Forex Arbitrage and Use of Other Similar Trading Methods

Forex trading consists of many different things such as forex arbitrage, forex leverage, forex pip and spot forex. By acquiring good knowledge of these techniques and methods a forex broker can positively utilize the investment made and make significant gains.

We will start this discussion with insights into how forex arbitrage works and then follow it up with information on forex leverage, PIP & spot forex.

Trading Methods

Arbitrage in Forex Trading

Forex Arbitrage means tracing currency pairs with wrong pricing and trading in such currency pairs to earn a profit.  This kind of wrong pricing occurs when forex market is not functioning correctly and the prices for some currencies are more or less than what they should be. Forex arbitrage thereby is a mechanism which helps in stabilizing the market and brings back balance in trading.

Let us now look at another interesting topic in foreign exchange market known as forex leverage and its use.

Use of Leverage

The goal here for a forex trader is to utilize differences between currencies in different nations and make a profit. It is form of loan that investor receives from forex broker and leverage is generally 50:1 or 100:1 for trading of 100,000 units and 200:1 if the value is $50,000 or even less.

The next topic we will explore is forex pips and the purpose it serves in currency trading.

Percentage in Point & Its Purpose

Percentage in point or PIP stands for least fluctuation of prices that can occur in foreign exchange trading. Along with PIP you need to know about PIP spread also which is the difference between bid & ask price of a particular currency pair with possibilities of gains more when PIP spreads are lower.

In case you want to work out value of PIP then it is relatively easy, you just need to divide it by the prevailing rate for currency pairs in which USD is the base currency.

The last subject of our discussion is spot forex which is quite an interesting type of trading contract.

Features of Spot Forex

If a contract is purchased or sold immediately on current market prices then such type of contract is called as spot forex contract. This type of contract is also different from future deals in which the delivery takes several months, in this type of contract the settlement normally completes in two days.

The benefit of spot forex is that a forex broker can purchase small lots instead of putting his funds into larger lots, thereby reducing his or her risk of losses.

A Final Note

Thus we can easily figure it out from the above few sections that forex currency trading is a vast subject and getting knowledge of all the methods and tricks used while trading is essential to survive in this market and make gains. In this article we have tried to provide as much information as possible about various aspects of foreign exchange trading and how the whole system works to make you aware of all the risks and positives of forex trading.