Frequently Asked Questions About Forex Trading (FAQs)
1. What is a pip?
A pip (price interest point) is the smallest price change that a currency pair can make. Currencies are usually quoted to four decimal places, such as the EUR/USD pair trading at 1.2500/1.2503, with the last decimal place referred to as a point or "pip". A pip for most currencies is 0.0001 of an exchange rate; the one exception is the USD/JPY quote in which each pip is equal to 0.01.
2. What are Bid and Ask prices?
Foreign Exchange prices, or quotes, include a "Bid" and "Ask" similar to other financial products:
Bid: Price at which Dealer is willing to Buy and Traders can Sell Currency
Ask: Price at which Dealer will Sell and Traders can Buy Currency
The difference between the Bid and Ask is called the "Spread", which is the Trader's cost of the transaction.
3. How do I learn to trade?
The first thing to do is read all you can. I believe this website is a great resource to learn from and you should read as much of the material as you can. There are also some great ebooks out there and we recommend some of the better ones in our Forex Trading Strategies section . These ebooks are more targeted to those traders who want to learn about specific trading strategies.
4. What brokers should I use?
There are lots of Forex brokers to choose from these days but you need to be careful. Try to choose a broker with low spreads and fast execution. Forex brokers like FXCM, Oanda and more have been in this business for a long time, so just make sure whoever you choose, they are registered with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA).
5. What is a demo account?
All Forex brokers offer demo trading account. A demo account allows a trader to use the real trading tools the broker has to offer but you can trade using fake money. You get a $20,000 or $10,000 fake money account to trade with and place real trades. If you lose your money (and you will lose your money during the learning stage of this business), you just contact the broker and ask them to fill you up again and you're off and trading again. The key to successful demo trading is to learn all about this business first so you know how to trade effectively. Some folks even choose to "paper trade" prior to demo trading. Paper trading is basically writing down buy and sell prices and following your trades on paper. They are not as accurate as demo accounts, but they can be very helpful during your learning phase of this business.
6. How do I open a demo trading account?
It's a simple process. You can simply Google for Forex Brokers and choose one. Just click their Open a Forex Demo Trading Account (or something very similar) and sign up. It's very straight forward but if you have any trouble, you can click on their Contact Us link to get assistance.