To become a successful trader one should first be familiar with the basic terminologies “words that we use in everyday trading “ these concepts are easy to understand and require no financial background
Let’s get you started.
Base Currency and Quote Currency
The quote currency tells us how much it is worth against 1 unit of the base currency.
So if we say the EURUSD is trading at 1.3000 it means 1 euro equals $1.30.
Got it? Nooo,, Here i make even simpler to understand.
Currencies are always traded in pairs, this is because we always buy one currency by selling the other currency simultaneously
The first currency mentioned in the pair”EURO” is known as the base currency and the currency on the right USD in called the quote or secondary currency. Whatever action we do weather buying or selling always happens to base currency, if we buy EURUSD it means we are buying the base currency EUR by selling USD and if we want to buy USD then we simply sell the pair.
Pip: Pip or point in percentage A pip is a number value. In the Forex market, the value of the currency is given in pips. One pip equals 0.0001, two pips equal 0.0002, three pips equals 0.0003 and so on. One pip is the smallest price change that an exchange rate can make. Most currencies are priced to four numbers after the point.
Pip is used to calculate the profit and loss of each trade, the movement of eurusd currency pair from 1.2000 to 1.2001 is a movement of one pip, if the price quote has only two places after the decimal like most commodity the pip equals to one cent.
BID price, Ask Price and Spread
All currency pairs have two prices, as we buy at a price and sell at different.
A bid price is the highest price that a buyer is willing to pay
Ask price is the price at which the market is ready to sell.
The difference between the price you can sell it and the price you can buy is spread at
Forex prices are always quoted using four numbers; so, for this example, EUR/USD bid price is of 1.1200 and ask of 1.1205. Thus, the spread would be 0.05, or $0.0005
When most people think about trading, they think they would require a large amount of capital to begin, well this may be the case for stocks, bonds, and other investment, forex is much more accessible due to use of leverage.
leverage is used by both investors and companies. Investors use leverage to increase the returns that can be provided on an investment.
Leverage is the percentage of funds that you are borrowing from your broker and its usually stated in Ratio like 50:1 or 500:1, what it means to you as a trader, In the case of 50:1 for every $1 you invest your broker will let you borrow $50 and a trader using higher leverage are able to control a larger funds than what you are originally invested, and that can be really great if your trades are going in your direction, but if you are on the wrong side of a trade, you an lose a lot of money very quickly
A lot is what you determine for each pip you want to earn when you place a trade of certain units and these units called Lots.
There are basically three lots size.
Micro Lot = 1000 Units
Mini Lot = 10,000 units
Standard lot = 100,000 units.