The percentage in point or pip means the measurement of the movement of the exchange rate. The pip represents a unit or number value that eventually estimates profit and loss. One pip is equivalent to 0.0001. The currency value is presented in pips in the forex market. Forex traders frequently quote price movements whether profits or losses in pips. For instance, a trader can say “in my last trade, I made 30 pips or “the EUR/USD currency pair gained 20 pips in the last two hours”.
The stop loss is an advance order to sell your forex asset when the price movement reaches a specific price point. It is utilized by traders to minimize trade loss. The idea can be used for short-term and long-term trade execution..
Bid and Ask Price
a) Bid price
The bid price is the amount that buyers are comfortable to pay for trade access. The bid price stands for the maximum priced buy order that is presently accessible in the forex market.
b) Ask Price
The "ask price" is the amount that sellers are comfortable to accept as payment for an asset. The "ask price" stands for the minimum priced sell order that is presently accessible or the minimum price that a trader is happy to sell the asset.
Lot size is the number of currency units that a trader buys or sells. You trade forex in lots, but lots are of varying categories. A micro lot represents 1,000 units of currency; a mini lot represents 10,000 units while a typical lot is 100,000 units. The bigger the size of the lot, the higher the risk the trader takes. As a caution, retail forex traders should avoid trading standard lots. As a novice forex trader, you are better starting with micro lots until you become more familiar with the forex market.
Take Profit & Stop Loss
The management of stop-loss and take-profit (SL/TP) is evidently one of the most significant factors to consider while trading forex. Stop-loss is an order that a trader sends to the Forex broker to minimize losses in one specific open position. Take-profit functions in a similar manner by allowing the trader to lock in profit when a specific price range is attained. SL/TP is, thus utilized to exit the market.
The spread is the variation between the BID and the ASK price of a forex quote. The ASK price applies to a BUY order, and the BID price relates to a SELL order.
Leverage is the capacity to manage a vast sum of money in the forex markets. Leverage offers the trader the chance to make a massive gain on the standard minute shift in price. It also risks only small amount of capital on a particular. Leverage can lead to the exponential boost in profit in addition to losses. Therefore traders must exercise great caution while trading with leverage.
The margin is the amount fund you need to have in your account to be eligible to trade forex. It is estimated based on the instant market quote of the base currency of the report of a trader against the base currency of the trader’s account, the intended volume, and the leverage range of the account of a forex trader.
A margin call is an automated warning message that a trader receives when his or her account is running out of enough funds to maintain their present open positions on the market. If the market moves against the status of a trader, the trader would be asked to deposit extra funds through a "margin call."
Commissions are fees that forex broker charges a trader for their trading account. The rate of increase or decrease of the commission depends on the scale of increase or decrease of the position size.
Forex trading involves not just a pair of currencies but also the interest rate of the two currencies. If a trader buys a currency with higher interest rate than the currency which the trader sells, he or she will gain interest as well known as rollovers or swaps. If the contrary is the case, the trader pays rollover perceived as a negative roll.
Types of trade orders
There are different types of the trade order, and these include the following:
a) Market Order
With a Market order, a trader asks a forex broker to place a buy or sell order at present. The result of this trade order execution is opening a trade. A trader buys at ASK price and sells at the BID price.
b) Pending Order
Through a pending order, a trader commits a broker to buy or sell currency at a pre-determined future price. This type of orders is utilized to open a trade position in so far as the quotes in the future attain a pre-defined stage.
Pending orders are further sub-divided into four. These are:
• Buy Limit
• Buy Stop
• Sell Limit
• Sell Stop
Forex Trading School Educational Articles
All the information in the website is for educational purpose only. Your capital may be at risk. This material is not investment advice.