TERMINOLOGIES IN FOREX
1.Pip
2.Spread
3.Leverage
4.Volume
5.Margin
6.Free margin
7.Equity
8.Lot/position size
9.Buy/long
10.Sell/short
11.Bid
12.Ask
13.Bear
14.Bull
15.Chart
16.Broker
17.Margin call
18.Market Executions
*PIP: Point in percentage.*
The unit of measurement to express the change in value between two currencies is called a “pip.”
If EUR/USD moves from 1.1050 to 1.1051, that .0001 USD rise in value is ONE PIP.
A pip is usually the last decimal place of a price quote.
Most pairs go out to 4 decimal places, but there are some exceptions like Japanese yen pairs (they go out to two decimal places).
For example, for EUR/USD, it is 0.0001, and for USD/JPY, it is 0.01.
BASE AND QUOTED/COUNTER CURRENCY.
The base currency is the first one in a currency pair. While the quoted currency is the next one.
In EUR/USD EUR is the BASE currency while USD is the quoted currency.
*BID AND ASK*
The “ *bid* ” is the price at which you can SELL the base currency.
The *“ask”* is the price at which you can BUY the base currency.
The difference between the bid and ask is called the *SPREAD*
Some brokers make their spreads fixed eg instaforex uses fixed spread of 3.
But the best brokers use floating spreads
*Defining Leverage*
Leverage involves borrowing a certain amount of the money needed to invest in something.
In the case of forex, money is usually borrowed from a broker.
Forex trading does offer high leverage eg if you use a leverage of 1:100, it simply means if you deposit $100, your broker can borrow you x100 which is $10,000. If your leverage is 1:200, your broker can borrow you x200.
The borrowed funds won’t appear actually but it will allows you to trade with huge positions.
You will understand better as we move further.
*Margin*
This is simply the amount your forex trader sets aside while you trade or open a position.
*Equity* is the total amount you have in your trading account adding or subtracting your current trades.
*Lot size.*
Forex is commonly traded in specific amounts called lots, or basically the number of currency units you will buy or sell.
The standard size for a lot is 100,000 units of currency, and now, there are also mini, micro, and nano lot sizes that are 10,000, 1,000, and 100 units.
Forget all the things I wrote up there about lot size. This is what you should know .
It can be any number from 0.001 to 20+
The higher the lot size, the higher the amount you will lose or win.
Example. If I place a trade and make $200 with 0.1 lot size, and you had taken the same trade with 0.2 lot size, you will make $400. Double.
It’s that simple. So you can easily select a lot size when placing trades.
Bearish means it’s a downward trend.
Bullish means it’s an upward trend.
*Buy/long*
This is to predict an uptrend for a currency pair.
*Sell/short*
This is to predict a downtrend for a currency pair
*A chart* is simply a visual representation of a currency pair’s price over a set period of time..
It can be in the form of
1. Lines
2. Bars
3. Candlesticks
*WHO IS A BROKER?*
A brokerage firm is a place where buyers and sellers go to buy and sell instruments, such as currencies.
The forex broker operates as a middleman between you and the market.
*Margin call.*
This is bad news. If you don’t trade well, your broker will send you a mail that you have lost too much amount in your account and thus, you have blown your account.
It’s really bad right? I know
*Volume*
In FX trading, it’s the number of lots traded in a currency pair or in the entire market within a specified time period (also known as the Turnover).
As a measure of trading activity, it is simply the amount of currency that changes hands from sellers to buyers.
*EXECUTIONS IN FOREX.*
Executions are simply how you place trades in forex
We have:
*Market order* and
*Pending order which contains:*
But stop
Sell stop
Buy limit
Sell limit
Six things to consider when choosing a broker.
1. Security/Regulation.
2. Transaction costs
3. Deposit/Withdrawal.
4. Trading platform.
5. Execution.
6. Customer service
*TYPES OF FOREX ACCOUNTS*
1. Standard account.
2. Mini account
3. Micro Account.
4. ECN accounts.
There might be more divisions but these are the basic ones
*STANDARD ACCOUNT*
With a standard account, 1 pip movement is equal to 10 dollars increase or decrease.
Thus 100 pips movement is equal to 1000 dollars.
*MINI ACCOUNT*
1 pip movement is equal to 1 dollar increase or decrease.
Thus, 100 pip movement is equal to 100 dollars.
*MICRO ACCOUNT.*
1 pip movement is equal to 0.1 dollar.
Thus 100 pips movement is equal to 10 dollars.
Very easy distinction
*Technical Analysis*
*Fundamental Analysis*
*Sentiment Analysis*
There has always been a constant debate as to which analysis is better, but to tell you the truth, you need to know all three.
[3/4/2021, 6:37 PM] Ebinelfx Academy:
*Fundamental Analysis Tools*
The most useful tools for fundamental analysis consist of the economic calendar, the financial news media, and historic fundamental data. The economic calendar informs the trader on the scheduled time and date of the release of major and minor economic data that can have an effect on the nation’s currency.
*TECHNICAL ANALYSIS.*
Technical analysis is the framework in which traders study price movement.
The theory is that a person can look at historical price movements and determine the current trading conditions and potential price movement.
Someone who uses technical analysis is called a technical analyst. Traders who use technical analysis are known as technical traders.
The main evidence for using technical analysis is that, theoretically, all current market information is reflected in the price.
Technical traders generally ascribe to the belief that
_*“It’s all in the charts!”*_
If price reflects all the information that is out there, then price action is all one would really need to make a trade.
Technical analysis looks at the rhythm, flow, and trends in price action.
Now, have you ever heard the old adage, “History tends to repeat itself“?
Well, that’s basically what technical analysis is all about!
If a certain price held as a major support or resistance level in the past, forex traders will keep an eye out for it and base their trades around that historical price level.
Technical analysts look for similar patterns that have formed in the past and will form trade ideas believing that price could possibly act the same way that it did before.
Technical analysis is NOT so much about prediction as it is about PROBABILITY.
Technical analysis is the study of historical price action in order to identify patterns and determine probabilities of the future direction of price.
Some basis of Technical analysis.
1. Price Action.
2. Support and resistance.
3. Candlestick patterns.
4. Technical analysis Patterns.
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