Online forex trading is the biggest global financial market. To get an idea about how big the market is, you can consider the fact that the forex trading market trades in the lines of $5 trillion per day, while the securities market trades about $22 billion per day. The market does not operate from any centralized stock exchange or exchanges, but is carried on through the internet from any part of the world. The only requisite for engaging in online forex trading is to have an internet connection through which you can register with an online forex trading platform. Finding a good forex trading platform is essential. A good platform would essentially provide analytical tools along with trading tools so that you can evaluate the type of trading that you would engage. There are multiple benefits of forex trading. If you are already acquainted with the advantages of this trading, presented here are explanations to basic terms in forex trading.
• The base currency is the currency that you are spending to buy another currency. The currency that is being purchased is called the quote currency.
• You have to have an eye on the exchange rates between currencies. The exchange rate is the most important factor that should be kept in mind while trading forex. You make profits (or incur losses) based on the fluctuations of exchange rates between currencies. To minimize the prospect of loss, or to altogether eliminate it, you will need to be a quick judge of currency fluctuations. You need to have a detailed eye on the fiscal policies of the economies with which you are dealing. You should also have a knack of predicting which way the currency would go, valuation or devaluation and base your transactions on your predictions. Unless you are an expert in forex trading, you canalso appoint online forex trading firms who would do the trading for you.
• There are two positions in forex trading, the long position and the short position. A long position refers to the scenario where you are buying the base currency and selling the quote currency. The short position is the reverse of the long position.
• Other important terms are the bid price and the ask price. The bid
price is the best value at which you are willing to sell your quote currency in the forex market. The ask price, also known as the offer price, is the best price at which you decide to buy the currency from the market. The difference between the bid price and the ask price is known as the spread.
• There is also something called the pip which is essential to understand to calculate profits. The pip measures the fluctuations between a pair of currencies. To calculate the profit, you would have to multiply the number of pips in your account that has changed by the fluctuations in the exchange rate. This will tell you the extent up to which your forex account has increased or decreased in value.
• There are also other factors like risk margin and capital allocation, which are quite self explanatory.
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