What is Forex? The term “Forex” stands for foreign exchange and it can be defined as the exchange or currency trading. And Is the relative value one currency versus another.
Let’s imagine right now that we’re not talking about Metatrader are where are the foreign exchange itself we’re talking about vacation time and we’re planning to go take a vacation you let’s say that you live in the United States and you’re planning to go take a vacation to Switzerland that means that you’re gonna have to convert some spending money. Right ?
So you gonna be converting some dollars into francs
this is the symbol for Swiss francs (CHF) And (USD) this is a dollar compared to the francs. this is the mutation you would see when you talk about a Forex pair like as (USD/CHF ).well what is the exchange rate for the dollar-franc , well Let’s say it’s a 1.2049 . What that means is? it that means it costs 1.2049 francs to buy a dollar. So
that it’s pretty simple exchange rates they’re typically carried out to the fourth or fifth decimal place when you’re getting a really good pricing so you get all the way out here to the fifth decimal place.
Market participants can buy and sell currencies from almost every country against another.All foreign exchange transactions involve two currencies, for example EUR / USD (euro / dollar) pair. Their exchange rates fluctuate constantly, and this is at the very heart of fluctuating exchange transactions.
If you think the Euro is rising against the United States dollar, then you will EUR / USD buying. Conversely, if you think its value will depreciate, then you’ll EUR / USD to sell. This sums up the basic mechanism for exchange trading.Forex trading involves everything from simple currency transactions that tourists often make when traveling, to the multi-billion dollar transactions executed by large corporations, financial institutions, and governments.
WHAT IS A LOT? A standard lot size of 1,000 units of currency. Account holders can however place trades of different sizes, so long as they are in increments of 1,000 units like, 2,000, 3,000, 15,000, 112,000 etc.
WHAT IS A PIP? A pip is the unit you count profit or loss in. Most currency pairs, except Japanese yen pairs, are quoted to four decimal places. This fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count “pips”. Every point that place in the quote moves is 1 pip of movement. For example, if the EUR/USD rises from 1.4022 to 1.4027, the EUR/USD has risen 5 pips.
WHAT IS LEVERAGE/MARGIN? As mentioned before, all trades are executed using borrowed money. This allows you to take advantage of leverage. Leverage of 400:1 allows you to trade with $1,000 in the market by setting aside only $2.50 as a security deposit. This means that you can take advantage of even the smallest movements in currencies by controlling more money in the market than you have in your account. On the other hand, leverage can significantly increase your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.
The specific amount that you are required to put aside to hold a position is referred to as your margin requirement. Margin can be thought of as a good faith deposit required to maintain open positions. This is not a fee or a transaction cost, it is simply a portion of your account equity set aside and allocated as a margin deposit.