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For laymen or beginners it sounds a little strange at first that you can make a lot of money by changing just a few or just one cent from one currency to the other. In foreign exchange trading, not only, as normal, from the 2nd decimal place is assumed here, but from the 4th place. This 4th place is then also in the technical language in forex trading as "pip". A 5th decimal place again makes a finer scaling possibility in the strategy and the 5th decimal place is called "pip".

Thus, an increase in the EUR/USD exchange rate from 1.1759 to 1.1760

the change of 1 pip and this results in either a profit or a loss of approximately 8.50 Euro for a position size of 1 lot (trading unit in foreign exchange trading). Such an amount only works because of the leverage used in foreign exchange trading. Here it is then also possible, with a relatively small investment foreign exchange worth 100,000

Euro.

Example

The EUR/USD pair is showing greater resistance at the 1.15 level. This is where a sell limit order (such an order is used in Forex trading to sell a certain number of forex or securities at a fixed price or above. Each limit order has a precisely defined validity period) can be set with a standard lot (for example 100,000 units).

If the EUR/USD exchange rate drops only 2 cents to 1.13 and then the sell limit order is set at this level, and thus the position is closed out when this price level is reached, this trade will result in 200 pips and thus a profit of 2,000 Euro (for a position size of 1 lot, one pip is worth about 10 Euro). Therefore only very small

This is done either to make a larger profit if the estimate is correct or to make a larger loss if the estimate is incorrect.

Due to the leverage effect mentioned above, it is possible to trade with a small and manageable amount of money. For example, it is possible to trade an amount of 10,000 Euro with a leverage of 1 : 100 with a stake of 100 Euro.

As already mentioned, the size of a position in foreign exchange trading is measured in lots. A complete lot corresponds to 100,000 units of one currency. For example, if a whole lot in the EUR/USD currency pair

is opened, the movement of the price by 1 pip is enough to increase or decrease the result by 10 euros. Thus, a small bet would have the risk that this bet would be wiped out in a short period of time when working with such large positions as with a complete lot.

Therefore there are different lot sizes, such as 1 Minilot (corresponds to 1 Euro or USD per pip) or a Microlot (0.10 Euro or USD per pip).

Is the foreign exchange market liquid and is there so much movement in the exchange rates so that you can make money with it?

The foreign exchange market is very liquid and the foreign exchange moves sufficiently to make money even with small movements. But also because of the sometimes very long and pronounced trend phases, currencies are also popular with hedge funds. Thanks to the possibility of using leverage in forex trading, only very small changes in currency pairs are sufficient here (so only very few pips of movement) to make a good and reasonable profit. It is important to use good money management.

Foreign exchange trading is therefore not riskier than trading in other financial instruments, such as shares. Due to the fact that there is a clean technical market, it is easy to trade here. The foreign exchange market also offers a corresponding leverage, which is not available in other markets