Forex stands for foreign exchange or foreign currency trading.
we call it a forex trading because it is the activity of buying and selling of different foreign currencies for profit. for example:
I am a forex trader, buying GBP 10,000 (UK currency) at a price of USD 1.9800/GBP. then the next day I sold GBP 10,000 with price USD 2.0000 and make profit USD 200 (2.0000-1.9800X10.000)
In forex trading currencies are always traded in pairs. Because every time you buying one currency and sell a currency pair at once.
For example you buying GBP / USD at a price of 1.9800 means that you buying GBP 1 and sell USD 1.9800, as well as vice versa
The currency pair consists of two different quote. Currency that is located in the front called the base currency and the currency that is located behind is called the the counter currency.
For example EUR / USD, EUR is the base currency and the USD as the counter currency. if we look at the EUR / USD 1.2500 means that EUR 1 = USD1.2500.
And when we look at the chart EUR / USD and see the price move of the EUR / USD 1.2500 to EUR / USD 1.2505, it's means EUR strengthened and USD weakened, and vice versa.
Before we trading it's better to know the rules of trading. In forex trading we will found new words such as margin, leverage, pips, contract size, lots, long/short and etc. so we must to know about that.
-Margin.
Margin can be called as temporary collateral held by the forex broker when you open a position or being trading, Margin will be returned to you if all your open orders are closed.
For example you have a capital of $ 1,000 on a broker with 1:100 leverage, so you can trade with the amount of $ 100,000 (100-fold greater than your capital) and if you open a position to buy / sell then your capital will be held temporarily for 1 % or $ 10.
-Leverage
Leverage is the ratio of capital to the amount of the loan a broker for you. you can choose the amount of leverage as you wish. Examples of 1:100 leverage, means that the broker lends you capital 100 times bigger than your capital, and if the leverage 1:1000 means your broker lends capital 1000 times bigger than your capital.
So you can trade only with a capital of $ 10. because if you use 1:100 leverage means that $ 10 your capital equal to $ 1,000 value in the forex market.
-Pip
Pip is the smallest unit in prices in the forex market, pip commonly called a point. Pip in forex market in the form of decimal fractions, for example EUR / USD price of 1.2500 and then move to 1.2501. means the EUR / USD moves up for 1 pip / 1 point. value of 1pip not always $ 1 or $ 0.0001. but depending on the contract size that we open.
-Lot size
Lot size is the contract that we are open. lot depends on the value of the account we have. if we use the standard account, then 1 lot = $ 100,000. If we use a mini account, then 1lot = $ 10,000. and if we use a micro account, then 1 lot = $ 1000. pip value also depends on the lot that we use. for example in micro account you open order buy EUR / USD with the 1lot size and leverage 1:1000, then 1 pip value is $ 1 ($ 1,000: leverage)
-Short and Long
Short position is a position where we sold one currency pair. for example I open a short position for the EUR / USD at price 1.2500. It's mean I sell 1 EUR and buying USD with a price of 1.2500 per 1 EUR.
long position is a position where you buy one currency pair. for example I open a long position for EUR / USD at price 1.2500. It means I buying EUR 1 and sell USD at a price of 1.2500 per 1 EUR
Forex is risky business so take carefully before investing on forex trading. Make sure you have enough knowledge about forex.
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