The Foreign Exchange Market, or Forex, is a global decentralized market where various currencies from different countries can be traded against one another. Spot or cash markets, derivatives markets, options, offering forwards, and futures are also available.
Listed below are some of the most frequently encountered phrases and words in foreign exchange trading.
Forex Account
Currency trades conducted on trading platforms necessitate the use of forex accounts. There are three distinct varieties, all of which are distinguished by the size of the available lot. Micro, mini, and standard lots allow traders to buy and sell denominations of $1,000, $10,000, and $100,000, respectively.
Bear Market
The Bear Market characterized by a widespread decline in currency exchange rates and generally coincides with a market slump. It happens when something catastrophic happens, like a financial crisis or a natural disaster, or when economic fundamentals are bad.
Bull Market
If the value of every currency is increasing, then the market is in an uptrend. Optimistic reports about the global economy are to blame.
Ask/Offer
The bid price is the cheapest price at which a buyer is willing to purchase a currency. In the above case, the investor has indicated that the lowest price in US dollars per British pound that he is willing to pay is $1.38910.
Bid
This is the price at which a dealer is prepared to sell a particular currency. If a trader has decided that the highest price that he is willing to pay for one Japanese yen is $144,540 USD, then it indicates that this is the biggest amount of money that he is willing to spend in exchange for one yen (JPY).
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Contract for Difference (CFD)
It is a sort of derivative that provides investors with the opportunity to speculate on the movement of currency prices without actually having to possess any currency. If an investor believes that the value of a specific currency pair is likely to increase, then they will buy contracts for difference (CFDs) in that pair. On the other hand, if they believe that the value of the currency pair is going to decrease, then they will sell CFDs in that pair.
Leverage
This is the act of turning a profit using money that has been borrowed from the broker. The foreign exchange market is characterized by its high leverages, which are utilized frequently by traders in order to strengthen their positions in the market.
Margin
When trading currencies, margin is the money set aside in an account to reassure the broker that the trader will not go into debt and will be able to meet financial obligations. One’s available margin is a function of their average account balance over a given time frame.
Pip
Minimum price change in the foreign exchange market equal to four decimal places; also called percentage in points or price interest points.
1 pip = 0.0001
100 pips = 0.0100
10,000 pips = 1.0000
100,000 pips = 10.0000
Spread
It’s the sum of a currency’s ask price minus its bid price when buying. Forex traders profit from spreads rather than commissions because of this. Many factors, including trade volume, currency demand, and market volatility, affect the spread size.
Sniping and Hunting
Trading foreign exchange entails purchasing and selling currencies at or near set price points in order to achieve a profit. The only way to capture these brokers – like Libertex – is to build relationships with other traders and learn to recognize their patterns of behavior.
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