Foreign Exchange Investor Education – Basic Terms Of Forex Investor Trading. Study Forex Trades

Basic terms of Forex currency trading:

There are a few terms you should understand before attempting a fx trade. These terms will allow you to understand the price fluctuation of each currency and eventually calculate the forex profit/loss of any trade.

Pip value is the smallest unit that a currency can trade at. It is like the penny in the U.S.. That is the smallest unit of currency that is traded for goods and services. In the EURUSD, a pip is worth .0001. So a move from .8939 to .8940 is one pip.

Lots are the number or $ amounts of a currency that can be traded. Normal currency lots are sold in $100,000 increments. So if you were to buy 3 lots you would be buying $300,000 of a particular currency. Most trading accounts are highly leveraged sometimes at 100:1. This means for $1,000 you could control 1 lot. This is why so much money can be made in forex trades.

Bid/Ask Spread is the difference between the price to buy and the price to sell. The fx is unique in that there are no commissions or fees when making a currency trade. The person who is making the trades only makes money on the difference between the Bid and Ask price.

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Bear market is defined as the market declining or in a downward path.

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Bull market is the opposite of a bear market. Prices are rising or in an upward trend.
Day Trading is where trades are opened and closed on the same day.

Forex is the purchase of one currency against the purchase or sale of a second currency.

Limit Order sets restrictions on when a trade is bought or sold, this is designed to limit the potential loss as the order is exited. It can also be used when entering the trade where the individual sets the price they are willing to pay to enter the trade. The example would be when a car is bought, the dealer wants to get a certain price but the buyer will only purchase the vehicle is the price can be lowered to a certain level.

Spread is the difference between the bid/ask price.
Stop/Loss Order is an open position where the individual wants to get out of that trade at a certain point. It can be used to protect profits that have already been made or to prevent large losses if the market goes against the trade. Example, I own a house that is worth $250,000, I put a stop/loss on my house a $230,000. This means that if the price of my house goes below $230,000 I want to put it on the market for sale. This does not guarantee that I will sell my house for $230,000, but it will be on the market. The difference in currency trading is that it is so liquid, which means that regardless of whether the price is moving up or down there are always buyers and sellers.

The Foreign Exchange is a highly liquid market, which makes the ability to make profits very attractive. Most trades in the Forex are short-term trades only lasting a few days.
These are just a few of the terms associated with the Forex. These are the major terms that should be understood. Automated forex robots will take almost all of the guesswork of currency trading. They really simplify the process. Once you are comfortable with the basic understanding of the Forex, I would recommend purchasing software forex to increase your profit potential.

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Foreign Exchange Investor Education – Basic Terms Of Forex Investor Trading. Study Forex Trades

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