time.

So what is meant by a "stop" and a "limit"? A stop is a point at which you decide you want to leave a trade. This point is predetermined. The point at which you want to take the profit is the limit. The limit also set at a prearranged point. With stops and limits to define your transaction, you limit your risk and stand a better chance of being in profit.

As you can see Trading with Forex is an interesting option in the Investment world.

About the Author

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