- What is Forex Trading?
- How does the forex market compared to other markets?
- When can you trade in the forex market?
- What currencies can you trade?
- What is a pip?
- What is a lot?
- What is margin?
- What is leverage?
- What is margin call?
What is Forex Trading?
“Forex” trading takes place in the foreign exchange market, which operates as the primary exchange mechanism for international business and trade. The Forex market provides a number of trading opportunities because of the sheer magnitude of daily transaction volume. Traders can enter Forex contracts in either Buy or Sell directions and the market is open 24 hours a day, 5.5 days a week. Traders can access increase leverage, or purchasing power, in an effort to speculate and profit from global currency flows and market volatility.
The main advantages of Forex can be found within the global reach of the market. The Forex market is the largest, most liquid financial market in the world. With 24-hour trading, a decentralized structure, and low barriers to entry, the Forex market provides the access and opportunity sought by traders of all styles and levels.
In the Forex market, traders hope to generate profits by speculating on the value of one currency compared to another. Currencies are always traded in pairs in many combinations offering opportunities to profit from exchange rates between various global currencies.
Example Currency Pair
The first currency list is the base currency.
The base currency is always worth one. The quoted price shows how much of the quote currency you’ll get for one unit of the base currency. So in this case, 1 EUR is worth approximately 1.30 USD.
If you’ve ever traveled to another country, you would have had to exchange your native currency for that of the country you were visiting. At that time, you probably realized that your one dollar was not exactly equal to one unit of the other country’s currency: its value was either more or less.
Exchanging currencies isn’t just for tourists. The constant movement in exchange rates provides many opportunities to trade.
How does the forex market compare to other markets?
While the worldwide bond and stock markets have a daily volume in the billions of dollars, the Forex market has a daily volume of more than $4 trillion. Forex market participants include large banks, hedge funds, and other financial institutions, global corporations, and individual traders. The majority of Forex transactions are the result of currency conversions related to the day to day business of the world. The large daily volume of the Forex market provides endless trade opportunities and the ability for traders and to diversify into global currency markets.
When can you trade in the forex market?
With stocks, bonds, and most other financial products that are traded on various global exchanges, you can only make trades during the exchange business hours. Fortunately for Forex traders, currencies are free of this restriction and can be traded day or night—24 hours a day, 5.5 days a week. With trading available 24/5.5, the Forex market provides traders from all over the world with the ability to trade around the clock delivering convenient trading with easy access.
What currencies can you trade?
The Forex market offers a large selection of currency pairs to trade. Most new traders begin trading with one of the major currency pairs as they are the most heavily covered by analysts and have the most trading volume. The major currency pairs are EUR/USD (Euro vs. US Dollar), USD/JPY (US Dollar vs. Japanese Yen), GBP/USD (British Pound vs. US Dollar), and USD/CHF (US Dollar vs. Swiss Franc). While the majors are popular, there are a large number of additional pairs available for trading.
What is a pip?
A "pip" is the smallest whole increment in any Forex pair. For pairs quoted in 5 decimal points, a pip increment is based on the fourth decimal. For pairs quoted in 3 decimal points, a pip increment is based on the second decimal.
- 5 Decimal - 0.00010
- 3 Decimal - 0.0010
For example, a movement in EUR/USD from 1.30385 to 1.30395 is a 1 pip move. In USD/JPY, a movement from 79.293 to 79.283 is also a 1 pip move. The value of a pip is determined by the currency of your account and the pair you are trading.
If the quote currency is the same as your account currency, then a 1 pip move equals 10 account currency units per 100,000 traded.
What is a lot?
In Forex, a lot is a standard unit of measurement that equals 100,000 units worth of currency. Most brokers offer the ability to trade in Standard (100,000) lots, Mini (10,000) lots, and Micro (1,000) lots. For example, if you place a Standard lot trade, you are trading 100,000 worth of currency.
What is margin?
Margin is the amount required to open a new Forex position. It is not a fee or a charge to your account. It is an amount set aside, from your free equity, for your new trade.
What is leverage?
The leverage of your account is the multiplier of your purchasing power that determines the amount of margin required for every trade. For example, if you have leverage of 400:1, you can control a large position ($100,000) with a small amount of margin ($250).
What is margin call?
A margin call is the automatic closing of a position if the margin level of the position falls below the RoyalCrypto.com margin call level. For more information please review the RoyalCrypto.com margin policy