How to trade currency?

     The foreign exchange market, often referred to as forex, is the market for the various currencies of the world. It is a market which, at its core, is rooted in global trade. Goods and services are exchanged 24 hours a day all over the world. Those transactions done across national borders require payments in non-domestic currencies.      
      For example, a US company purchases widgets from a Mexican company. To do the transaction, one of two things is going to happen. The US firm may, depending on the contract terms, make payment in Mexican Pesos. That would require a conversion of Dollars in to Pesos to make payment. Alternately, the payment could be made in Dollars, in which case the Mexican company would then exchange the Dollars for Pesos on their end. Either way, there is going to be some transaction which takes Dollars and swaps them for Pesos.

    That is where the forex market comes in. Transactions like that take place all the time. The market maintains a rate of exchange between the US Dollar and the Mexican Peso (and between and amongst all other world currencies) to facilitate that activity. Consider the amount of global trade which takes place and you can see why the forex market is the biggest in the world, dwarfing all others. Literally trillions of dollars worth of forex transactions take place each and every day.

          How is the Forex Market Different?

There are some significant differences between the forex market and others like the stock market. While it may be the feeling that a good trader should be able to handle any market, the fact of the matter is that some structural differences in forex can require a different trading approach.

      Time

For most stock traders, the first difference they will notice between the forex market and equities is timeframe. Although the hours of stock trading have been expanding in recent years, the forex market is still the only one which can truly be viewed as 24-hour. There is ready forex trading activity in all time zones during the week, and sometimes even on the weekends as well. Other markets may in fact transact 24-hours, but the volume outside their primary trading day is thin and inconsistent.

           No Exchanges

The lack of an exchange is probably the next big thing that sticks out as being different in forex. While it is true that there is exchange-based forex trading in the form of futures, the primary trading takes place over-the-counter via the spot market. There is no NYSE of forex.

On the largest scale, forex transactions are done in what is referred to as the inter-bank market. That literally means banks trading with each other on behalf of their customers. Larger speculators also operate in the inter-bank market where they can execute multi-million dollar trades with ease. Individual traders, who generally trade in much smaller sizes, primarily do so through brokers and dealers.

This is something which can trouble stock traders. There is no central location for price data, and no real volume information is attainable. Since volume is an often reported figure in the stock market, the lack of it in spot forex trading is something which takes a bit of getting used to for those making the switch.

Transaction Processing

Also, the lack of an exchange means a difference in how trading is actually done. In the stock market an order is submitted to a broker who facilitates the trade with another broker/dealer (over-the-counter) or through an exchange. In spot forex much of the trading done by individuals is actually executed directly with their broker/dealer. That means the broker takes the other side of the trade. This is not always the case, but is the most common approach.

            Transaction Costs

The lack of an exchange and the direct trade with the broker creates another difference between stock and forex trading. In the stock market brokers will generally charge a commission for each buy and sell transaction you do. In forex, though, most brokers do not charge any commissions. Since they are taking the other side of all the customer trades, they profit by making the spread between the bid and offer prices.

Some traders do not like the structure of the spot forex market. They are not comfortable with their broker being on the other side of their trades as they feel it presents a type of conflict of interest. They also question the safety of their funds and the lack of overall regulation. There are some worthwhile concerns, certainly, but the fact of the matter is that the majority of forex brokers are very reliable and ethical. Those that are not don't stay in business very long.

Margin Trading

The forex market is a 100% margin-based market. This is a familiar thing for those used to trading futures.

In fact, spot forex trading is essentially trading a 2-day forward (futures) contract. You do not take actual possession of any currency, but rather have a theoretical agreement to do so in the future. That puts you in a position of benefiting from prices changes. For that your broker requires a deposit on your trades to provide surety against any losses you may incur. How much of a deposit can vary. Some brokers will asked for as little as 1/2%. That is fairly aggressive, though. Expect 1%-2% on the value of the position in most cases.

Now, unlike the stock market, margin trading does not mean margin loans. Your broker will not be lending you money to buy securities (at least not the way a stock broker does). As such, there is no margin interest charged. In fact, since you are the one putting money on deposit with your broker, you may earn interest in your margin funds.

          Interest Rate Carry (Rollover)

When trading forex, one is essentially borrowing one currency, converting it in to another, and depositing it. This is all done on an overnight basis, so the trader is paying the overnight interest rate on the borrowed currency and at the same time earning the overnight rate on the currency being held. This means the trader is either paying out or receiving interest on their position, depending on whether the interest rate differential is for or against them.

This is commonly handled is what is referred to as a rollover. Spot forex trades are done on a trading day basis, and as such are technically closed out at the end of each day. If you are holding your position longer than that, your broker rolls you forward in to a new position for the next trading day. This is generally done transparently, but it does mean that at the end of each day you will either pay or receive the interest differential on your position.

The type of trader you are and the way your broker handles rollover will be the deciding factors in determining whether the interest rate differentials are an important concern for you. Some brokers will not apply the day's interest differential value on positions closed out during the trading day. By that I mean if you were to enter a position at 10am and exit at 2pm, no interest would come in to play. If you were to open a position on Monday and close it on Tuesday, though, you would have the interest for Monday applied (the full day regardless of when you entered the position), but nothing for Tuesday. (Note: There is at least one broker who calculates interest on a continuous basis, so you will always make or pay the interest differential on all positions, no matter when you put them on or took them off).

It should also be noted that although some folks will claim there is no rollover in forex futures, the interest rate spread is definitely factored in. You can see this when comparing the futures prices with the spot market rates. As the futures contracts approach their delivery date their prices will converge with the spot rate so that the holders will pay or receive the differential just as if they had been in a spot position.

         Intervention

Fixed income traders know that central bankers, like the Federal Reserve, are active in the markets, buying and selling securities to influence prices, and thereby interest rates. This is not something which happens in stocks, but it does in the forex markets. This is known as intervention. It happens when a central bank or other national monetary authority buys or sells currency in the market with the objective of influencing exchange rates.

Intervention is most often seen at times when exchange rates get a bit out of hand, either falling or rising too rapidly. At those times, central banks may step in to try to nullify the trend. Sometimes it works. Sometimes not.

The US has traditionally taken a hands-off approach when it comes to the value of the Dollar, preferring to allow the markets to do their thing. Others are not quite so willing to let speculators determine their currency's value. The Bank of Japan has the most active track record in that regard.

John Forman is the author of The Essentials of Trading, and a professional market analyst and strategist with 20 years of experience trading stocks, futures, forex, and pretty much anything else traded by individuals. If you would like to learn more about how you can identify price targets in this fashion, you'll want to take a look at the video John has prepared on the subject. Click here for more information.

You can find more how-to and educational articles to improve your investing and trading each day on TradingMarkets.com.

5 Tips for Better Technical Analysis When Trading Currencies

The foreign exchange market is a means of investing in currencies by purchasing them and then converting them into other currencies, taking advantage of the fluctuations in exchange rates to tap into the wealth of developing nations. This is predicated on the premise that stable currencies, such as the dollar or the euro, tend to remain steady while developing currencies become more valuable as their country becomes more prosperous and begins importing goods and services that they need to pay for in dollars and euros.

It is a famously complex and dynamic market that can make money when there is a depression and lose money during the biggest of booms. It’s also inherently risky and high volume, since money usually does not gain or lose value very quickly, and so the investments must be large. They also need to be sold quickly when specific conditions are met, since most foreign exchange traders make their money by preying on very slight upticks in value. It is also possible for a currency to become worthless in a matter of hours should there be an environmental disaster or military coup. For these reasons, it is invaluable to have good technical analysis in regards to how a particular currency is doing in order to maximize value and minimize loss. There are five main ways that this is done.

5. Watch the news.
It may seem painfully obvious, but many beginning investors fail to understand the political and social realities of the countries whose currencies they have decided to purchase. It is easy for greedy dictators or corrupt bankers to manipulate the value of the currency used in a small nation, and such deception is usually readily apparent, yet even major banks sometimes get suckered in by a deal which is too good to be true.
Currencies may also be slow to move in times of political uncertainty as speculators wait for the price to go down and current holders try to keep the price up. It is important when engaging in foreign exchange trading to always keep both feet firmly planted on the ground and never be afraid to dump a currency when the nation who owns it appears to be on the road to disaster. Remember also that this can happen to any nation, even modern and well-developed ones, as was proven by Iceland in 2008.
4. Study the culture and economic realities of any nation you invest in.
In large economies like the United States and China, the value of the local currency is usually dictated by a vast array of products and forces which are too complex even for the national governments to fully understand. However, smaller nations tend to have very specialized economies which are very heavily influenced by a small number of sectors. For example, many Caribbean nations are almost entirely dependent on tourism for their economic well being.
This means that natural disasters, crime and disease will have a much more devastating impact on their economies than those of countries who are more dependent on mining or farming for their income. The same is also true of large countries. For decades, the low rates of interest in Japan made the yen very attractive to American foreign exchange traders, since they could take out large loans in yen, convert them into dollars, and then pay off the debt through favorable exchange rates.
For many companies, it was almost like printing money. But when the American economy began to deflate due to the collapse of the housing bubble, those very same investors found that they now owed large amounts of yen and did not have enough dollars to pay for it. The American economy was heavily dependent on mortgage backed securities and other financial products tied up in the housing market, which came down hard on those not wise enough to ask questions about the integrity of the American economy.
3. Watch the PIPs and look for trends.
The term “PIP stands for “Percentage In Point” and it is a means of watching how currencies relate to one another. Most currencies are traded all the way out to four decimal points, the major exception being the yen that is traded to only two decimal points because it is worth approximately 1/100th that of the dollar or the euro. A “PIP” is defined to be one unit of change of the last decimal point in a currency’s value. For example, if the exchange rate of the dollar to the euro goes from 1.3000 to 1.3010.
Then the exchange rate has seen an increase of ten PIPs. In general, monitoring the PIPs is similar to monitoring the value of a stock, and the gain and loss in PIPs is widely available as a tracking service from many online resources, and most virtual trading software works by constantly monitoring the way in which PIPs change in currency trading markets worldwide. Just as the price of a stock tends to follow general trends over time so do the PIPs, and it is possible even for a novice to observe large trends.
It is also possible to observe more refined trends over smaller periods of change, but this is limited to specific factors unique to specific currencies. Still, examining and exploiting trends is the best way to invest in the foreign exchange market over the long term, since it allows one’s investments to rise with the growth of entire economies.
2. Subscribe to trade publications and read the blogs.
To really make money in the foreign exchange market, one needs to understand what is going on at all times. Today’s global economy is too big for any one person to comprehend, but nonetheless one bad economy eventually wreaks havoc well beyond its borders. The starkest example is how the bad economy of Greece was threatening to take down the euro in the spring of 2010, but there are innumerable smaller examples.
It is therefore essential for a currency trader to know in detail what is going on with the currencies they have invested in. It’s dangerous folly to simply invest in what is currently a strong currency and then sit back and wait for it to mature. Trade publications and blogs will detail all sorts of useful and relevant information that non-investors are highly unlikely to care about.
Every day, an investor should know what the central bank is doing, what sort of interest rates are being offered by local private banks, and if there is any pending legislation which might open up or close off currency. Any currency is subject to constant “wiggling” in value as market realities try to determine what it is really worth. Investors who keep an eye on that fluctuation can often profit immensely by buying and selling a currency on the same day.
1. Talk to other traders.
In the end, the foreign exchange markets are run by humans, staffed by humans, and filled with human decisions and human flaws. Therefore the only way to really get what’s going on with the market is talk to other people who are investing in it and seeing what they think. While it is important to note that everyone has a vested interest in keeping some things secret and other things widespread, constantly talking to others to find out their opinions is always invaluable.
While individual people make mistakes, usually the market overall is able to anticipate major problems and avoid obvious pitfalls. Listening to individuals also gives investors an opportunity to hear different and often important points of view. Those few who rang the warning bells about the American debt crisis made millions of dollars when they moved their currency into yen or euros, as the American dollar quickly became worth less than even it’s Canadian counterpart. Talking with other investors also gives one the opportunity to have their mistakes corrected. Hindsight is always 20/20, but often it’s possible for someone to be able to spot an error very easily simply because they did not make it themselves. Fortunes have been won or lost simply because someone took or did not take a bit of advice, and often all it takes is a single overlooked currency report to make or break a fortune.
The foreign exchange market is even more complex than most stock markets and should not be entered in to lightly, even by persons willing to take a significant loss. While it is certainly possible to make thousands or even millions in a few smart trades, all of that income can be wiped out by a bad investment or a late sell. The foreign exchange market also has a network of brokers, software and other intermediaries that are inherent and necessary for buying and selling currency across international borders. Currencies often trade early in the morning or late at night when compared to local times in America, meaning that foreign exchange investors often have to anticipate what is going to happen a whole world away. Still, it is a fair market that offers substantial rewards to those willing to put in the effort.

400% Profits in 3 Days!!- How to Spot a Forex Scam

Start researching Forex and you’re likely to see several ads proclaiming ridiculous guarantees such as “2,000 pips a Day!” or “400% Profits in 3 Days!!” Before you quit your day job and start trading Forex fulltime because of these outlandish claims, let’s evaluate how to spot a Forex scam.

Unfortunately, many people associate Forex trading with scams, and perhaps for good reason. The number of unscrupulous companies has been increasing. The number of Forex-related scams has increased abruptly over the last few years, and it is important for you to be able to identify a hoax.
Currency trading is an exciting and potentially profitable investment option, but as with anything involving money, there are people out there who will rob you blind if you don’t know what you’re doing. Let’s take a closer look at Forex scams, so you are properly equipped to spot one.

Understand Genuine Forex Operations

So, where are Forex scams likely to occur? Advertisements for scams can often be spotted in online pop-ups, newspaper advertisements, and the classified sections of financial magazines. How do you weed out the good from the bad?
A first step is to learn how legitimate Forex trading is conducted. Generally, Forex traders can place orders through an exchange or board of trade, a bank, insurance company, registered securities broker/dealer, or other financial institution.
This means that you should search out these types of institutions in order to trade currency. It also means that many scammers will masquerade as one of these types of companies in order to trick you. So where can you turn for help? Is there anyone out there tracking down and punishing these evil-doers? Never fear, the CFTC is here to help you.

Meet A powerful Ally – The CFTC

Even though Jack Bauer doesn’t work there (that’s CTU), the CFTC or Commodity Futures Trading Commission is a great source of information for Forex scams. They have been working tirelessly to crack down on the number of scams, and while it has taken longer than 24 hours, their efforts have produced solid results which Forex traders can utilize.
In the United States, the CFTC has federally mandated authority and jurisdiction to investigate and take legal action when appropriate against corrupt Forex brokers. Additionally, they have the ability to prosecute any firm registered with the CFTC if the firm’s actions violate any CRTC-mandated rules.
The CFTC was empowered in December 2006 with the passing of the Commodity Futures Modernization Act. Their efforts have centered on educating potential Forex traders about currency trading’s best practices as well as keeping tabs on the people who offer Forex services.

CFTC Guidelines

The CFTC has issued several reports concerning the offering and trading of foreign currency futures and options contracts. Some of the main points of advice from the advisory are the following:

1. Stay Away From Opportunities That Sound Too Good to Be True
2. Avoid Any Company that Predicts or Guarantees Large Profits
3. Stay Away From Companies That Promise Little or No Financial Risk
4. Don’t Trade on Margin Unless You Understand What It Means
5. Question Firms That Claim To Trade in the “Interbank Market”
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
7. Currency Scams Often Target Members of Ethnic Minorities
8. Be Sure You Get the Company’s Performance Track Record
9. Don’t Deal With Anyone Who Won’t Give You Their Background

Additionally, the CFTC warns to be careful of unsolicited phone calls about “can’t miss” investments from offshore salespersons or companies that don’t sound familiar.
The following are some of the steps prescribed to identify a potential scam by the CFTC, and we encourage you to follow them:

• Contact the CFTC.
• Visit the CFTC’s forex fraud Web page.
• Contact the National Futures Association to see whether the company is registered with the CFTC or is a member of the National Futures Association (NFA). You can do this easily by calling the NFA or by checking the NFA’s registration and membership information on its Web site. While registration may not be required, you might want to confirm the status and disciplinary record of a particular company or salesperson.
• Get all information about the company and verify that data, if possible. If you can, check the company’s materials with someone whose financial advice you trust.
• Learn all possible information about fees charged, and the basis for each of these charges.
• If in doubt, don’t invest. If you can’t get solid information about the company, the salesperson, and the investment, you may not want to risk your money.

No Free Lunch

One of the basic principles of economics is the concept that there is no such thing as a free lunch. This concept is for the most part true (soup kitchens excluded) and particularly applies to any type of investing, especially Forex trading.
If a Forex claim seems too good to be true and a broker is seemingly giving money away, then don’t invest. This doesn’t mean you shouldn’t try to find low commissions or low bid/ask spreads, but remember there is no invincible Forex formula or brokerage which will enable you to instantly make huge amounts of money trading currency.

Never Stop Learning

The only foolproof method to avoiding currency scams and to become a successful Forex trader is to gain as good an education as possible. The more you learn about Forex trading in general, the easier it will be to spot currency trading scams.
For example, what would happen if on your way into your favorite electronics store, someone stopped you and said not to buy that Plasma which you’ve been saving all year for, because they could guarantee you a better television at half the price? They explain all you have to do is give them $1000 in cash and they’ll present you with the TV.
Would this get your attention? Of course. Would this be a good idea? Not unless you want to wave goodbye to one thousand hard-earned dollars. How do you know? You’re a well-informed and responsible consumer with years of purchasing experience. In order to identify Forex scams you must also become a well-informed and responsible Forex investor.

Types of Trade Orders

Imagine walking into a supermarket, picking up a loaf of bread and when you checkout telling the cashier that you are only willing to pay 88 cents for it. When the cashier looks at you like your crazy, you tell them you don’t need the bread until Monday and to just let you know if it reaches 88 cents by then.
Sounds a little weird? Well Forex brokers allow you to place trades in a manner similar to this. Don’t worry, they also allow you to just buy something right away like you’re currently used to doing.
Placing an order for a particular currency trade is how you enter or exit a trade or position. Entering a position is an elaborate way of saying that you are buying a currency pair. Exiting a position is an equally fancy way of expressing your intention to sell a currency pair.
You probably thought the buying and selling part of Forex would be fairly straightforward, but several types of orders exist which are intended to help you maximize your profits and limit losses. Let’s now examine these types of orders.

Market order

A market order is an order to buy or sell a specific currency immediately at the current exchange rate quoted by your broker. Typically market orders can be executed in a matter of seconds and are executed at the price you saw on your screen went you requested to buy or sell a currency pair.
Trading platforms carry out trades in different manners, but often make it very easy to perform a market order trade. Opening or closing a position is often as easy as clicking on the price displayed for a currency trade and having the money either subtracted or added to your account depending on the result of the trade.

Limit Orders

There are three main types of limit orders which are typically referred to as Entry, Stop, and Limit (traditional limit) orders. These types of orders enable you to have more control over the buying and selling price of the currency pairs which you are trading.
Entry
Entry orders are a kind of Forex request that are placed with the intention of opening a new position at a particular price. You can specify the price at which you would like to purchase a particular currency pair and then these orders remain active until you cancel the existing order or the specified price is achieved and the trade executes.
This type of order is useful for traders to guarantee you receive the desired purchase price for a specific currency pair. Remember the grocery store example at the beginning of this article – Imagine if you could go to your favorite store and tell the clerk exactly what price you are willing to pay for all of your favorite products and the clerk agrees to automatically purchase the product for you once it reaches that price and deliver it to your house. No more standing in line for after Thanksgiving sales!
Entry orders give you more control over the price which you pay to purchase currency at. Since the success of a Forex trader relies heavily on the ability to manage very small price changes, an entry order is a very useful tool.
Stop
A stop order is a kind of limit order linked to an open position with the intention of stopping additional losses if a price reaches a pre-defined point beyond the purchase price. As with market orders and entry orders, stop orders remains in effect until the position is liquidated or is cancel.
Stop orders (sometimes referred to as stop-losses) are incredibly useful for Forex traders who would like to limit the amount of losses incurred on a particular trade. Additionally, a stop can be used to secure a profit once a particular favorable price is reached on an open position so that if a currency pair’s price starts to slip again you will still sell your currency at a profit.
Traditional Limit
A traditional limit order is similar to entry and stop orders, but is designed to specify at what level you would like to take your profit. If you are going long on a position a limit order would be set at a price above the purchase price. Conversely, if you are shorting a position then the limit order would be placed at a price below the purchase price.

Duration of Orders

Orders typically last until the stated purpose of the order has been accomplished. Market orders are always executed at the time a transaction is requested; however, limit (entry, stop, and limit) orders can be placed for with a specified duration.
The default for a transaction is to remain active until executed, but some Forex brokers will allow you to specify the following designations for a currency trade:

• GTC (Good ‘Til Canceled)An order to buy or sell at a specified price. This order remains open until filled or until the Forex trader cancels.
• GFD (Good For the Day)A GFD order remains active in the market until the end of the trading day. Since foreign exchange is an ongoing market the end of day must be a set hour which is typically published by the Forex broker you are dealing with.
• OCO (Order Cancels Other)An OCO order is a mixture of 2 limit and/or stop/entry orders. 2 orders with price and duration variables are placed above and below the current price. When one of the orders is executed the other order is cancelled. This allows you to open contrary positions and then go with the one that initially holds true.

Paper or Plastic?

Market and Limit (entry, stop, and traditional limit) are usually sufficient for most traders. Designing your initial strategy by utilizing these types of orders will give you more flexibility and allow you to spend more time with your kids since you won’t be hunched over your computer screen all day waiting to click the mouse at the precise moment to maximize your profits.

How You Can Make Money by Trading Forex

Your mission as a Forex trader (should you choose to accept it) is to earn as many pips as you possibly can. The more pips you earn in currency trading the larger your profits will be. So, what is a pip and why does earning them help you make money in Forex?

The basic goal of Forex trading is to swap one currency for another currency then cross your fingers and hope the currency you bought will increase in value relative to the one you sold. Then once it increases in value you sell it back in order to receive more of your original currency in exchange.
It’s your old favorite investment cliché of buy low and sell high. However, there are many ways to accomplish this with Forex trading. Let’s explore a few examples to help you better understand how to make money in Forex.

Pick a Pair

Before we dive into the ways a Forex trader makes money, it is important to understand how a currency pair works. You’ve probably heard of an exchange rate before – news anchors and travel agents often talk about favorable exchange rates.
Well, what is an exchange rate? It is purely the value of one currency in relationship to another. In other words it is the amount of Euros that a Dollar can buy or the amount of Dollars that a Euro can buy.
Since exchange rates pit one currency against another they are quoted in currency pairs. If you wanted to know how many Euros it would take to buy one Dollar then you would check the USD/EUR exchange rate.
The first currency listed is known as the base currency and the second is known as the counter or quote currency. The exchange rate will tell you how many units of the counter currency it will take to buy one unit of the base currency and vice versa.

Theory of Relativity

Remember when you were a kid and traded baseball cards with your friends? Let’s imagine that it’s 1998 and you are engaging in some hardnosed negotiations with Tommy, the local seventh grade card kingpin.
You trade Tommy one of your Mark McGwire cards for one of his Sammy Sosa cards. Sosa then hits homerun number 66 and you hurry over to Tommy’s house and trade him your Sosa back for two Mark McGwires (of course McGwire goes on to beat Sosa in the homerun race and if you’re smart you trade McGwire for as many Barry Bonds as possible…)
Forex trading is very similar to baseball cards – except that your broker doesn’t usually include bubblegum in a currency lot. Let’s evolve our baseball card example by substituting currency for cards and increasing the quantity:
Say you start with 1,000 U.S. Dollars (USD) and wish to purchase Japanese Yen (JPY) because you think the JPY will increase in value relative to the USD, just like why we originally traded the McGwire for the Sosa. So, if the JPY/USD exchange rate is 0.0075 (meaning that each yen will buy a very small percentage of each dollar) then you start off by purchasing approximately 133,333 JPY with your 1,000 USD.
You then hold onto your JPY for 2 weeks at which time your instincts prove correct because the U.S. president announces the U.S. is heading towards a recession and the value of the dollar plummets. With this news the JPY/USD exchange rate rises to 1.000 (1 JPY now equals 1 USD). You then buy 133,333 USD back with your 133,333 JPY, resulting in a profit of about 132,333 USD.
This example is a bit extreme and currency values do not usually change that drastically in a two week period, but hopefully you’re beginning to see how money can be made in Forex trading.

The Long and Short of It

There are several ways for you to make money on a Forex trade depending on whether you want to buy or sell the currency that is currently in your possession. In the example above we decided to buy JPY with the USD we had. In Forex speak we went long on the JPY/USD.
Suppose you had started off with JPY instead of USD and decided to sell your JPY for USD in anticipation that the JPY would decrease in value. Your strategy here would enable you to buy more JPY back once the price dropped. Executing your trades in this manner is considered going short on the JPY/USD.
Going short or long in Forex is just an insider’s way of saying whether you bought or sold a particular currency as part of your strategic move to make a profit. Just remember that long equates to buying and short equates to selling.

Buddy, Can You Spare a Pip?

In the introduction to this article we told you that your goal was to earn pips. So, what is a pip? Well, it’s not a character on South Park or the star of a Charles Dickens’ novel (just in case you were wondering).
Put simply, a pip is the smallest price change that a given exchange rate can make. Most major currency pairs are priced to four decimal points, so the smallest change for most exchange rates is equal to a 1/100th of one percent.
Your profits and losses can be calculated in terms of how many pips you gained or loss. A pip is derived by comparing the starting rate to the ending rate. The difference between the two is how many pips you gained or lost.
For example, if the exchange rate for the USD/CHF was initially 1.2155 and rose to 1.2159 then it has moved 4 pips – which could be good or bad depending on whether you own Francs or Dollars.

Putting It All Together

You should now have a better understanding of how you can actually make money as a successful Forex trader. Remember, Forex trading is NOT easy – anyone who tells you otherwise is lying.