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Forex Trading Education
Teaching Forex trading, originally if you want to learn a matter of mastery, you must know how it works and what are the basics that govern it, in addition to being familiar with all the details and information related to it.
This is what we are trying to present through our educational articles that we seek to provide a detailed explanation of Forex and present the basics of trading in the currency market in a simple way.
We make every effort to explain Forex to beginners in a simple way, and we will also provide other more advanced educational articles for traders with a degree of experience. In this article, we will explain the most important terms in the Forex world that a trader needs almost daily.
What is Forex?Forex is an acronym for Foreign Exchange, which means foreign exchange. That is, what is meant by Forex is the trading of foreign currencies, or in other words, exchange one currency for another.
Currency trading took many forms until it reached the current stage, in which anyone from anywhere in the world can open an account with the brokerage firm that he wants, and start trading currencies online without restrictions.
Currency pairs on the Forex marketCurrencies are traded in the Forex market in pairs, as the exchange process occurs mainly between two currencies. One of the most popular and frequently traded currency pairs is the EUR / USD pair. This pair takes the symbol EUR / USD with the symbol EUR referring to the European single currency, while the symbol USD indicates the currency of the US dollar.
The currency is on the left side and in this example EUR is the main currency in the currency pair on which the buying and selling operations are conducted, while the currency on the right side and in this pair USD is the secondary currency.
The point in Forex Pip TradingThe point in the Forex or Pip is the smallest unit that expresses the price movements. As we express the distance in meters, the price movements in the currency markets can be expressed in the unit of point. The point is the fourth number after the decimal point in all currency pairs, except for currency pairs that include the Japanese yen.
When the exchange rate of the euro against the dollar EUR / USD is as follows: 1.1255, in this case the number 5 “indicated in italics” is the one that expresses the value of the point. When prices move, for example, towards 1.1257, we say that the price has increased by two points, but when prices move toward 1.1253 we say that the price has decreased by two points.
Only in pairs that contain the Japanese yen coin, the point is the second number after the decimal point. For example, when the exchange rate of the US dollar against the Japanese yen is as follows: 109.77, the number 7 “indicated by the italic line” expresses the value of the point.
SpreadThe term spread is also considered one of the most common terms in the global financial markets, and it reflects the difference between the selling price and the purchase price, and the spread is the main commission that brokerage firms charge for the services they provide, for example when we say that the spread in XM is 3 points This means that the company charges a commission for the deals that are executed through it, and its amount is 3 points.
LeverageMost brokerage firms allow traders to trade in additional amounts that sometimes amount to hundreds of times the original capital. Companies aim to provide this service to attract traders. The more money they trade, the higher the profits.
Forex brokerage firms, by providing this service, also get a higher “spread” trading commission. The higher the amount that is traded, the higher the company’s commission and vice versa. However, it must be noted that leverage and just as it increases the value of profits, at the same time it increases the value of losses if deals are entered in the wrong direction.
Therefore, trading in foreign currencies using leverage carries a high risk, especially for junior traders with limited experience. The trader should also be aware that brokerage firms automatically close the losing deals when the losses are equal to the original capital value, that is, they do not allow the losses to extend to the company’s money (leverage).
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