Forex Trading Part 2 Using MT4 App

Forex Trading Part 2.

We are done with Forex Trading Part 1 and now you have to follow carefully the part 2 steps which are very simple to understand. They will fall under the following topics; WHAT IS A PIP, CONCEPT OF BID AND ASK PRICE, WHAT IS SPREAD, FORMS OF TRADING ORDER, CONCEPT OF TAKING PROFIT AND STOP LOSS,  PART 2.

Today marks the beginning of your Forex journey. We are going to start with this topic

What Is A Pip

Note that the bedrock of everything we are going to do depends on how you understand Pips. Currencies are gauged in Pips. Trade orders are placed in Pips, profits are calculated in Pips. Practically everything we are doing in Forex involves Pips.

A pip is the smallest unit in which a currency pair can change. It is said to be a standardized unit and the smallest amount by which a currency pair in Forex market can change. Smaller versions called MicroPips also exist.

How To Calculate Pips

Please here we need maximum attention. For must pairs in Forex, we start calculating the Pips from the fourth 4th decimal place ie 1.15246 if you have 5 figure your pip still remains at the position even when they are 4.

Example 1: Lets assume EURUSD pair currently at 1.1661, making move of one pip give us a new value of 1.1662

Example 2: If on the sell side you find 1.1661 and on the buy side you have 1.1662, it means that 1 pip has added to it. i.e 0.0001 has added to it to give 1.1662 but we still have the same answer. As simple as that.

If the same EURUSD moves 5 pips upward we are going to add 0.0005 to 1.1661 to have 1.1666. Here the market is always volatile and this volatility is measured in Pips.

Lets assume that the AUDNZD pair made a move of 10 Pips from 1.0930. We would always add the 10 from the 4th decimal number and our value becomes 1.0940 i.e 

1.0930

0.0010 =1.0940. 

So if we add 10 pips 1.74887

                                   0.0010=1.7498.
Click here to read part one of Forex Trading . Thanks. If you have a question, just drop it on the comment box below.

CONCEPT OF BID AND ASK PRICE

Beside each currency pair, you would see 2 prices. Ignore the 2nd one for it will be treated later. The 1st one is the BID Price and the 2nd one is the ASK Price.

BID price is the price that buyers are willing to buy while ASK Price is the price that Sellers are willing to sell.

E.g you received $10000 from a sister abroad and you went to the Bank to change it to CFA (You are the Seller). The bank would tell you that the latest exchange rate is 550/$ so they will give you FCFA 5 500 000 the equivalent of $10000. The next day an urgency come up and you needed $10000 to travel for your honey moon and you step into the Bank and the bank now tells you that their exchange rate is 600 FCFA/$,(Bank is the seller now) now you have to pay FCFA600000 for that same $10000. In this situation, FCFA550 is the BID PRICE and 600 is the ASK PRICE. The Bank just made a sum of FCFA 500000 from this one transaction and managers will never stop driving in big Cars.

They will never want you the customer to learn Forex Trading because its liquidity can change your fortune in just a few weeks of trading. Well knowledge is only circulated among elites.

In Forex Trading, Bid and Ask work the same way not as exuberant as the one banks exploit us with. Their difference is just in points. Here buyers and sellers are not human beings. You buy from the market and sell to the market. When you place a BUY order, it would activate for you using the Ask Price. The ask price is always higher than the Bid price. So they gave you the $s at the ASK price.

WHAT IS A SPREAD

SPREAD is the difference between the BID and ASK price. In the example FCFA550-FCFA 600= FCFA50. FCFA50 is the SPREAD. That is the bank's profit. In Forex as well, the spread is also the profit of the Brooker but very small because it is measured in pips.

Ex if the difference between EURUSD Bid and Ask at this particular trade hour is 1.1705-1.1704= 1 pip, the broker's profit from the trade is 1 pip even if you make 80 pips or 90 pips.

FORMS OF TRADING ORDERS

Take Profit And Stop Loss are the two types of market orders.

Take Profit; As a trader, you will not always be online to monitor all your trades. Some of your trades may and others a day or may be you have an outing with your lil chick, or you have to go to church. This is where market orders come in.

Take profit tells your Broker to close your trades for you and Lock your profits when your Trade moves a certain number of pips even if you are not online.

In the Fx market we are always buying or selling. Lets say you entered a currency pair AAA/BBB and its currently at $40 and from your technical and fundamental analysis, you found out that it would still rise. You immediately open your MT4 and click on buy with a target of 50 pips. Please don't be greedy. Pick the little you have.

For you to set a target of 50 pips, you add it to the price you entered which was $40, so you TP would be $90. once it reaches $90, your broker closes the trade for you automatically and add $50 to your account instantly. That's how TP works.

Lets open our MT4 to see where to set TP. Go to screen and select a currency pair, press and hold a currency pair you wish to Buy or Sell. A small menu will appear and you click NEW ORDER. Enter your TP IN THE BOX BELOW ASK PRICE, whether you are buying or selling. The space is on the right.

Ex if i wanna buy EURGBP at a current ASK Price of 0.8958 and i want to take a profit of 40 pips, then add 40 pips to the ask price. So your TP=0.8998 so immediately as a currency pair rises and reaches this 0.8998 you broker closes the Trade for you send your profit to your account whether you are online or not. Note that i used Ask Price because i was buying, during Selling, we would use Bid Price.

In SELLING, we use the Bid Price. You are selling because you found out from your Technical and Fundamental Analysis that the price would fall. As the price is falling, you are making money which is the opposite of Buying.
Ex We wanna sell AAA/BBB pair and the price is at $100 and we have seen from our analysis that it would fall, we open our MT4 and click SELL and our target profit for the pair is 45 pips, in this case, we do the reverse, we subtract the Take Profit pips from the initial price. So our profit would now be set at $55. A price below because we are selling. Immediately the price drops from $100 to $55, the broker sends 45 pips profit to your account. That's it with Forex, rising or falling you gain.

Ex. Lets say after your analysis you found out that EURJPY would fall and you decided to short(Sell) the pair. Now are dealing with BID because we are selling and the price is currently at 128.94 and i want a TP of 60 pips, the value of my TP=128.34.

STOP LOSS means that, you set your trade to a target, if you are loosing much and you reach there the trade will stop. STOP LOSS is the opposite of TAKE PROFIT.
 Note that while selling our TP is below the price and while buying our TP is above the price.