FOREX TRADING: The Spread, The Trend And Leverage

The Spread

A spread is the difference between buy and sell, or the 'Bid' and 'Ask' (demand and supply). In other words, this is the difference between the selling price of the broker to its customers, and the purchase price of the brokers to their clients.

If you buy a currency, pair and sell it immediately (i.e. before there is a fluctuation in the exchange rate), then you will lose money. This loss is due to the spread of money. At any given time, the amount required to sell a currency pair will be less than the amount needed to purchase the same currency pair.
For example, rates of supply and demand EUR / USD might be 1.1515/1.2515 on your bank, which would be equivalent to a spread of 1,000 Pips (Pips = Percentage In Points). One Pip is equal to 0.0001 of the rate currency exchange.

The lower spreads are better for investors because it means that they need a much smaller movement to profit from trading operation.

The Trend

The trend analysis is based on the idea that what has happened in the past can give traders an idea of what will happen in the future. Although this may seem very easy, to be able to identify when a currency pair is in a trend and when not, it will really help to increase your chances of having consistent success in the Forex market.

You should be able to locate the direction of the trend and take advantage of the movement, placing an order in that direction.

If a trend is upwards, then the exchange rate is increasing, so by buying the currency pair you get a better chance of profit. Conversely, if the trend is downwards, or the exchange rate is decreasing, by selling the currency pair you also get a better chance of making money.

The easiest way to identify a trend is taking by analyzing forms through the graphs of the price. These forms, or patterns, can tell a lot about the fact that the market is moving in an upward or downward trend.

Leverage

Leverage is a very important part of Forex trading, and it is vital that you know exactly how it works and how to use it. It is in fact the means by which traders use to refer to the portion of total investment in the real value of a position.

Online Brokers usually provide their customers with several options to borrow capital, so that traders do not have to invest thousands of dollars to make a profit.

When you trade with a leverage of 1 to 100, this means that for every dollar you invest in the market the broker will invest $99 for you. As a result you can control an amount of $10,000 while investing only 100.

You probably already know that a great opportunity involves a great risk. In fact, as small fluctuations of currency exchange may earn you a significant sum of money, they may also have the opposite effect, very quickly.

The higher the leverage, the higher the profit, but also the faster you will be subject to losing your investment.

With a leverage of 1:300 you can make more money than a leverage of 1:100, but this also exposes your initial investment at a higher risk.

To your success,

Jonny Tyson