Forex Market Terminology - Understanding The Basics

When you first start trading the Forex market you can become overwhelmed with the amount of information there is to consume.

One of the hardest parts for a new trader is learning the lingo. Some of the terms used in currency exchange are self-explanatory, whereas others are not. In this section I provide brief definitions of some of the most common Forex trading terms.
Spot Deal

A deal taking part between two parties who can deliver a certain amount of different currencies to each other within 2 business days of each other (excluding Canadian dollar where the trade is executed within 1 business day)
Market Order

This is the execution you make when deciding to buy a currency. In other words you see a currency exchange rate quote on screen and you place a ‘market order’ when you click the button to execute the trade.
Entry Orders

This is basically and advance order, you decide at what price you want to buy or sell a currency and you place an ‘entry order’. As soon as the currencies reaches this rate your trade is executed.
Stop-Loss Order

This is a function offered by some brokers which is aimed at reducing your risk, you can decide the maximum and minimum amount of profit or loss you want to exit a trade at. In other words if you decide you are happy to make $1,000 from one trade but don’t want to lose anymore than $1,000 should the trade go the other way you can place this safety net on your trade.
Bid

This is the currency rate that you wish to buy or sell at.
Offer

This is the currency rate you will actually get when buying or selling

Forex Trading Offers Huge Earning Potential

Forex currency exchange trading is one of the fastest growing trade markets in the world. It is also the biggest with an estimated 1.8 trillion dollars being exchanged every single day.

With these stats to it's name it should come as no surprise that one of the major reasons for this exponential growth is the fact that Forex trading offers incredible earning potential.

This is also why large multi-national corporations have been investing in foreign exchange for years and more and more individuals are utilizing currency trading to supplement their incomes and some are even living purely off the profits they make.
Incredible Forex Leverage Ratios

So why does Forex trading offer such incredible earning potential? Well firstly the currency exchange market operates through brokers who offer some significant leverage ratios to their traders.

For example, you decide to purchase 10,000 US Dollars against Japanese Yen at 125.00. Next day you sell 10,000 US dollars and buy Yen at 126.00 making a profit of approximately $79. To fund this position you need a deposit of $100 not $10,000 since the rest of the amount is leveraged to you by your Forex broker.

If you were to try and trade without any form of leverage you would make very minimal profits and it would not be worth your time trading.

This is the beauty of Forex trading, any individual trader, no matter what their starting capital, can experience the thrill ride of trading large amounts of currency and making big profits without depositing thousands of dollars.

Online Forex Trading Advances

Of course when Forex first began the Internet was a distant dream and therefore trading was carried out exclusively by the cash rich worldwide organizations.

These were companies who could afford to throw a few million in to the mix in an attempt to make some big money trading currencies.

Trading was carried out over the telephone via several exchange centers all over the world. A trader would monitor global activity and then ring their broker in order to commence or complete a trade order.

The transfer of funds to complete trades was done through bank transfers which often took a few days to go through. This meant that whilst the Forex market offered a fantastic earning opportunity, trading was both time consuming and a hassle.

With the advent and then increasing popularity of the Internet, Forex trading online opened up the doors to millions of people who had never previously had the resources to take part.

The Birth of the Foreign Currency Exchange

In 1971 when floating exchange rates began to materialize and the bretton woods agreement was abandoned, the foreign currency exchange market was born.

This advancement was welcomed with open arms by the International companies who had often noticed big profit changes both positive and negative simply based on the value of their native currency against the value of the currencies in the markets in which they traded their day to business activities.

These companies would see fluctuating exchange rates effect their profit and loss accounts, often with millions being made or lost simply on the value of one currency against another.

It was also these companies that were first to spot the huge money making opportunity currency fluctuations offered and these same companies were the first to leap on to the Forex trading bandwagon and attempt to increase their profit margins through brave yet profitable currency exchange decisions.

A History of Trading the Forex Market

Forex currency trading has made massive advancements over recent years and is becoming on the Internets most searched for trading opportunities.

Technological advancements have made Forex an opportunity to make money for everyone from small individual speculators to large multi-national companies.

In reality the principles of Forex trade have existed for centuries but it wasn't until 1967 when the idea of a global system of currency exchange first began to be put together.

A college professor named Milton Friedman famously wanted to take a bank loan in Pounds Sterling (feeling that the currency was overpriced against the dollar) and then sell it before buying it back once the price against the dollar had fallen.

This would allow him to repay the bank and pocket a nice profit for himself. His loan application was declined due to the bretton woods agreement that was in place at the time but this set the wheels in motion for worldwide Forex trading.

Small Investments - Incredible Returns!

Therefore, the leverage means that even with only small amounts of money you can still quickly earn big profits from trading Forex online!

This is not a luxury that any other form of trading can usually offer. What's more you can now open mini Forex accounts online with less than $100 leaving Forex trading open for anyone to take part.

Despite the fact that stocks and shares is more commonly known and understood than Forex currency trading, the Forex market remains the worlds largest trading market with more than 1.8 Trillion dollars trading hands on a daily basis.

It is the fantastic benefits and earning potential of Forex that makes it such an attractive proposition to both individuals and major corporations.

It is no secret that multinational banks have been trading the Forex market for years, many rely on it for a substantial income stream that allows them to be much more competitive in the key areas of their business.

In summary then, Forex trading is all about trading currencies and benefiting from fluctuations in exchange rates. It is surprisingly easy to learn Forex trading and begin making profits, however, we must stress that before rushing to deposit money and start trading you should ensure you fully understand the market.

Online Forex Trading - What's it all about?

Forex trading is an activity that has been around for many years yet is unknown or misunderstood by many.

Those that do know what Forex trading is all about usually come to love the excitement trading can bring and several of these people go on to devote their whole lives to the skill.

It could be said that regardless of whether you have even heard of Forex trading before, the chances are you have already done it in one form or another without actually realizing it.

If you have ever been to a foreign country before and had to exchange currencies at your local bank then you have already taken part in Forex albeit in a far less profitable, less exciting and less lucrative way.

The term Forex is derived from the words 'Foreign' and 'Exchange' and quite simple means to take part in trades involving the exchange of one countries currency with another. Other terms often used to refer to Forex include 'Spot FX' or simply 'FX'.

Information about our Forex Courses:

Intensive Forex Mentor

Our most complete course, recommended for traders who want to speed up the learning curve. In this course you will learn: advanced techniques of technical analysis, risk and position management, the system we use right now to trade the forex market. We will apply all this during live market conditions. In this course our students learn to trade short and long term charts. Includes 25 hours of live conference sessions.




Advanced Forex Training

In the SF Advanced you will find information about our trading strategies, risk and position management strategies, money management strategies, psychology and more. Includes one month of one-on-one coaching through the online platform.




Coaching Forex Education

The main objective of the SF Coaching course is to introduce novice traders and traders with experience on other financial markets to the incredible world of forex. All basic concepts, fundamental analysis, technical analysis (including: technical indicators, chart patterns and candlesticks) and more is covered in this course.




Seminar Forex Consulting

For traders who want a course designed for his or her specific needs, companies or banks who want training for fund managers, money managers in search for new strategies.

StraightForex Forex Courses

Intensive Mentor

SF Intensive Forex Mentor

Our most complete course, recommended for traders who want to speed up the learning curve. In this course you will learn: advanced techniques of technical analysis, risk and position management, the system we use right now to trade the forex market. We will apply all this during live market conditions. In this course our students learn to trade short and long term charts. Includes 25 hours of live conference sessions.



Advanced Training

SF Advanced Forex Training

In the SF Advanced you will find information about our trading strategies, risk and position management strategies, money management strategies, psychology and more. Includes one month of one-on-one coaching through the online platform.



Coaching

SF Coaching Forex Education

The main objective of the SF Coaching course is to introduce novice traders and traders with experience on other financial markets to the incredible world of forex. All basic concepts, fundamental analysis, technical analysis (including: technical indicators, chart patterns and candlesticks) and more is covered in this course.



Seminar

SF Seminar Forex Consulting

For traders who want a course designed for his or her specific needs, companies or banks who want training for fund managers, money managers in search for new strategies.

Free Forex Education

Free Course

SF Free Forex Course

In our free forex course novice and traders with experience in other financial markets learn everything about: Technical analysis (technical indicators, chart patterns, candlesticks, etc), Fundamental analysis (most important news announcements and specific techniques to trade them), basic concepts, most common mistakes traders make and more.



Forecasts

Forex Forecasts and Tips

In our Forex Blog we publish forecasts of the most important currency pairs including the Euro, Pound, Swiss Franc, Yen, Aussie and the Canadian Dollar and crosses such as the EURJPY and the GBPJPY. We also publish interesting educational tips and important news related to the forex industry.



Articles

Forex Articles

In our forex article section you can find forex resources including topics such as technical analysis, trading psychology, forex basics and more

Forex Platforms

This scenario applies to forex as well. This has given rise to the development of different types of software which traders can use, called trading platforms.

A simple definition of a trading platform is the site where traders do their business. But this is where the simplicity ends because this site is also where information of each trading transaction is kept. This kind of data does not consist of just pieces of paper or document files on the computer. It also includes charts, graphs and newsfeeds produced in real time.

It is essential for a trader to understand his trading platform if he wants his forex investments to be profitable. There are currently several available in the market; however, the adage “different strokes for different folks” also hold true for those involved in foreign exchange. Traders have different trading styles and the strategies they employ affect the information that they need. As a case in point, some investors are categorized as “stalkers” – these are the methodical ones who predict trends by assessing factors that influence exchange rates between currencies. This type of trader is patient and is aware that significant changes in exchange rates take months to develop. On the other side of the coin are the “foragers” – these are the investors who seek the highest profits in the least amount of time. They look out for sudden spikes in interest rates and oil prices, wars, disaster and other conditions that could cause even minute shifts in exchange rates. Since their approach to trading varies, their data requirements vary as well.

The most basic feature of a forex platform is that which allows its user to buy and sell currencies and to see information in real time. Screens that are able to display charts and graphs add to the functionality. Forex trading brokers usually have their own platforms that serve their customers. Some even provide software where color and layout can be customized because they are aware of how important it is for the trader to be able to use and navigate his platform comfortably.

Since platforms offer varying types and degrees of capabilities, choosing the right one poses a challenge to the trader. Thus, he needs to acquaint himself with the different tools needed in trading. Additionally, he should have an idea on the workings of the market and what strategies are employed for effective trading. This should not be difficult, considering the numerous sources of information that the internet provides on forex. Further, there are free demonstrations that he can avail of

A trader who equips himself with the needed information would have a better chance of choosing the right platform and optimizing its use. He will also have a better idea on which one meets his needs the closest. Investing in forex certainly has its risks and this is why every step that brings additional learning should be considered as an advantage.