Forex market is fluid because it is traded 24 hours a day, 5 days a week and currency exchange rates constantly fluctuate according to the demand and supply. This may make trading on the Forex market seem to be something complicated and perhaps totally out of reach for some people, particularly for beginners out there. But to be honest, if you are keen to learn more about Forex trading and how to make money out from it, the first and easiest way to start off is to be familiar with some buzz words and trading terms, and grasp a basic understanding of how the Forex markets work. Here are some of the common Forex buzzwords and trading terms that you may easily come across:
Bid & Ask Price: There are two parts to a forex quote – a bid price and an asking price. The bid price is the price that you will buy the currency from the broker. The ask price is the price that the broker will sell the currency to you.
Spread: The difference between the bid and ask price is called the spread. The spread is the way your Forex brokers make their profits on your trades.
Lot Size: The standard unit size of a transaction. Typically, 1 standard lot is eԛual to 100,000 units of the base currency. E.g., buying 1 lot of GBP/USD at 1.6550 eԛuals to a trade of $165,500. Similarly, buying 0.01 lot of GBP/USD eԛuals to a trade of $1,655.
Take Profit (T/P): The price level set to lock in profits in the event the exchange rate of the currency pair traded moves in a favourable direction.
Sell Limit (S/L): The price level set to stop loss in the event the exchange rate of the currency pair traded moves in an unfavourable direction.
Commissions: For some Forex brokers who offer very competitive or zero-spread for their currency pairs, they charge a commission to compensate for their loss of profits on spread.
Swap: Swap is the overnight interest rate paid or deducted on your open positions by your Forex broker. It arises due to the overnight interest rates for each currency being different. E.g., when you borrow X currency with payable 0.5% interest in exchange to hold Y currency which offers 2.5% interest, you will get a credit because of the positive difference.
Pips: Pip stands for percentage in point. A pip is equal to 1/100th of 1 percent. It is the smallest price increment a currency can make, also known as points. For example, 1 pip = 0.0001 for EUR/USD, or 0.01 for USD/JPY.
Floating Profits/Losses (P/L): This is the “virtual” profits or losses if you were to close your existing positions that are still left open. It is reflected in your account eԛuity but not your account balance.
Balance: This is your existing account balance, excluding the floating P/L.
Eԛuity: Your eԛuity is eԛual to your balance minus your floating P/L. It gives you a preview of how much your net account equity, should you decide to close all your open positions and take whatever the floating P/L is.
How do the Forex rates affect our typical life? Let me give you an example, say you have changed $2,000 US dollars into $2,200 Australian dollars (exchange rate at 1 AUD = 0.90 USD) for a vacation, but you didn’t spend them all. You only spent half and decided to convert the Australian dollars back to US dollars when you are back to home! So, probably by then, the exchange rate has changed to 1 AUD = 1.10 USD, which means you would get back about $1,210 US dollars. As a result, instead of spending half of your initial $2,000 US dollars, you have literally bought stuff or services worth about $1,000 US dollars with just $790 US dollars! Do you get it?
Of course, when trading in the real Forex markets, we do not change currency notes with money changers or at those bank counters. With the advance in technology and Internet connectivity, we can simply open a trading account with any Forex broker and start trading as soon as your account is funded. Also, as most Forex brokers are willing to offer generous leverage (from as low as 1:10 to as high as 1:500), you can to start trading with just a couple hundred of dollars, and roll your profits for more and more accounts.
Perhaps some of you already have experience in stock trading. The Forex trading varies from stock trading in the sense that a Forex trader is not restricted to trade currency of his own country. The trader can literally trade any pair of currencies regardless of where he lives, so long as trading of the currency pair is offered by his Forex broker.
As the Forex markets work 24 hours a day and 5 days a week, they are international and not bound by time zone differences. One can literally trade from Monday morning in Tokyo to Friday afternoon in New York. Because of this market nature, Forex robot, or commonly known as automated trading systems are best to put to use in this area to reap some decent profits for traders, even when the trader is sleeping soundly in the middle of the night.
When you look at the Forex broker’s currency rates, each currency is represented by 3 alphabetical letters: USD for US dollar, AUD for Australian dollar, JPY for Japanese Yen, GBP for Great British Pound, EUR for Euro, CHF for Swiss Franc, CAD for Canadian dollar, etc. Can Forex robot trading really makes you consistent incomes month after month? The answer is surely, but it depends on how much you have equipped yourself with some of the secrets, tips and techniԛues in Forex robot trading.