Trading forex means buying and selling global currencies, or in other words exchanging one currency for another. Traders buy a certain currency if they believe it will strengthen and sell a currency of their choice if they forecast a weakness in its value. In forex terms, traders who bought a currency are said to go long while traders who sold a currency are said to go short. The actual trading takes place through 24FX's electronic trading platform, which connects you to the largest banks in the world for deeper liquidity. Each trader will have access to numerous FX pairs that can be traded 24 hours a day.
Let's take the most traded pair in the market as an example, Euro-Dollar or EUR/USD: The current rate for EUR/USD is 1.3145. This means 1 Euro is worth 1.3145 US Dollars
Traders would look to buy EUR/USD if they believe the rate will rise. This may happen as a result of the Euro strengthening against the US Dollar. Likewise, traders would sell EUR/USD if they believe the rate will drop, which means they expect the Euro to devalue against the US Dollar. The profits are calculated in accordance to the amount of pips EUR/USD gained or shed.
Your earnings are determined by the accumulated pips you make on your trades. You will be looking to profit over the smallest unit in the price that constantly fluctuates throughout the trading day. A pip is an abbreviation for 'Percentage in Point.
One PIP is displayed in the following numerical figure: 0.0001
Let's take GBP/USD as an example:
Great British Pound (GBP) against the US Dollar (USD)
GBP/USD rose from 1.5462 to 1.5467. The price difference between the currencies is 0.0005 or 5 pips for long. In other words, if GBP/USD rose from 1.5462 to 1.5467 we say the pair gained +5 pips.
GBP/USD dropped from 1.5468 to 1.5464. The price difference is 0.004, or 4 pips for short. To simplify, we say GBP/USD dropped by -4 pips.
GBP/USD rose from 1.5462 to 1.5488. The price difference is 0.0026, or 26 pips for long. We therefore say GBP/USD gained +26 pips.
GBP/USD dropped from 1.5475 to 1.5244. The price difference is 0.0231, or 231 pips for short. That means GBP/USD dropped +231 pips.
GBP/USD rose from 1.5430 to 1.5530. The price difference is 0.100, or +100 pips for long. In other words, GBP/USD gained +-100 pips.
The more pips you accumulate, the greater your earnings will be from the market. There is no limit to the amount of pips you can accumulate, nor is there a minimum amount, it is decided only by the trader. After you buy or sell, remember the rates are constantly moving. At one moment you could be at a loss of 15 pips and ten minutes later you can have a profit of 30 pips if not more.
A trade that is in the market is referred to as an 'open' trade or 'open' position. When the trader wishes to exit the trade, both manually or using a stop loss and/or take profit order, it is referred to as 'closing' the trade or 'closing' the position. The market is often driven by economic events that are released almost every day."
There are times when you and another trader have both bought or sold the same financial asset, accumulated the same amount of pips but you profited less money. How is that?
The more capital you allocate for the trade, the higher the value of each pip increases. The minimum pip value in 24FX is just 10 cents. This means that if you have invested the minimal amount in the trade and you are currently profiting 100 pips, the profit in real money would be $10. However, a trader that has invested more capital where each pip is worth $50, accumulating 100 pips means the trade is in a profit of $5,000 ($50 x 100 pips).There are no limits to the amount you can invest in the market. If you allocate all of your invested capital into a single trade the pip's value can be high but so is the market exposure.
For example: if a trader invests $10,000 and uses the entire investment in a single trade, each pip could be worth more than $140. In other words, if the market moves against the trade by just under 100 pips the invested capital will be soaked in the market. Gaining 100 pips will double the investment of course but the trader must be aware of the risk he is undertaking allocating all of his free capital into one trade.