Forex is a commonly used abbreviation for foreign exchange and is essentially the simultaneous exchange of 1 country's currency for that of another. All trades happen between two different currencies giving you the simultaneous purchase of one currency along with the sale of another. Currencies are quoted in pairs, such as GBP/USD.
What exactly is a Pip?
A Pip stands for Percentage in Point and is the smallest measure of price move used in the Foreign Exchange market. For most currencies pairs it equals 0.0001 but when the Yen is included in the currency pair it equals 0.01. If the EUR/USD moves from1.3031 to 1.3032, it has moved 0.0001 or 1 pip. If the USD/JPY moves from 95.90 to 95.91, it's moved 0.01 or 1 pip.
What is the Bid and Ask?
The Bid relates to the Sell price of any currency pair. It's the lesser of the two prices displayed and it is generally displayed to the left of the Ask price. The Ask is the Buy price of any currency pair. It's the greater of the two prices displayed and it is normally displayed to the right of the Bid price.
What is a Spread?
The Spread of currency pair is the difference between the Bid and the Ask. If the EUR/USD is quoted as 1.3044/1.3046, then you'll have a 2 pip Spread for the EUR/USD.
What does going Long or Short mean?
A Long position is whenever you have bought a currency pairand you'll make a profit if price goes up. A Short position is whenever you have sold a currency pair and you will make a profit if price goes down.
What exactly is a Lot?
A Lot is the quantity of currency you buy or sell. A standard lot consists of 100,000 units of the base currency and it is valued at 1,000 USD for accounts that are funded in US Dollars. It features a leverage of 1:100, meaning that you'llhave control of $100,000 of the base currency. The average pip size for a standard lot is $10 per pip. Some brokers offer Mini Lots which consists of 10,000 units of the base currency, valued at 100 USD having a leverage of 1:100. You'll have control of $10,000 of the base currency with average pip size for a Mini lot being $1 per pip.
What exactly is a Stop Loss Order?
The most typical method to use a Stop Loss is as a protective stop. It does what it says, it Stops your Loss at a predefined rate. So when you are trading the EUR/USD and you never want to lose over twenty pips on any specific trade, you'd set your Stop Loss to twenty pips. If you have bought the EUR/USD at 1.3040, then your Stop Loss will beat 1.3020. If you have sold the EUR/USD at 1.3040, then your Stop Loss will be at 1.3060.
Hope that this article has helped to answer a few of your questions about the Forex market. For more information please visit BrokerComparison.co.uk
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