leverage Explained for New Traders (Part 3)

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Leverage Explained for New Traders (Part 3): Forex Trading Basics 

Forex trading can seem complex at first, but understanding the foundational concepts is crucial for success. In this article, we'll dive into key elements like bid/ask prices, spreads, lots, and order types. These concepts are essential for making informed decisions and managing your trades effectively. 

1. Introduction to Forex Trading Basics 
Forex trading involves buying and selling currency pairs, such as EUR/USD or GBP/JPY. To navigate the market, you need to understand how prices are quoted, how trades are executed, and the terminology used. Key concepts like bid/ask prices, spreads, lots, and order types form the backbone of Forex trading. 

2. Key Principles Explained with Examples 

a. Bid/Ask Prices and Spreads 
Every currency pair has two prices: the bid (the price at which you can sell) and the ask (the price at which you can buy). The difference between these two prices is called the spread. 

Example: 
If the EUR/USD is quoted as 1.1000/1.1005, the bid price is 1.1000, and the ask price is 1.1005. The spread is 5 pips. 

b. Lots 
A lot is the standard unit size of a Forex trade. There are three main types: 
- Standard Lot: 100,000 units of the base currency 
- Mini Lot: 10,000 units 
- Micro Lot: 1,000 units 

Example: 
If you trade 1 standard lot of