Despite being one of the largest financial markets in the world, Forex is relatively unfamiliar territory for retail traders. It had primarily been the domain of multinational corporations, large financial institutions, and hedge funds, etc. The popularization of internet trading raised the interest of the general public to trade in forex. At present, individual retail traders are curious to gain knowledge about forex. Whether you are a novice or need to reshuffle your knowledge, here are some of the most frequently asked questions concerning the forex market.
What is Forex Trading?
Forex or foreign exchange market refers to the global currency trading market. It is the largest and the most liquid financial market across the globe. Trading forex involves trading currencies in pairs which are on a floating exchange rate, AUD and USD for instance.
What are Currency Pairs?
Base currency and quote currency together make up a currency pair. The term is used to price currencies against each other. Conventionally, currency pairs are reflected in abbreviated form, separated by a slash. EUR/USD refers to a currency pair in which euro is the base currency and the U.S dollar is the quote currency.
What is a PIP?
PIP denotes ‘percentage in points’. The term is used to denote the smallest incremental move that an exchange rate can bring. If the exchange rate had been 1.4510 and increased by one pip, the exchange rate would be 1.4511.
What is a ‘Lot’?
The number of currency units a person wishes to buy or sell is known as a lot. One lot comprises 100,000 units of currency. Currency pairs are traded in lots which can also be mini, micro or nano in size. Mini lot equals 10,000 units while micro and nano equals 1000 and 100 units respectively.
When is the Forex Market Open for Trading?
Forex market is a market that works 24 hours and begins in Sydney every day. It then moves across the globe as the day begins in each of the financial centers. It gives the investors an opportunity to respond to currency fluctuations caused by social, economic or political events at any time – day or night.
What does Long Position Denote?
Long position refers to a situation when a trader buys the base currency with an aim to sell it at a higher price. A long position is when a trader opens a trade to sell the base currency in an anticipation that it will further depreciate.
What does Short Position Denote?
When a seller decides to sell the security first with the intention of repurchasing it later at a lower price, the situation is known to be a short position. Short position in other words means selling a currency with a hope of future decline in the market price. It is expressed in terms of base currency.
Next time you buy and sell forex, these answers would certainly help you trade better.