Knowledge is power - all you need for a profitable Forex trading experience is right here
Are you just getting started with your Forex trading journey? With so much to know — from basic terms to more advanced strategies—learning about Forex trading can seem overwhelming at first. No worries, we are here for you.
At EZINVEST, we’re committed to your online trading success. That’s why we offer a variety of resources to help you hit the ground running and quickly become a Forex trading pro. These include our eCourse and the variety of resources our members enjoy, including expert tips and tricks, tutorials, insider secrets and more.
To help you get started, we’ve compiled a list of all the basic concepts you should understand before you start trading. Have any questions? Feel free to contact us to speak to one of our expert analysts!
Reading a Forex quote
Let’s take it from the top : One of the basic things to understand about currency trading is how currencies are quoted, and how those quotes are read. Since Forex is all about comparing two currencies, it is quoted in pairs. Reading the quote is fairly simple. For example, “EUR/USD at 1.3883” represents the value of one Euro in US dollars.
Note that there are two types of currency quotes:
Direct currency quotes
A quote in which the domestic currency is the base currency.
Indirect currency quotes A quote in which the domestic currency is the quoted currency.
Basic terminologyForex has its own glossary of terms which you should review at least once before starting your trade. Here are some of the most important terms and concepts you need to understand.
Base currencyAlso known as the primary currency, the base currency is the first currency used in a direct quote. It is considered as the accounting currency, which means that it is used to represent profits or losses.
A pip is the unit used to measure your profit or loss. Aside from a few exceptions, currency pairs are counted in four decimals, and the fourth decimal point is usually used to count pips. It is a unit of change used to measure an increase or decrease in the rate of a currency.
A lot is a standard trading term that refers to an order of 100,000 units.
Currency pairs are usually traded in units of 100,000 (standard lots), 10,000 (mini lots), or 1,000 (micro lots). With this, a standard lot refers to the buying/selling of 100,000 units of the base currency while selling/buying the equivalent number of units of the counter currency. For example, if you open a long position of one lot for EUR/USD for an ask price of 1.4000, you are purchasing 100,000 Euro while selling 140,000 USD.
A margin is the amount you must deposit as collateral in order to cover any kind of loss in the case of adverse movement of prices.
In Forex trading, a trade is controlled through orders. These orders determine how you decide to enter or exit the market. As a beginner, there are different types of orders you need to know about:
Market orders are used for opening or closing a trade at the market place. In other words, these are the orders to buy or sell on the market.
Limit orders allow you to “play safe” and maximize your chances of earning a profit. You can set a limit so that the trade will be closed as soon as the price crosses that limit.
Stop orders are similar to limit orders in that they also allow you to “play safe.” With stop orders, however, the intention is to limit the amount of loss in the case of adverse market movement. In the case of positive movement, stop orders allow you to lock in your profits.
For beginners, entering the market can be complicated as it requires that you constantly monitor prices. Entry orders can save you this hassle by allowing you to enter the market at a specified price. With entry orders, you enter the market as soon as it crosses your Entry Limit.
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