Forex trading is an exciting and dynamic form of trading that involves the buying and selling of currencies from around the world. Forex traders aim to make a profit by speculating on changes in the exchange rates between different currencies. One popular strategy for forex trading is the 20 pip spread trade, which involves executing a trade with a 20 pip spread. In this article, we will explain what a pip is, discuss the benefits of a 20 pip spread trade, and provide a step-by-step guide on how to place such a trade.
What is a Pip?
A pip is the smallest unit of measurement in forex trading. It stands for “percentage in point” and represents the smallest increment of price movement in a currency pair. The value of a pip varies depending on the currency pair being traded and the size of the trade. In most cases, a pip is equal to 0.0001 of the currency being traded, but this can vary for some currency pairs.
Benefits of a 20 Pip Spread Trade
The 20 pip spread trade is a popular trading strategy for several reasons. One of the main benefits of this strategy is that it allows traders to take advantage of small price movements in the market. This means that traders can enter and exit trades quickly, which can help to minimize their risk exposure.
Another benefit of the 20 pip spread trade is that it is a relatively low-risk strategy. This is because traders are only risking a small amount of their capital on each trade. For example, if a trader is trading a currency pair with a 20 pip spread and they are using a 1% risk management strategy, they will only be risking 1% of their account balance on each trade.
How to Place a 20 Pip Spread Forex Trade
Step 1: Choose a Currency Pair
The first step in placing a 20 pip spread forex trade is to choose a currency pair to trade. Traders should choose a pair that they are familiar with and have a good understanding of the market conditions that affect the pair.
Step 2: Determine the Spread
The next step is to determine the spread for the chosen currency pair. The spread is the difference between the bid price and the ask price for the currency pair. Traders should look for a pair with a spread of 20 pips or less.
Step 3: Determine the Trade Size
The next step is to determine the trade size. Traders should determine the amount of capital they are willing to risk on the trade and use this to calculate the trade size. For example, if a trader has a $10,000 account balance and they are using a 1% risk management strategy, they should only risk $100 on the trade.
Step 4: Place the Trade
Once the trader has determined the trade size, they can place the trade. Traders can use a forex trading platform to place the trade. They should enter the currency pair they want to trade, the trade size, and the stop loss and take profit levels. The stop loss level should be set at a level that will limit the trader’s losses if the trade goes against them, while the take profit level should be set at a level that will allow the trader to take profits if the trade goes in their favor.
Step 5: Monitor the Trade
After the trade has been placed, traders should monitor the trade closely. They should watch for any changes in the market conditions that could affect the trade and adjust their stop loss and take profit levels accordingly. Traders should also be prepared to exit the trade if the market conditions change and the trade is no longer favorable.
Conclusion
The 20 pip spread forex trade is a popular trading strategy that can be used by traders of all levels. This strategy allows traders to take advantage of small price movements in the market and is a relatively low-risk strategy. To place a 20 pip spread trade, traders should choose a currency pair with a spread of 20 pips or less, determine the trade size, place the trade, and monitor the trade closely. With practice and experience, traders can use the 20 pip spread trade to make consistent profits in the forex market.
