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Introduction To Forex

Forex market stands for foreign exchange market or FX. It is the biggest and most traded market throughout the globe. While talking about our daily trade volume, FX market trade over $5 trillion per day, which is 200 times greater as compared to the New York Stock Exchange. Multinational firms, big financial institutions, central banks were the major players in the Forex market in the past. However, such companies are still the part of the market, the growth of technology and online brokers have let the individual retail trader an opportunity to access the market and trade on a standard field while challenging big players.

What Are The Types Of Currency Pairs?

Each currency pair consists of Quote Currency and Base Currency. The charts and the prices on the currency pair normally refer to the Base currency.

Like, when you see that USD/EUR is getting stronger in value, it means USD is having higher worth against the USD. And, in case you read the EUR/USD chart, it depicts the trend that means EUR is of higher worth as compared to USD. There are three key categories of currency pairs- Exotic, Major currencies and the Crosses.

Exotic

Exotic currencies are traded in very low volumes and generally, lack market depth. The South African Rand and The Mexican Peso are the two forms of Exotic currencies.

Crosses

Crosses currencies are traded against each other. These currencies do not contain the USD too. EUR/GBP and GBP/JPY are the cross-currency pairs that come under crosses currencies.

Majors

This is the most traded currency pairs in the marketplace. Following are the currency pairs:

Currency Pairs

  • EUR/USD
  • GBP/USD
  • USD/JPY
  • USD/CHF
  • USD/CAD
  • AUD/USD
  • NZD/USD

Bid And Ask/Spread

TIn all currency tables, you may see quotes that denote the currency pairs. The prices/quotes always denote the Base currency in the pair. A Bid is considered the selling price of the Base Currency whereas Ask gives the purchasing price of the Base currency. For example: In case you wish to purchase 1 Euro, you will purchase it at the Ask price and if you want to sell 1 Euro, then you will have to sell it at the Bid Price.

Spreads

Exotic Currencies are the ones that are traded in very low volumes and they lack market depth. The Mexican Peso and the South African Rand are examples of the Exotic Currencies.

Bid And Ask/Spread 

In all currency tables, you may see quotes that denote the currency pairs. The prices/quotes always denote the Base currency in the pair. A Bid is considered the selling price of the Base Currency whereas Ask gives the purchasing price of the Base currency. For example: In case you wish to purchase 1 Euro, you will purchase it at the Ask price and if you want to sell 1 Euro, then you will have to sell it at the Bid Price.

For each 1 Euro, we would like to sell, we will use the selling price or Bid price in terms of USD. Therefore, 1 Euro to sell would worth 1.4000 USD. While opening a trade whether to sell or buy, it is generally denoted to as a position. The open position specifies that the client has positioned himself in the marketplace. On contrary to this, the closed position shows that the client has left the market. A SHORT position involves selling currency and a LONG position indicates that you are purchasing. If a currency is raising up, it is denoted by Bullish and if it drops then the movement is called as Bearish.

Spreads

It is a difference between the Ask and the Bid price. The spread is the commission which is charged by a broker for using their services. It is basically measured in Pips.

Pips

Pips are used to calculate the smallest movement in the price of the currency. In the worth of currency, pip is the fourth digit after decimal point.

Knowing Lot Sizes

Traditionally, Lots were used to trade in the particular amounts. 100,000 units are the standard size for it! there are also micro-lots of 1,000 and mini-lots of 10,000.

To have the benefit of comparatively minor moves in the exchange rates of the currency, we have to trade a big amount to have a substantial profit or loss.

LotsNo. of Units
Standard100000
Mini10000
Micro1000
Nano100

Margin/Leverage

Margin: Margin is the amount that you’re using to open your position by leverage. It is typically calculated in percentage.

Leverage: Leverage enables traders to enter the market which would be else limited depending upon the account size. It enables traders to open position for additional lots, shares contracts etc. to be able to afford.

Rollover/Swap

Rollover/SWAP are calculated if a trade is remained open for the whole night. The income or cost is then calculated through the overnight internet rate which is the difference between the two currencies impending on short/long open positions. Exact at 23:59 GMT, the calculations take place and then presented on the client account statement by the following trading day.

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