You might have been wondering what Forex is? 'Forex' is an abbreviation for Foreign Exchange. Below we listed some basic Forex information which has been pulled from our online course. The information below will give you a little insight into what Forex is, the history behind it and some basic trading terminology. You will find more information on our courses.
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History of the markets
The forex market began after the great depression and removal of the gold standard in 1931. What is the gold standard? The gold standard was a country’s paper currency value in which would have had a direct link to gold. Countries would convert their paper currency for a fixed amount of gold. Those who were a part of the gold standard would be able to buy and sell gold for the current price.
Currency pairs are traded within the forex market. The rate of the currency pair is the pairs current value, and this is calculated by its pairing with another currency. For example, USD/JPY. The base currency is the first currency, so the USD in this case. The second currency is called the quote currency and in this example is JPY.
The most famous pairs to trade are known as the majors, and they are stated below with their trading nick-names;
NZD/USD – Kiwi
GBP/USD – Cable
USD/JPY – Dollar-Yen
USD/CAD – The funds
AUD/USD – Aussie
Commodities such as gold and silver are classed as hard goods and products such as sugar and cocoa are classed as soft goods. All commodities are raw products. You can buy and sell these natural products to make profits within the market.
Indexes reflect the economies financial situation. Indexes are a group of the top performing companies with the highest share value from a country.
Below we have explained some different trading terms to help you develop your trading vocabulary;
PIP(s) – In the FX market, pip is a number value, and one pip is the smallest value move a currency can make.
Lot Sizes – Lot sizes is the value of the pip size you will be placing on each trade you enter.
Spread – This is the value of the price between the buying price and the selling price.
Margin & Leverage – Leverage is where you use a certain amount of money that has been borrowed, for investment.
Buying/Bullish – Buying, is when you open a position on a trade you think is going to increase in value and is also known as a bullish movement.
Selling/Bearish – Selling, is when you open a position on a trade that you think is going to go down in value and is also known as a bearish movement.
Stop Losses (SL) – This is something that you will place on your trade for you to keep your losses to a minimum.
Take Profit (TP) – Placing take profits is just as important as placing stop losses.
Different types of trading
Fundamental analysis is trading based on economic data such as news. Fundamental traders believe the charts will move based on their long-term prediction and that it will rule regardless of the short-term picture.
Technical analysis is analysing and recognising the charts/currency pairs history. To identify the patterns, all technical traders use things such as resistant and support lvels to determine where the price will go.
There are three different types of charts that you can trade and read the price action from. These are candlesticks, line graph, and bar charts.