Forex Basics

To learn the basics of forex it is very necessary to understand the terms and terminologies of forex. Forex is frequently referred to as the Foreign Exchange market or Retail forex or FX or Spot FX or just Spot. It is the biggest monetary market across the globe, with a volume of over $4 trillion a day.

The Forex introduction given here explains what forex is. The primary basics of forex trading defines that it is buying of one currency and the selling of another. The trade takes place with the help of brokers or dealers. The forex trading is done in pairs; for example the Yen and the US dollar (Yen/USD) or the British pound and the Euro (GBP/EUR).

According to the basics of forex, the currency which is traded in the forex market is a direct reflection of what the market thinks about the existing and future shape of the country’s economy. While trading in pairs, the traders must believe that the base currency is what they are 'buying' and 'selling. Few of the very basic terms used in forex trading which constitutes the most important forex basics are as follows:

Counterparty

The counterparty is one of the second parties that are involved in the forex trading and is the major part of forex basics. It is one of the parties in the transaction.

Sell Quote / Bid Price

The sell quote is the price at which the base currency can be sold and it is displayed on the left. Also known as the market maker's bid price.

Buy Quote / Offer Price

It is displayed on the right and is the rate at which base currency can be bought. It is also known as the market maker's ask or offer price.

Spread

It is the difference between the buy quote and the sell quote. In order to break even on a trade, a position should move in the trade’s direction by an amount equal to the spread.

Pip

It’s the price increment made by a currency, also known as points. For example, 1 pip = 0.0001 for JPY/USD, or 0.01 for USD/ EUR.

Pip Value

It is the value of a pip. It can be fixed or variable on the basis of currency pair.

Lot

Lot is a regular unit size of a transaction. Normally, one standard lot is equal to 100,000 units of the base currency, 10,000 units if it's a mini, or 1,000 units if it's a micro.

Standard Account

Within a standard account you can trade with standard lot sizes, mostly 100,000 units of the base currency.

Mini Account

Within a mini account you can trade with mini lot sizes, generally 10,000 units of the base currency.

Micro Account

With micro accounts, the traders are allowed to trade with micro lot sizes, usually 1,000 units of the base currency.

Margin

It is the minimum amount of cash required to open or maintain your account or to maintain a position in the forex trading. The margins can be free or used. Used margin is the amount which is being utilized to maintain an open position, whereas free margin is the amount available to open new positions. Most brokers automatically close a trade when the margin balance falls below the amount required to keep it open.

The forex basics with a forex introduction described above can help the novice traders to get started with forex trading within no time and can start making the profits after they understand the basics of forex trading terms and the strategies involved.

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