Forex trading can be scary. This speculation is apparently confirmed by numbers of Google results when you search for ‘Forex Trading Scary’. In fact, forex is not as frightening as it seems. As long as you comprehend the basics and are disciplined, you will overcome the threat itself.
What includes the basics are jargons and terminology. As a starter pack, you are required to grasp the terms at minimal. Why, you wouldn’t want your investment to go somewhere caused by simply you did not know which button to press on the site.
Sit back and relax, Juno Market already prepared the mini (and quick) guide to apprehend forex trading vocabularies.
How much do you want to invest in forex? $1,000? $2,000? Rather than dollars or any legal currencies, forex adopts ‘Lot’ as the currency and it’s already well-accepted in every trader. 1 lot usually refers to a 10,000 base currency unit. But nowadays 1 lot can be converted into either 100,000 or 1,000 based on your contract account.
Lot is considered the minimum trading unit for a forex broker account. It means for the very least you should be able to invest 1,000 local currency.
Contract is also considered as a standard unit of trading. As mentioned above, there are 3 different kinds of contracts in modern forex trading: 1 lot equal to 100,000 local currency for standard accounts; 1 lot equal to 10,000 local currency for mini accounts; and 1 lot equal to 1,000 local currency for micro accounts.
Imagine if you want to own a property but you are hesitant to pay the whole price. “What if they hit and run?” Down payment or deposit could be the alternative way.
In forex trading, you will come across leverage which refers to the ratio of the amount of deposit in order to make a broker and you willing to trade. Take this as a down payment so both the broker and you wouldn’t risk anything in this agreement. Usually the leverage is 1:50 which means you must deposit $200 to trade 1 lot in mini contract or $10,000.
Margin is the amount of money you need to deposit based on leverage ratio. Usually the leverage is 1:50 which means you must deposit $200 to trade 1 lot in mini contract or $10,000.
Pip stands for ‘Percentage in Point’ or sometimes merely called ‘point’. It represents the minimum price fluctuation possible in a forex transaction. A pip itself is the last decimal of a currency pair’s exchange rate.
Similar to the auction terminology counterpart, bid in forex trading refers to the exchange rate that the market maker is willing to purchase a financial instrument. Market makers are the dealers who regularly quote both bid and ask price.
Contrary to bid, ask is the exchange rate that the market maker is willing to sell the base currency of a financial instrument.
As you can see, there is a gap between bid rate and ask rate. The gap is called spread and acts as the commission for the brokers.
These 8 are the starter kit for forex trading. Too complicated? No worries, you’ll read these over and over again so you’ll understand it in no time!