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When learning how to trade forex you must first learn
the futures and options nuances. Let's grab just a corner of this nuance
"tablecloth."
The cost of establishing a position is determined by
the spread, and prices are always quoted using five numbers (for example,
134.85). The final digit is referred to as a point or a pip. If USD/CAD were
quoted with a bid of 134.85 and an ask of 134.90, the five-pip spread is the
cost of trading this position. From the very start, the trader must recover
the five-pip cost from his profits. To do so, s/he must make a favorable
move in his/her position--just to break even!
Many of the instruments utilized in How to Trade Forex
--such as forwards and futures, options, spread betting, contracts for
difference, and the spot market--will appear similar to those used in the
equity markets.
Since the instruments on the Forex often maintain
minimum trade sizes in terms of the base currencies (the spot market, for
example, requires a minimum trade size of 100,000 units of the base
currency), the use of margin is absolutely essential for the person trading
these instruments. |