26/02/ · • Basic Forex terms: Cross rate – The currency exchange rate between two currencies, both of which are not the official currencies of the country in which the exchange rate quote is given in. This phrase is also sometimes used to refer to currency quotes which do not involve the U.S. dollar, regardless of which country the quote is provided in Foreign exchange/forex/FX The simultaneous buying of one currency and selling of another. The global market for such transactions is referred to as the forex or FX market. Forward Forex is traded in amounts called blogger.com standard lot> has , units of the base currency, while a micro lot has 1, units. For example, if you buy 1 standard lot of EUR/USD at , you buy , Euros and you sell , US dollars
Basic Forex Terms - A Beginner's Glossary
Forex has its own languagethat is, special terminology. The first currency in our case, the euro is the base currencyand the second the US dollar is the basic forex terminology currency. As you see, we use short forms for currencies: euro is EUR, US dollar is USD, and Japanese yen is JPY.
It is the rate at which you exchange one currency for another. The exchange rate shows you how much of the quote currency you need if you want to buy 1 unit of the base currency. This means that 1 euro the base currency is equal to 1. Now take a quick peek at how the euro is doing against the Japanese yen: for 1 euro I can get The exchange rate may change in 2 days or 1 week, though, basic forex terminology.
It may even stabilize for a while. Okay, but when? The when is a question that nobody can answer precisely. Because currency rates change all the time, and you want to know when to buy one currency and when to sell another to make a profitable deal. Also known as the offer pricethe ask price is the price visible on the right-hand side of a quote. This is the price at which you can buy the base currency. Bid is always lower than ask.
And the difference between bid and ask is the spread. It is the difference in pips between the ask price and the bid price. The spread represents the brokerage service costs and replaces transaction fees. There are fixed spreads and variable spreads. Fixed spreads maintain the same number of pips between the ask and bid price, and are not affected by market changes. Variable spreads fluctuate i, basic forex terminology. increase or decrease according to the liquidity of the market, basic forex terminology.
It is the currency you choose when you open a trading account with XM. All your profits and losses will be converted into that particular currency. At XM you can open any kind of trading account you prefer with many base currency options: USD, EUR, GBP, JPY, CHF, AUD, HUF, PLN, or RUB. So if you open an account basic forex terminology USD but you transfer funds in EUR, the funds will be automatically converted into USD at the prevailing inter-bank price. Are you a visual type?
As you see, the pip is the last decimal point. All currency pairs have 4 decimal points — the Japanese yen is the odd one out. Pairs that include JPY only have 2 decimal points e. It is an extra decimal place in the exchange rate.
In the case of non-JPY pairs, we have 1. Basic forex terminology call the last decimal place in such pricing a pip fraction or tenth pip. Forex is traded in amounts called lots. US dollars.
The pip value shows how basic forex terminology 1 pip is worth. The pip value changes in parallel with market movements, basic forex terminology. So it is good to keep an eye on the currency pair s you are trading and how the market changes. Margin is the minimum amount of funds, expressed as a percentage, that you will need if you want to open a position and keep your positions open. And so, in order to buy 1 standard lot i.
USD 1, Basically, margin trading involves a loan from the forex broker to the trader. Practically speaking, what you do is speculate on the exchange rate.
In other words, you estimate how the exchange rate will move, and you make a contract-based agreement with your broker that he will pay you, basic forex terminology, or you will pay him, depending on whether your estimation has proved to be correct or wrong i. whether the exchange rate has moved in your favor or against your initial speculation.
Basic forex terminology, you will have to put down a deposit that we call margin. This is why margin trading is trading with borrowed capital. In other words, you can trade with a loan from your broker, and that loan amount depends on basic forex terminology amount you initially deposited.
Margin trading has another big advantage: it allows leverage. As you can see in our example, your initial deposit serves as a guarantee for the leveraged amount ofUSD. This mechanism ensures the broker against any potential losses. Moreover, you as a trader are not using the deposit as payment, or to purchase currency units. Your broker needs a so-called good-faith deposit from you. Strictly speaking, through leverage the forex broker lends you basic forex terminology so that you can trade bigger lots:.
Leverage depends on the broker and its flexibility. At the same basic forex terminology, lLeverage varies: it can be, or even This sounds great, but how does it actually work?
I open a trading account and I get a loan from my broker as simply as that? Firstly, it depends on what type of account you open, what the leverage for that particular account type is, and how much leverage you need.
Leverage can be used to maximize gains — but also losses, if you are too greedy. You open a trading account that has a leverage of The profits that you make by trading will be added to your account balance — or, if there are losses, they will be deducted. Leverage increases your buying power and can multiply both your gains and losses.
Always choose a broker that offers no negative balance protectionand so your losses will never exceed your capital. This means that if your loss reaches USD 5, your positions will be closed automatically so that you will not end up owing money to your broker, basic forex terminology.
It is the total amount of money in your trading account, including your profit and losses. For instance, if you deposited USD 10, into your account and you also made a profit of USD 3, your equity amounts to USD 13, basic forex terminology, This means that if your equity is USD 13, and your open positions require USD 2, basic forex terminology, margin used marginyou are left with USD 11, free margin available to open new positions.
Margin calls are a major part of risk management: as soon as your Equity drops to a percentage of the margin used, your forex broker will basic forex terminology you that you need to deposit more money if you want to maintain your position.
You want to buy USD and sell CHF. The quoted rate is 1. Step 1 : you buy 1 standard lot ofunits at 1, basic forex terminology. In the meantime the price has moved to 1. Now you are selling in order to close your trade. You must take the bid price of 1. Step 3 : you start calculating.
What do you see? The difference between 1. This equals 20 pips. As you learnt it before, you use the ask price when you buy a currency, and the bid price when you sell a currency. You expect the EUR to strengthen as compared to the USD, so you will buy EUR and profit from its increase in value. When you enter a short position, basic forex terminology sell a base currency. If you enter a long buy position and the base currency rate has gone up, you want to get your profit.
To do so, you must close the position. forex, stocks, or commodities like oil, gold, silver, etc. that will stay open until you close it, or you have your broker close it for you e. via telephone trading, basic forex terminology. You want to go short place a sell order on this currency pair if the price reaches 1. This order is called limit order. So your order is placed when basic forex terminology price reaches the limit of 1. A buy limit order order is always set below the current price whereas a sell limit order is always set above the current price, basic forex terminology.
It is an order that you give to buy above the current price or an order to sell below the current price when you think the price will continue in the same direction. It is the opposite of a limit order.
You want to go long i. place a buy order on this currency pair if the price reaches 1. This order is called stop-entry order. It is an order to close your trade as soon as it reaches a certain level of loss. With this strategy, you can minimize your loss and avoid losing all your capital. You can make stop-loss orders with automated trading software.
Forex Terms That Every Trader Must Know -- Forex terminology explained..
, time: 15:25Forex Trading Terminology » Learn To Trade The Market
Knowing the basic terms of Forex trading will prevent you from feeling stranded once you have entered the trading platform. Beginner Forex Trading Terms. To make a good and hassle-free start, you need to learn at last the following: Currency Pair – a term used when buying and selling one currency concerning another; Foreign exchange/forex/FX The simultaneous buying of one currency and selling of another. The global market for such transactions is referred to as the forex or FX market. Forward 01/07/ · Basic forex terminology is something you need to know if you want to catch all the trading information. It is basically phrases and terms like bid price, ask price, pips etc
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