What is Forex
The Forex market, short for Foreign Exchange market, is a decentralized financial market based on the conversion and exchange of foreign currencies. The Forex market operates five days a week 24 hours a day. This resulted in an astounding trading volume and market liquidity which made Forex one of the leading financial markets in the world with more than 5 trillion dollars annual turnover.
Each currency’s buying power is relative to the economic growth of its country and of course the global outlook for the future of the economy of that country. As long as a country is flourishing, so will the strength of its currency. When trading in forex, you buy one currency and sell another. That’s why we trade in “pairs”. This is due to the fact that we can only compare a currency’s strength with that of another.
The amazingly deep liquidity available in the market and the amount of the volume traded each day offer limitless opportunities for speculators who can choose to trade currency pairs like the EUR/USD, spot metals like silver and gold or even oil and CFDs.
Forex Trading Hours
|Sydney Open/Close||6:00 PM 3:00 AM||10:00 PM 7:00 AM|
|Tokyo Open/Close||7:00 PM 4:00 AM||11:00 PM 8:00 AM|
|London Open/Close||3:00 AM 12:00 PM||7:00 AM 4:00 PM|
|New York Open/Close||8:00 AM 5:00 PM||12:00 PM 9:00 PM|
The Currency Pair describes the value of a base currency, which is determined by comparing it to a secondary currency.
The Base Currency is the currency against which the other currencies are quoted. One unit of the Base Currency is equal to X units of the secondary currency. If the EUR/USD currency pair stands at 1.3300, the Euro is the base currency. In order to get/buy 1 Euro, the trader will pay USD 1.3300.
The Bid Rate is the number of units of a secondary currency that a market-maker would pay for the sale of a unit of the base currency. The Bid Rate is also referred to as the Selling Rate, as it is the selling price of the base currency.
The Ask Rate is the quantity of units of a secondary currency that a market-maker is asking for, to pay for a unit of the base currency. This is the buying price of the base currency.
The Bid/Ask Spread is the difference between the buying price of a currency (the 'Ask' price) and the selling price (the 'Bid' price). The Bid will always be smaller than the Ask price.
The High/Low is the highest traded price and the lowest traded price of the commodity or currency that over the period of a trading day.
A pip is the smallest increment by which a currency can move and corresponds to the fourth decimal point, or 1 hundredth of one percent. A EUR/USD move from 1.3300 to 1.3302, therefore would be a move of 2 'pips'.
The Spread is the difference between the buying price of a currency (the 'Ask' price) and its selling price (the 'Bid' price).
A Stop Loss order allows traders to set an exit point for a losing trade when they define their risk and offset their trade accordingly.
Leverage involves executing a transaction with a sum of money that is larger than the actual sum used. This enables a larger return and increases the risk accordingly. At 100:1 leverage, therefore, a trader could use $100 in order to take a $10,000 position.
The Offer is the price, or rate, at which a willing seller is prepared to sell. This word is used interchangeably with the term "Ask".
A Take Profit is an order placed by the trader to ensure that the trade is automatically closed at a certain pre-defined profit level.
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