Basic Concepts of Forex Trading
Learning to trade in a new market is like learning a conversation in a new language: it becomes easier when you understand basic ideas and concepts and look at many of the vocabulary. Let's start with the basic concepts of forex trading before we move on to learning how to use the trading platform. For a more detailed introduction to the Forex market you can get the AbrajBank Guide.
What is Forex?
Forex is a common term for foreign exchange, which generally describes buying and selling in the money market, especially by investors and speculators. The phrase "buy when price falls and when it rises" applies to currency trading for sure. The Forex trading method is identical to that followed in stock exchanges. As the stock trader buys stocks with a low valuation and sells high rated stocks, the currency trader buys the currency with a low valuation and sells the high rated currency.
How to read the quote
What you always do when trading currencies is to compare the price of one currency at another, which is why forex quotes are displayed in pairs. This method of presentation, although initially confusing, is very simple. For example, if the EUR / USD price is 1.4022, then that is the value of the euro (EUR) in US dollars (USD).
What is a lot?
Lotte (contract) is the smallest size of a currency transaction. There is a Standard Lot Size (Standard) in AbrajBank accounts, which is a component of 1000 currency units. Accounts holders may trade in different sizes as long as the multiples of 1000 units: 2000, 3000, 15,000, 112,000 and so on
What is the point?
The pip is the unit of profit and loss. Most of the currency pairs are offered to the fourth decimal place, except for the yen pairs. The pip is usually calculated by looking at the fourth digit after the decimal point (at 1 percent of the centimeter). Any number in this position of the bid (ie, the fourth digit after the decimal point) is considered a move in the number of pips. For example, if the EUR / USD price rises from 1.0422 to 1.4027, that means a five-point EUR / USD price hike.
What is the margin or leverage?
We have mentioned previously that all trades are executed with borrowed money, which gives you the opportunity to benefit from the use of leverage. When you use the leverage at 400: 1, you can trade in the market for $ 1,000 when you invest only $ 2.5 as a deposit. The leverage enables you to take advantage of even the simplest currency movements by trading more money in the market than those in your account. On the other hand, you may incur significant losses when using the leverage, trading foreign currencies using the leverage at any ratio may not suit all investors.
The amount specified and required to be deposited for a trading center is called margin requirements. The margin can be considered as guarantors or insurance that you neutralize to keep your open positions open. It is not a commission or trading fee. The margin is simply a portion of the funds deposited in your account that are neutralized aside and considered margin deposit.