Forex Basics gives you the most concise look at the fundamentals of the forex market. Therefore, one of the first steps in the journey to conquer Forex is to understand the basic concepts in Forex. This is like a primer - the first names you have to approach and understand, so that your trading process later avoids mistakes of basic errors.
The main content of this article includes the following concepts:
- The concept of Forex (mentioned in the article What is Forex - see here: https://www.caphile.com/2022/11/what-is-forex.html)
- Features of Forex.
- Forex market participants.
- Major currency pairs and cross currency pairs.
- Spread.
- The smallest unit of exchange rate - Pip.
- Entry point, Take Profit and Stop Loss.
- Market orders, pending Limit orders and pending Stop orders.
- Calendar of trading sessions of the day.
FOREX FEATURES:
- No geographical restrictions: With Forex, the world is really flat, there is absolutely no central payment location. No matter who you are and where you are, as long as you have an internet-connected device, you can become a member of the forex market.
- Extremely high liquidity: At any time, when the market is active, you can buy or sell different currencies, and orders are executed almost instantly (can be understood as always There is always a buyer and there is always a seller waiting.)
- Is a market that doesn't sleep: The time of exciting activities on the forex market is continuously 24 hours a day and 5 days a week, the market is only closed on Saturdays, Sundays and big holiday.
FX MARKET PARTICIPANTS:
- Central banks (of countries or of a union of nations).
- US Federal Reserve - FED.
- Investment funds.
- The commercial banks.
- Brokers.
- Individual investors (like you, or yourself, or other individual investors)
MAJOR CURRENCY PAIRS AND CROSS CURRENCY PAIRS:
- There are 7 major currency pairs including: EUR/USD (Euro and US Dollar), GBP/USD (British Pound), USD/JPY (Japanese Yen), AUD/USD (Australia), USD/CAD (Canada), NZD/USD (New zealand), and USD/CHF (Switzerland). These major currency pairs are the most interested and also the largest trading volume.
- Cross currency pairs are currency pairs between currencies of different countries, which do not contain USD, such as EUR/GBP, EUR/JPY, GBP/JPY, AUD/CAD,... Cross currency pairs have less trading volume than major pairs (but the volume is also very large).
- A total of both major and cross currency pairs will include 28 forex currency pairs on the forex market that are regularly traded.
PRICE DIFFERENCE - SPREAD:
- Spread - is the difference between the bid and ask prices at a time, the unit of price difference is the smallest unit of price fluctuation - called Pip. For example, in the EUR/USD currency pair, the quoted prices are 1.0924 and 1.0925, So the Spread is = 1.0925 - 1.0924 = 1 pip. This means that if you enter a buy order now you will buy at 1.0925, and sell immediately (when there is no price movement) you will sell at 1.0924 and you will lose 1 pip immediately.
- After understanding the Spread, then when trading you will need to find forex brokers with as low a spread as possible, because when the Spread is low, your cost per transaction will be reduced. The current average spread at forex brokers with major currency pairs will fluctuate around 1 to 2 pips and cross currency pairs will fluctuate around 2-4 pips.
SMALLEST UNIT OF PRICES - PIP
- Pip stands for "Percentage In Point" - this is the smallest unit of exchange rate fluctuations. As the example above stated: EUR/USD currency pair has a quote price of 1.0924 and 1.0925, So Spread is = 1.0925 - 1.0924 = 1 pip
- Note when looking at the listed price list, often forex brokers will add a small number at the end of the price, you can understand it as an odd number of the price. For example, with the listed EUR/USD pair:
So the exact spread here is 1.3 pips. Knowing the spread and pip you will calculate the exact amount of profit or loss when entering a specific trade.
ENTRY POINT, TARGET AND STOP POINT:
- The entry point is the price at which your order is opened.
- The take profit point is the price at which your order is closed, at which you have achieved or accepted the profit level of a particular order.
- The stop loss is the price at which your order is closed, at which you have accepted the loss to be incurred for a particular order.
- You can open or close an order manually depending on the market price at the time you enter, or you can open a pending order (the order will be matched automatically after the time you place the pending order). Details will be found below.
MARKET ORDER, LIMIT AND STOP PENDING ORDER:
- These are 3 forms of order entry (also known as opening a position), with market order - an order you enter with the matching price being the price right at the time you enter the order. For example, if you enter a buy order at that moment, the matching price will be 1.09256, or if you enter a sell order, the matched price will be 1.09243.
- Pending limit order: is an order placed automatically by you, it will be automatically matched after you place the order and at a pre-specified price. With the Limit command, it will be divided into the following 2 cases:
+ Buy limit: This is a pending order to buy IF THE PRICE WILL DOWN LOWER THE PRICE WHEN YOU ORDERED, AND TOUCH THE ENTER POINT THE ORDER WILL MATCH. For example EUR/USD is priced at 1.09243 and 1.09256 - There you place a buy limit pending order at 1.09143 then IF PRICE DOES DOWN to the price of 1.09143 then your order will be matched buy (10 pips will be matched, expect price to go up again) again).
+ Sell limit: This is a pending order to sell. For example, EUR/USD is priced at 1.09243 and 1.09256 - There you place a pending sell limit order at 1.09343, then IF PRICE RISES to 1.09343, your order will be sold (increase 10 pips will be matched, expect the price to fall back again). again)
- Pending Order Stop: An order placed automatically by you, it will be automatically matched after you place the order and at a price you pre-determined. With the Stop order, it will be divided into the following 2 cases:
+ Buy stop: This is a pending order to buy. For example EUR/USD is priced at 1.09243 and 1.09256 - There you place a buy stop order at 1.09443 then IF PRICE UP goes up to 1.09443 then your order will be filled to buy (20 pips will be filled, expect the price to continue. increase further)
+ Sell stop: This is a pending order to sell. IF THE PRICE WILL DECIDE LOWER THE PRICE WHEN YOU ORDER AND TOUCH THE ENTER POINT, THE ORDER WILL MATCH. For example EUR/USD is priced at 1.09243 and 1.09256 - There you put a pending sell stop order at 1.09043 then IF PRICE DOES DOWN to 1.09043 your order will be sold (20 pips will be filled, expect price to continue. further decrease)
SCHEDULE OF DAY TRADING SESSIONS:
To know at the present time or at any other time of the day the trading sessions will take place in which region, you will not need to memorize a fixed schedule or a calendar that changes according to the seasons of the year. With just one click, you will immediately have a schedule of Forex trading sessions of the day by viewing this page: https://stocktime.ru. And the schedule of news events of the day can be viewed at: https://www.forexfactory.com/
Above are some basic concepts in Forex. In the next articles, we will in turn approach the most popular Forex trading software tool, MetaTrader 4 (MT4), how to use metatrader 4, then we will study the most important part, which is Technical Analysis - is The most optimal path I choose to conquer the Forex market.
Best regards,
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