Guide To Some Basic Information About Forex Trading

Published On June 20, 2018 | By Clare Louise | finance

Forex means foreign exchange, FX or currency trading. It is a decentralized global market made up of banks, commercial companies, hedge funds, investors and retail forex brokers. Forex trading means buying, selling and exchanging in various currencies in the forex market. The average daily trading volume of forex market is $4 trillion which makes it the largest liquid market in the world. The following information will act as a Forex Trading Guide for newbie forex traders to know about some basic information about forex trading.

Forex Quote

Forex Quote consists of two types of prices. One is bid price while others is the ask price. The bid price is usually lower than the ask price.  

  • Bid price is the price in which the broker is willing to buy the currency and thereby this is the price at which the trader needs to sell.

  • Ask price is the price at which the broker is ready to sell and is thereby the price at which the trader needs to buy.

Currency pairs

Exchange rate of one currency over other is represented as currency pair. The first currency of the pair is called base currency while the second currency is called quote currency or counter currency. Most widely traded currency pairs which make up about 85% of the total Forex Trade volume in Forex market are as follows.

  • EUR/USD- Euro
  • USD/CAD- Canadian Dollar
  • GBP/USD- Pound
  • USD/CHF- Swiss Franc
  • USD/JPY- Yen
  • AUD/USD- Aussie

The currency pairs are expressed in terms of units of counter currency needed to buy one unit of base currency.

Pips

The minimum increase in a currency pair is called price interest point or Pip. For example, if EUR/USD moves for 1.245 to 1.260 it means 15 pips. Similarly, if USD/JPY moves from 112.05 to 114.10 it is equal to 205 pips.

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