Introduction To Forex Trading - Seven Key Terms You Should Know
- Posted by admin on February 28th, 2009 filed in Finance
The Forex market is an international market, with a daily trading volume of trillions of dollars. Forex trading thrives in the fluctuation of the values of given currencies. It involves buying a currency in the hope of reselling it for profit later.
Before getting started in forex trading, you’ll need to be aware of a few terms which we’ll discuss here. More forex terms are explained at the forex reviews website.
* Ask
Currency must be sold in the foreign exchange market at a certain price known as the ask. It is much like any other market where there is a buyer and a seller; the seller has a price he would like to sell his item, and it is up to the buyer to buy it. Basically, a trader will not accepts bids on his currency if they are below the ask price.
* Bid
A bid is the amount of money you can provide for a certain currency in an exchange between traders. This usually refers to the highest price possible at which a trader accepts to buy a given currency.
* Spread
A spread refers to the gap between the ask and the bid that the traders present in the trade of a certain currency. It is a difference in offer and bid rates on a certain currency to be bought or sold.
* Pip
The smallest value of measurement used in the forex market is a pip. It is the fifth and final digit of the particular currency. Since all currencies are quoted up to this fifth digit, the dollar/pound rate could be 1.14374. If the rate moved by 5 pips it would then add or subtract .00005 from the displayed values. If you are thinking in terms of trading purposes, the Spread will almost always be 3 or more forex pips.
* Appreciation
This will occur when the market reacts positively for a given currency.
* Base currency
Even though foreign exchange deals with the trade of two currencies, most traders usually only use one means of payment. This is what is known as the base currency. So a trader could be exchanging pound/dollar in the forex market and always be paying with the dollar.
* Cross
The forex trader will trade one currency for another; these two are known as the cross. The cross could be pound/dollar, euro/dollar, or any other two currencies in trade.
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