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Forex is the biggest market in the world with daily volumes of more than $5.3 trillion. Millions of people from around the world are today participating in the industry. Every time you buy something from abroad or travel to another currency, you have actually participated in this industry. As a forex trader, there are a few things you need to know.
A forex broker such as easyMarkets is a company that provides you with a platform to trade the forex market. It gives you access to liquidity and a software to initiate trades. As you start your career, it is important for you to get a broker who has spent many years in the industry, one who has simple platforms, and one who is regulated. Doing the alternative will put your trading at risk. Here are a few more things to consider in a broker:
- Customer service.
- Free money transfer services.
- More tools like the economic calendar and calculators.
A pip is the short form of the percentage in point. It is the smallest difference in movement of a currency pair. For example if the EUR/USD moves from 1.1200 to 1.1201, it has moved by one pip.
There are two prices in currency pairs quotations. The bid price is the price at which the market is prepared to buy a security while the ask price is the price which the buyers are ready to pay. The difference between the two prices is known as the spread.
Base and counter currencies
Currencies are quoted in twos. This is because you need to exchange one currency to get the other. Examples of these pairs are EUR/USD, GBP/USD, and USD/JPY. In this, the first currency is known as the base currency. This is the currency against which compares the value of the first currency and the second one. The second currency is known as the counter currency or the quote currency. Therefore, when the chart of EUR/USD moves up, it implies that the EUR has strengthened against the USD.
Bear and Bull Market
A bear market is one when the price is moving lower while a bull market is one which the price is moving up. When you are bullish, your hope is that the price will move up and when you are bearish, your hope is that the price will fall.
A breakout is a sudden rise or fall of a currency pair after a period of consolidation.
Contract for Difference (CFD)
A CFD is a contract between the buyer and seller to exchange the value of a security. For example, when you buy a crude oil CFD, the reality is that you don’t own the crude oil. You just own the price of the oil. You will profit when the price moves up and make a loss when the opposite happens.
This is a method of analyzing securities that involves mathematical indicators. These indicators include Moving Averages, Bollinger Bands, and Moving Averages Convergence Divergence (MACD) among others. They are divided into three: trend indicators, oscillators, and volumes.
This is a method of analysis that involves the study of key economic data to understand the underlying value of the security. Some of the most common economic data are: inflation numbers, consumer and business confidence, employment numbers, and manufacturing numbers.
This is a tool that shows you all the main economic data that you expect within a particular day. This calendar is an important tool in fundamental analysis.
This is a price change that happens between when the order is placed and when it is executed.
This is an order to open a trade at the current market prices.
This is an order that directs the broker to buy or sell a security at a specific time when a certain price is reached. There are four types of these orders and they include: buy stop, sell stop, buy limit, and sell limit.
A margin is the necessary amount you need to maintain a position. It is sort of a collateral.
This is the amount of money a broker lends you to help you open bigger trades. For example, if you have $100 and you select a leverage of 500:1, it means that you can trade with $50000.
This is a position that is left open for more than one day.
This is a trader who buys and sell securities within a day. The opposite is a swing trader. Swing traders are known to buy and hold securities for more than a day.
This is the practice of buying and selling securities within a few minutes with a profit.
This a level of a security where the price finds it difficult to fall further. The opposite of a support is a resistance, which is a ceiling that a security finds difficult to move higher.
This is the market price of a security. The opposite is a futures price and is a future price of a security. The latter is mostly used in futures contracts or options.
This is a trading platform that is provided by most brokers. There are two types of the Metatrader. These are 4 and 5. The former is mostly useful for new traders while the latter has advanced features not found in the MT4.
This is a pre-determined price where a trader is ready to take the maximum loss. It is a useful risk management tool. A trailing stop loss on the other hand moves with the price, thereby locking up the earned profit.
This is the opposite of a stop loss. It is a pre-determined price where the trader wants to make a profit. Once the price is reached, the trade will be ended with a profit.
This is a risk management strategy that aims at opening more than one trade. In hedging, the goal is for one trade to generate a profit while the other one generates a loss. The trader’s profit is the spread of the two.
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