Forex trading involves the buying and selling of global currencies. That is, it is the exchange of one currency for another. A Forex trader will buy a certain currency if they believe that its value will strengthen whereas they will sell a currency should they speculate that the value will decline or weaken. In Forex terms, when a trader buys a currency, it is said that they are going long. On the other hand, when a trader sells a currency, it is said to go short.
You can trade Forex with ease and in real-time on the GFB CAPITAL electronic trading platform. This platform will connect you to the largest banks in the world providing you with deeper liquidity as well as variety. Once you have joined GFB CAPITAL, you will gain immediate access to a wide selection of Forex or currency pairs which can be traded 24 hours a day, 5 days a week.
In order to help you understand Forex trading, let us look at an example. Here, our focus will be on the USD/CAD currency pair or the US Dollar and the Canadian Dollar currency pair. The current rate for the USD/CAD is 1.12. This means, therefore, that 1 US Dollar is worth 1.12 Canadian Dollars.
With all this in mind, you may be wondering how you know when to buy or sell a currency. Let us explore this further.
When to Buy or Sell a Currency
Using the example above, a trader will buy the USD/CAD currency if they believe the rate will rise. That is, if the USD strengthens against the CAD, then it is time to buy. Likewise, a trader would sell USD/CAD if they speculate that the rate will drop. That is, if the USD will devalue against the CAD. In order to calculate your profits, you will need to calculate the amount of pips that the USD/CAD has gained or shed.
What are Pips?
In Forex trading, pip is an abbreviation for ‘Percentage in Point and one pip is displayed as the following numerical figure, 0.0001. Based on this, your profits or earnings are determined by the accumulated pips you make on your trades. The smallest movement in the rate of a currency enables you to profit and since these rates fluctuate all the time, there are many trading opportunities in the Forex markets.
In order to understand pips, let us look at the EUR/USD currency pair:
- Euro (EUR) against the US Dollar (USD)
- The EUR/USD increased from 1.3804 to 1.3809. The price difference between the currencies is 0.0005 or 5 pips for long and we say that this currency pair gained +5 pips.
- The EUR/USD dropped from 1.3809 to 1.3805. Here, the price difference is 0.0004, or 4 pips for short and we say that this currency pair dropped by -4 pips.
- The EUR/USD increased from 1.3809 to 1.3909. In this example, the price difference is 0.100 or +100 pips for long. In other words, the EUR/USD gained +-100 pips.
In Forex trading, the more pips you accumulate, the greater your earnings or profits will be from the market. One of the key benefits of this form on trading is that there is no limit to the amount of pips you can accumulate, nor is there a minimum amount. The decision of this is in your hands as the trader and it is strongly influenced by how well you are able to analyze market movements as well as your investment amounts. Remember that there are many factors which impact the market and it is often driven by economic events that are released almost every day so it may take some time before you master Forex trading. With so much movement and fluctuations in the Forex markets, you could be up 30 pips at one time and then down 200 pips a few moments later. When a trade is in the market, it is referred to as an ‘open’ trade or an ‘open’ position and when you wish to exit this open trade, either manually or by using a stop loss and/or take profit order, this is referred to as ‘closing’ the trade or ‘closing’ the position.
If we could provide you with a definite answer here, we would. While trading Forex, you may have noticed that there are times when you and another trader have both bought or sold the same financial asset. While you both have accumulated the same amount of pips, you have made less profit. Frustrating right? Well, let us explain to you why this may happen.
The bottom line is, the more capital or money you allocate or invest in the trade, the higher the value of each pip will increase. At GFB CAPITAL, the minimum pip value is only 10 cents. This means that if you have invested the minimum amount in the trade and you are currently up 100 pips, your profit in real cash will be $10 (100 pips x $0.10). However, in the case that a trader has invested more capital where each pip is worth $50 and they accumulate 100 pips, this means that the trade is in a profit of $5,000 (100 pips x $50).
So in order to answer how much you can profit with GFB CAPITAL, the fact is there is no limit to your profits since there is no limit to the amount you can invest in the market. If you allocate all of your invested capital into a single trade, then the pip’s value will increase substantially but the risk and market exposure will also increase. For example, if a trader invests $10,000 in a single trade, each pip could be worth more than $140. If the market then moves against the trade by just under 100 pips, the invested capital will be lost. If the market moves in the right direction, gaining 100 pips will double the investment. At the end of the day, as a trader, you must be aware of the risks involved in online trading and ensure that you are only trading with money you can afford to lose.