Frequently Asked Questions
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FAQ
What Is Pip Value?
We quote currency pairs by “5, 3 and 2” decimal places. These are known as fractional ‘pips’ or pipettes.
On a 5 decimal place currency pair a pip is 0.00010
On a 3 decimal place currency pair a pip is 0.010
On a 2 decimal place currency pair a pip is 0.10
For example: If GBP/USD moves from 1.51542 to 1.51552, that .00010 USD upward movement is one pip.
When trading FX and other symbols, It is easy to use the ‘pip-value’ of the trade to work out your potential gains and losses quickly.
What Is Risk Management?
In the case of managing risk, correct position sizing is critical.
This means achieving the correct exposure on each position relative to the size of your account and taking the time to understand how volatility and the recent changes in price affect the level of risk you are taking on.
It also includes assessing the risk of consequential events affecting the market (‘event risk’) to better understand the
likelihood of market-moving catalysts affecting your open trades.
What Is Technical Analysis?
Technical analysis assesses the probability of a price movements that are higher, lower, or range-bound in the markets.
Markets are the aggregate of a series of mostly random events, so as traders our job is to manage risk and assess
probability. That is where charting can help.
When you are starting out using technical analysis, price action analysis, or a mixture of both, the first thing you should do is ask yourself a few questions about what the markets are trying to tell you:
What is the chart pattern saying about the behavior of active market participants at that moment?
If a market is trending higher or lower, what’s the probability of a continuation of that trend?
A market may have travelled from A to B, but how can we assess the overall quality of the journey?
How Does Forex Trading Work?
Forex trading is the simultaneous act of buying one currency while selling another.
The combination of these two currencies make up what’s known as a currency pair. Currencies are always traded in pairs, and each currency in a pair is represented by a unique three-letter code.
The first two letters in the code represent the country, and the third letter identifies the currency. For example, the code ‘JPY’ represents the Japanese Yen.
Forex prices are known as rates, and they express the value of one currency in terms of the other.
For example, a price or rate in euro-dollar could be quoted as:
EUR/USD = 1.23700
The currency to the left is the base currency (in this example, the euro). The currency on the right-hand side is the quote
currency (in this example, the US dollar).
What Is Fundamental Analysis?
While technical and price action analysis probes on the ‘what’, fundamental analysis is interested in the ‘why?’.
Fundamental analysis is an incredibly diverse discipline and it takes time time to master, which is why so many retail traders start their trading journey by studying technical analysis.
Whether we are anticipating and subsequently reacting to news, corporate earnings, economic data, central bank action or
politics, trading using fundamentals is about gathering knowledge as to why a market is reacting in a particular way. It
also helps us to understand whether variables will continue to influence price going forward and, if so, to what extent.
Trend Lines
‘Bull’ or ‘Uptrend’ –
Uptrends are comprised of a series of peaks and troughs within price action during which the price is trending higher. A consistent and stable uptrend is seen as being ‘bullish’ and a buying opportunity.
‘Bear’ or ‘Downtrend’ –
Downtrends are made up of a series of peaks and troughs during which the price of the instrument trends lower. Sustained downtrends are seen as being bearish for the underlying price and are considered to be selling opportunities.
Ranging’ or ‘Flat’ –
When a market is neither trending higher or lower it’s said to be ‘flat’ or ‘range-bound’.
In these periods neither the bulls or the bears have control of the underlying price and the market moves sideways until
one of these groups becomes dominant again.
