Trading Basics

This information should hopefully take you from complete and utter novice, to being able to understand the terminology we use on this site. Hopefully you'll also be able to start using our software.

We're going to focus on currencies, because generally people know how stocks work. But this should also be helpful if you don't know about stocks.

The trap for young players is to think you need to understand how everything works. The truth is, there's some stuff that just happens behind the scenes that you don't need to worry about.

Side note: I normally write 1,000 to mean "one thousand", and 1.000 to mean "one point zero zero zero". This is the direct opposite of some parts of Europe, so where possible I will instead use "K" to represent the thousands. E.g. 1K = 1000, and 10K = 10000. But note that I'm still going to have to occasionally use "," for thousands and "." for a decimal point.
 

Long and Short

When you think the price is going to go higher, you buy. This is called going long.

When you think the price is going to go lower, you sell. This is called going short.

The practicalities of going short is exactly the same as for going long: Choose an option. Click a button. There's really no mystery. Once you've done it once, you're a master.

Forex brokers have game or demo accounts, where you can practice all you want without risking real money. In these demo accounts, you can buy and sell and watch charts just as if you were doing it for real. The only difference is that you're not using real money.
 

Symbols

Take for example the price of the Euro vs the US Dollar. This is written EUR/USD, or just EURUSD.

EUR is the 3 character symbol for the Euro. USD is the 3 character symbol for the US Dollar.

AUD is the Aussie Dollar, NZD is the New Zealand Dollar, GBP is the Great Britain Pound, JPY is the Japanese Yen, and so on and so forth.

Normally currencies are quoted against the US Dollar. E.g. AUD/USD, NZD/USD, GBP/USD, USD/JPY.

When we compare two non-US currencies, they are called cross-rates. E.g. AUD/NZD, GBP/JPY.

The ordering is important. When you buy GBP/USD, what you are actually doing is buying GBP using USD.

If you buy AUD/NZD, what you are actually doing is buying AUD with NZD.

Or, more correctly, you are buying GBP and selling USD. Or buying AUD and selling NZD. But don't worry if that confused you.
 

Pips

The smallest price movement is referred to as a pip.

For example, the price of EUR/USD has 4 decimal points - 1.2345. A pip is therefore equal to 0.0001.

The price of USD/JPY has 2 decimal points - 123.45. A pip is therefore equal to 0.01.

There are some brokers that let you trade so-called pipettes, which add another decimal point. It makes no difference to how the calculations take place.
 

Units and Contracts

The lowest denomination in currency is a unit. 100K units = 1 contract.

Different brokers have different rules on how many units you have to buy.

Very rarely do brokers allow you to buy just one unit and in multiples of 1 unit, although Oanda allows this.

It's becoming more and more normal for brokers to allow purchases in chunks of 1K units. i.e. the minimum you could buy is 1000 units. Or you could buy 2000 units, or 10000 units. And so on. But not 1697 units.

A lot of brokers trade in chunks of 10K (10000) units.

Some brokers are still clinging to 100K chunks. 100K units is equivalent to 1 contract, and was the standard when it was pretty much just banks involved in this currency trading thing. But now more and more private citizens are getting into it, and we aren't going to buy millions of dollars of currency at a time, so brokers are getting smart and letting us buy in the 1, 1K, 10K chunks.
 

Trading Sessions

Currency trading is possible whenever there's somewhere in the world that's not currently in a weekend. That means when the time becomes Monday morning in some part of the world, currency trading starts. And when the time becomes 5pm on Friday afternoon in the last part of the world to do so, currency trading ends.

The result is that currency trading is possible for 24 hours per day, about 5.5 days per week.

But just because trading is possible, it doesn't mean that everybody is trading for 24/5.5. Instead, the days are broken up into sessions. There's the U.S. session, the European session, and the Asian session. Each session is roughly from 8am to 6pm on the local time of whatever part of the world it is. These sessions do overlap a little, and it's when they do that you have the most number of people trading.

Is the time when the most number of people are trading an important thing? Not sure. The markets are certainly more liquid. But it would be impossible for me to be able to determine the impact on your particular trading style.
 

Different Types Of Accounts

Most brokers offer both a demo account along with their live account.

Demo accounts are where you can experiment and practice without risking real money. Everything else should be the same as the live account.

Some brokers offer 3 types of accounts:

1. demo account
2. mini account
3. live account

For such brokers, live accounts would be where you have to buy in lots of 1 contract, whereas the mini account is where you could buy in lots of 10K. You could still buy 1 contract or more in the mini account, but to buy 1 contract it would probably be referred to as "10 mini contracts".

FXCM goes a step further and has:

1. demo account
2. micro account
3. mini account
4. live account

In the micro account you can buy in lots of 1K.

Some brokers don't have the concept of a mini account, and just let you trade in lots of 1K or 10K or 100K in the live account.

Oanda lets you buy in lots of 1 unit in their live account, so you could buy 12,345 units if you wanted to.