What is Foreign Exchange (better known as forex market)?
Simply the market that encompasses the trading of currencies. Widely known as the Forex market is currently the market with more activity in the world as well as with more liquidity. It is estimated that the daily turnover hovers around 3 trillion U.S. dollars. This market involves the purchase of one currency and simultaneously the sale of another. This world is fundamentally based on the oscillation of the exchange rate (defined floating), all currencies are always traded in pairs such as USD / Euro, Yen / Dollar, Euro / Yen, etc..
What are the brokers in the Forex market and what are primarily concerned with?
The broker is nothing more than a company that mediates between the person who wants to invest and the “market”, thus is the company that sells or buys on behalf of someone depending on the decisions that the “trader” takes. To be able to operate in this type of market you need a broker which opens an account to start your own business in the Forex world. The Forex broker does not charge any commission, in fact, its gain is the difference that there will be between supply and demand at the time of the opening of a new location.
What does collateral margin mean?
The word “margin” warranty in the Forex market provides an opportunity for operators to obtain positions on the lever also having a fraction of the capital that is needed to finance the transaction. Normally in stock markets is a tolerance of 50%, this means that the one who invests gets double of the purchasing power. In the Forex market it can vary from 1% to 2%.
What does spread “bid / ask” mean?
Normally all the quotes in the Forex market offer two different prices the “bid” and the “ask” the first one is always the lower. The term “bid” means the price on which you can sell the currency, as those who want to buy are willing to pay that price. While when it comes to the term “ask” is defined as the price on which you can buy a currency. The difference will be between the two quotation will be called “spread”.
What is a pip?
A pip also known as point is a minimum change of the price at that can be exercised over a particular currency. For example, if the currency pair EUR / USD will change its value from 1.3000 to 1.3001 the change will be a pip and then with the value of 0.0001.
What does lot mean?
It is nothing but the unit of measurement that defines how much money has been invested in a particular order. A lot is usually equal to $ 100,000, while a mini lot is $ 10,000 and a micro lot has a value of $ 1000.
What does leverage mean?
The effect that is called leverage, is the mechanism which offers the possibility of acquiring with a reduced capital (margin) a total much higher in this way the gains are considerably amplified, but also the losses can be much larger. Depending on the broker that you decide to use the leverage may also vary substantially, among the most frequent in each case is a leverage of 1:100. With this kind of leverage you can get 1 lot even if you have $ 1000 available.
What does ECN mean?
The meaning of this acronym is “Elettronic Communication Network”, which is an electronic system in which the various suggestions for the purchase or sale are made by different liquidity providers who are authorized to trade in this market. The access allowed to traders is guaranteed to those who are considered counterparts that provide just cash. The various brokers ECN have always real interbank spreads, normally 1pip, but sometimes even half pip and in some cases “bid” and “ask” are identical even if only for a very short amount of time. In fact, the broker will not earn their income from the spread but instead apply a commission on each trade. The committee may be highly variable and is usually between 0.2 and 0.5 pips per trade.