Friday, 18 May 2018

Powerful Tips: Basic Terminologies In Online Forex Trading

Foreign Exchange Market, popularly known as Forex, with no exceptions, is the exchange of currencies; basically, from one currency to the other. 

Forex online Market repels rush, it's a market where you dive into its depth after comprehending from the very scratch. In as much as Trading pays massively, it, also, takes massively. 

To have a full grasp of what Forex entails, let's look into an example of possible event. 

If Mr A visits a country where Euro is its dominating currency, and he wants to purchase goods from a country where Dollar is its dominating currency; Guess what he should do! 

Okay, you've got an idea! 

Mr A has to exchange Euro, which he has, for Dollar, which he needs, meeting the equivalent in dollars of what he desires to purchase. 

This gives an idea, right? 

You'll understand immensely as you read on. 

In Forex, considering basics, one thing you wouldn't neglect to understand is the underlining meaning of a Currency Pair. As you commence your dealings with Foreign Exchange Market, you will have the Currency Pair(s) flashing in your face, almost all the time. So, it's worth giving a bit of your time to study about. 

Currency Pairs is... 

Hold on, make sure you have digested the above statements. 

Moving forward, I'll, in brief details, show you the majorly used terminologies, which you must master to have a direction in Forex. 

Terminologies Used In Forex:

PIPS: Pips, being one of the determining factors of your earnings in Forex online, is the difference in currencies exchange rate, in other words, it's the measurement of price movement.

Equivocally, pips is an acronym for "Percentage in Point".

Furthermore, exchange rate of most currencies, for example, pound and dollar (GBP/USD), as people think, has a 2 decimal place, 2 units, value.
Let's say: 1.42!

But, to rightly contrast that, Foreign exchange has 4 units after the decimal point, e.g., 1.4200. The last number, which is 0, is the pip.

Therefore, if the value of the currency pair increases from 1.4200 to 1.4201, it indicates that it has increased by a single pip.

Understanding the rise of the value of a currency pair points out the amount of pips which accrues profit. 

When the value of a currency pair is seen as 5 units after the decimal point, the last number is a fractional pip or pipette. 

CROSS CURRENCY PAIR: A cross currency pair is identified when a currency pair doesn't involve the U.S dollar. Pertaining to cross currency pair, one doesn't have to exchange the currencies to American dollars for a foreign currency to be traded for another. 

CURRENCY PAIR: A currency pair, as the name implies, is the presence of specifically two currencies to perform buying and selling simultaneously, and vise versa. You should know this: Forex is always quoted in pairs, currency pairs. 

Still on currency pair, there's a name given to each currency found in the pair, from left to right. E.g.: (GBP/AUD).

Base Currency: This is the first currency, from the left, found or quoted in a currency pair; it can also be called domestic or accounting currency. 

Quote Currency: The second currency quoted in a currency pair in forex online. In a direct quote, the quote currency is the foreign currency. The quote currency is the domestic currency in an indirect quote. It, also, is known as the "secondary currency" or "counter currency". 

BID: To purchase the base currency in a currency pair, the Bid is the amount which the market maker is willing to pay.

GOING LONG & GOING SHORT: This basically mean to purchase a currency pair, which involves buying the base currency and selling the counter currency. While Going Short is the opposite of going long, going short involves selling the base currency and buying the counter currency.

SPREAD: The spread consists of the difference between the bid or purchase price and the offer or sale price provided by a market maker. The tighter the bid-offer spread made by the market maker, the better the price usually seems to their customer.

LEVERAGE: The ratio of the amount of money on deposit you need for a given transaction size. Leverage is usually quoted as a ratio such as 1:50 which means that you will need $100 on deposit to control a trading position of $5,000.

LOT SIZE: The minimum trading unit for a forex broker account. The lot size is usually 100,000 base currency units for Standard accounts, 10,000 base currency units for Mini accounts and 1,000 base currency units for Micro accounts.

MARGIN: The amount of money you need to have on deposit with a forex broker to make a forex trade in a certain amount. If your leverage ratio is 1:50 then you need to have $100 of margin on deposit to trade a forex position with a $5,000 notional amount.


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