Given a lots of investment instruments such as security, gold, cryptocurrency…forex is becoming the biggest financial market in terms of daily value trading at $5.1 trillion, according to The Triennial Central Bank Survey of FX and OTC derivatives markets in 2016. Numerous opportunities out there for traders but there are also threats if you don’t fully equip yourself enough to get started trading. In this article, you will learn all the basics about forex market that we think a starter should well understand.
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Forex stands for forex exchange. Forex trading, in other word, currency trading or FX trading, are the forex exchange market where participants, including individuals, or companies exchange (an) currencies for one another at the floating exchange rates, according to the market at the real time.
The forex trading market is the biggest and most liquid market as it ultimately and partially helps ease of fostering transactions online, modern travelling, global communication, transportation. Particularly, people, goods and services should travel faster and easier to help each other in the entire ecosystem. So, at the end of the day, as the currency is the heart of all these transactions, if a country’s currency can be traded faster, it will help the whole process. Therefore, following the modern development, the forex market will be continuously growing more and more.
Basically, forex trading is trading a currency for another one at the current market rate. It is expressed in currency pair in which the first one is the base currency, the second is the quote currency. Let’s take an instance, USD/CHF is a popular currency pair. USD is the base currency and CHF is the quote currency. Let’s say USD/CHF = 0.90123 is the price at the moment you hold, it means 0.90123 is the value of a USD expressed in CHF.
Forex market can be considered as the most dynamic market because forex trading could be made 24 hours on major financial markets such as UK, US, Japan, Switzerland, Germany, France, Singapore and Hong Kong.
Most of you could already think that we should trade on a trading software or platform. You’re right. There are various trading platforms such as Meta Trader 4, Meta Trader 5, Social Trading… In short, you can view, analyze and trade currency, not limited to forex, but also extend to other asset classes.
The platform is directly connected to the global market price real time update and allow trader to perform trading on our own.
Pip or any of below basic terms is the always-on question a new trader asks when he is searching for forex trading knowledge so we want you to know all the basics before executing any transactions.
Pip, stands for “percentage in point” is the smallest change measurement of a currency pair. We are aware that there are other acronyms but let’s make our life simple by just taking this definition. Most currency pair are stated in 5 decimal digits, excepts some cases like EUR/USD, a pip is according to the 4th decimal digit. For example, let’s say EUR/USD = 1.12345, when there is 1 pip increase, the currency pair become 1.12355. Another exception is USD/JPY, there is 3 decimal digits for this currency pair and the pip is according to the 2nd decimal digit.
The spread could be simply understood by the difference between the Ask and the Bid.
Ask: the price that the trader can agree to buy a currency.
Bid: the price that the trader can agree to sell a currency.
Leverage is the buying power offered to a trader to maximize traders’ ability. The trader can deposit a small amount but can trade at a much larger value. Leverage is stated in a ratio form, for example, if a leverage is 1:900, a trader can perform a transaction 900 times compared to the money he deposits. However, remember that leverage can also lead to multiple losses at the same time so be careful to choose the appropriate leverage.