Introduction To Forex Trading - Key Terms
Forex is a worldwide market where trillions of dollars exchange hands on a daily basis. A successful trade is powered by the constant fluctuating prices of currency. It involves buying a currency in the hope of reselling it for profit later.
Before getting started in forex trading, you’ll need to be aware of a few terms which we’ll discuss here. More forex market terminologies are discussed at the forex reviews web site.
* Ask
As the name implies, the ask is the asking price of a currency being sold through the foreign exchange market. This is basically the price that a trader asks to be paid for the currency he or she offers for sale. This is also the lowest amount of money a trader will accept for the sale of his currency.
* Bid
The bid is that which you are willing to pay for a particular currency when you perform an exchange. This usually refers to the highest price possible at which a trader accepts to buy a given currency.
* Spread
The spread is the gap between the ask of the seller and the bid of the buyer on a certain currency. It is the gap in between the price of the currency when being bought and the price it will likely get sold at.
* Pip
The pip is the smallest measurement of change used in the forex market. It is five digits in and is the last digit of a given currency. The value of a currency is presented in 5 digits; so the dollar/euro rate, for example, may be 0.74744. The pip being the smallest value measured, if there was a move by a single pip, the numbers would deviate .000001, up or down. When considering trading, the margin between the Bid and Ask is represented by 3 or more forex pips.
* Appreciation
This means the rise in value of any given currency.
* Base currency
The trader usually only transacts with one currency despite the fact that foreign exchange is based on exchanges involving two different currencies. This represents the base currency So a trader could be exchanging pound/dollar in the forex market and always be paying with the dollar.
* Cross
The pair of currencies that a forex trader makes trades with are what is known as the cross. So for example, the cross could be the euro/dollar or pound/dollar.
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