What is Forex? Learn the basic Forex terminology

With the beginning of 2020, new possibilities are knocking our doors. Making and losing money has become much easier since the internet culture has taken over the world. So, what can we learn at present that will create a new earning source for the new decade?  

Often we see headlines about the global stock markets in the newspaper. News about stock markets crashing down and people losing money are daily events taking place around the world. With this constant noise, we forget about the largest financial market in the world- The Forex market. Forex market is valued in trillions of dollars which is almost the size of equity and futures market combined. So is it wise to devote your time and money to the largest financial market inr the world? According to the analysis, around 10 million traders participate in the market with $5.5 trillion transactions daily. Hence, it’s worth a try.  

Forex market is the network of banks, central banks, hedge funds, brokers, and retail traders that exchange currencies worldwide. It is operated for 24-hours each day which means the closing time of Forex differs from other financial markets. The price of the currencies in the market is determined by supply and demand. Many traders enter the Forex market for quick cash. So they search the terms like,”Can you get rich by trading Forex?” Study says that with patience, one out of three traders gains money in Forex. But this doesn’t mean that getting rich is easy in Forex. To understand the basics of earning money in the Forex market newbie traders must know all the Forex terminologies by heart. So we will cover some of these Forex Terminologies today.

Percentage in Point (PIP)

PIP is a widely used terminology in the Forex markets. Traders use it to measure the movement of the currency pairs. Both profits and losses can be measured in PIP. A pip is 1% or 0.0001 which is also known as a basis point.   

Bid/Ask Price

The exchange rate of each currency pair in the Forex market will be driven by two prices- Bid and Ask price. The price at which buyers are interested to buy is the bid price whereas the price at which sellers want to sell is the ask price. Bid price derives from the demand price. And ask price which is also called the offer price comes from the supply side of the market. 

Leverage

If used wisely, leverage can be a good way to increase wealth in the Forex market. Retail brokers also offer high leverage ratios in the market. Leverage is using borrowed money to access a larger capital than the initial capital. However, leverage can increase the chances of both profit and loss at the same time. 

Margin

Margin is the amount that has to be kept as collateral or deposit for the traders. It is required to maintain the new positions. So it can’t be considered as a fee. The amount will be kept inside by the broker so that they can cover possible losses in the trade. Usually, the margin amount is really small and larger positions can be opened by using the smaller margin deposit. It is expressed in percentage and the percentage value is called the margin requirement. 

  Volume

Volume is the total number of contracts traded in a currency pair or the entire market in a certain period. When a buyer and seller agree to do a transaction of currencies it contributes to the overall volume. So if hundred of those transactions take place than the volume will be hundred. For instance, watching EUR/USD volume, traders can easily understand the overall activity of the EUR/USD market.

Spread

Spread is the difference of bid and ask price. We can find the spread by watching the bid and ask price at a Forex terminal. Generally, the ask price will be higher than the bid price as the spread is added to the bid price. Spreads can vary by services providers and currency pairs. Lower spread allows the traders to invest large volume in the market.

Broker

A middleman company or firm that provides platforms to buy and sell currencies is known as a broker. The buy and sell transactions happen between two different currencies. From retail users to large investment banks, all can get the forex services provided by the brokers. 

To sum up, if you had a new year’s resolution to earn some extra cash other than your 9-5 job than the Forex market can be a good place to start with. The simple terms outlined here will surely boost up your knowledge about the Forex market.