Table of Contents
Introduction
In addition to securities, commodities, and cryptocurrencies, the financial markets also offer another way to invest. This article is all about forex news, what it means, and how to improve it.
Important Forex Trading Terminologies
To become an apt Forex trader, you must understand all the important and most common Forex trading terminologies as under:
Base and Counter Currencies
When trading cryptocurrencies or stocks, investors can go to an exchange and purchase or sell their assets against fiat currencies such as USD. However, when a person is dealing with Forex trading, they have to purchase fiat currencies against fiat currencies.
Therefore, it is important to establish the base and counter currencies in forex trading pairs. In USD/EUR the base currency is USD that you buy in a long position and EUR will be the counter or quote currency that you sell.
Bid Ask Spread
A bid is the price that you purchase a forex currency for and ask is the market price at which you can sell your forex reserves. The difference between the bid (buy price) and ask (sell price) is called spread or bid-ask spread.
Lot size
Lot size or lots are the quantity of a particular currency that you purchase. There are three standard lot sizes namely standard (100,000 currency units, mini (10,000 units), and micro (1000 units).
Pip
Pip stands for Percentage in point. It is the smallest price change unit for market value changes in the forex market. One pip is usually equal to one basis point but in a few exceptions, it can also be two. For a standard currency unit, one pip represents 0.0001 of its unit value but it can also be set at 0.01 and 0.1 for a few specified currencies.
Cross Rate
Cross rate is a currency rate fluctuation that does not take place in USD. If the exchange rate for JPY/USD is 1.20 and 1.50 for GBP/USD, it would mean that the cross rate between GBP and JPY is 1.20/1.50 = 0.80.
CFD
Contract for Difference (CFD) is a formal deal involving forex traders and CFD brokers to pay the difference between the opening and closing prices of trades. It allows investors to make profits based on the short-term price movement of a given base currency.
Tips to Improve Forex Trading Strategy
Here are some tips from the experts to improve forex trading strategy, mitigate risks, and maximize profits:
- Invest in small positions when getting started. It is best to gain experience and suffer from small losses rather than placing big bets.
- Select the optimum currency pair that has the best chances of profits keeping in view the market volatility and fundamentals.
- Set goals as to how much profit you wish to make and cultivate a workable and solid risk management strategy.
- Use technical indicators to analyze the market but keep it simple.
- Following the principle of Dow Theory about the market often repeating past movements that can help with future currency price projections.
Conclusion
Forex trading is considered to be a high-risk venture. Investors can start by opening a forex trading account and learning about the best-performing currency pairs in their vicinity. It is always a good idea to collect more information and perform forex market research for the best results.