Basic concepts in the Forex market

In fact, these are the terms and conditions that you need to know exactly before starting to work in this market. We have stated this in the form of basic concepts in the Forex market . These cases are explained below.

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Familiarity with symbols in the Forex market

The symbols are designated by the World Standards Organization for currencies, indices and commodities. In these symbols, which are usually three letters, the first two letters are related to the country of origin of the currency and the third letter is the name of the currency. For example, below are some examples and in the picture, the leading symbols of this market are shown. The full list of these symbols can be seen on trading platforms.

United States Dollar USD
Euro Union European Union Euro EUR
Japanese Yen Japanese Yen JPY
Pound Sterling GBP
Swiss Franc CHF
Australian Dollar Australian Dollar AUD
Canadian Dollar Canadian Dollar CAD
One ounce of Gold ounce XAU
One ounce Silver ounce XAG

The concept of currency exchange in the Forex market (Currency Pairs)

In the Forex market, the value of one currency is always measured against another. For example, the currency of the British pound against the US dollar (that is, how much each pound is worth per dollar). As a result, we are always dealing with currency pairs in this market. The symbol system mentioned earlier is also used to display these currency pairs. For example, the:

EUR / USD (equivalent to the value of the euro against the dollar)
GBP / USD (equal to the value of the pound against the dollar)
USD / CHF (equivalent to the value of the dollar against the Swiss franc)
USD / JPY (equivalent to the value of the dollar against the Japanese yen)

The above four currency pairs are called Major Currency pairs in the Forex market. If it is not on the side of America Pair USD pair Cross (Cross Rate) say. Such as: EUR / GBP-GBP / CHF-AUD / NZD

One of the most important concepts in the Forex market is understanding the currency pairs. In a Forex currency pair, the first currency is called the Base Currency and the second currency is called the Counter Currency . For example, if the buying rate of the EUR / USD pair is 1.3265, it means that each Euro is worth $ 1.3265 and you have to pay $ 1.33265 to buy one Euro.

Currency Exchange Rate Unit (PIPs, Points)

Due to the high volume of trades in Forex (foreign exchange market), exchange rates are usually calculated up to five correct digits and decimals. In major currency pairs other than the Japanese yen, currency parity is given as a single digit and four decimal places. In pairs of currencies whose parity rate is calculated up to four decimal places, the fourth digit after the decimal point is called Pips or (Point). You may see five-digit digits on the trading platform, the fifth digit is called the pipette, which is still the fourth digit and is the pip.

For example, if the euro rises from 1.33260 to 1.32364 against the dollar, we would say that it has increased by 4 pips. In currency pairs including the Japanese yen, the decimal is up to two digits, so for example, if the price of GBP / JPY rises from 188.56 to 188.50, we say that it has decreased by 6 pips.

Spread concept and Bid & Ask price

In Forex, there are two prices for each currency pair at any given time. The price at which you can buy (Ask) and the other price at which you can sell (Bid) The difference between the two prices is called Spread . In fact, these two amounts are like when you are going to buy dollars from an exchange and the buying and selling price in an exchange is different. This difference is the same as the spread.

Look at EUR / USD on the trading platform, you will see: Ask 1.3695 and Bid 1.3694 mean that the buying price of this currency pair is 1.3695 and the selling price is 1.3694. The difference between these two values or spreads in different brokerages or brokers is different , for example, for the euro to the dollar, it may be from 0 to 2 pips.

A spread is the cost you pay as a trader to make a trade. This amount is actually a small number in a transaction. The concept of spread is one of the simplest basic concepts in the Forex market that you may already be familiar with.

Definition of Leverage

Leverage or leverage is one of the basic concepts of the Forex market that is misunderstood and misunderstood. The rate of change in the price of currency pairs in the market is about 1% per day, and small investors may not be interested in this market. For this reason, a concept called Leverage has been created.

Using leverage credit, the investor can enter the transaction up to 1000 times his capital (this figure in different brokers can vary between 10 to 1000 and can be changed by you), which of course also raises your risk. The size increases. If you make a profit of 10 pips in a 1 lot lot, whether your leverage is 100 or 500, you make the same profit. The difference is that you may not be able to make a 1 lot trade with low capital and low leverage. This is explained in detail in an article entitled Leverage.

Lot is a unit of measurement of trading volume

One of the basic concepts in the Forex market is accurate familiarity with trading volume. The size of the contract volume of a trade in the Forex currency exchange market is considered as one lot as standard. The size of contracts is expressed in terms such as Amount or Lot. In most contracts, each lot is equal to 100,000 units of base currency. For example, if you buy the euro against the dollar (EUR / USD) in a 1 lot deal, you are actually buying 100,000 euros against the dollar. Of course, you do not need to always trade with this volume. You can trade with a value such as 0.01 lots. This amount depends on your leverage and initial capital.

The concept of night interest (Swap)

Most transactions in the market are done by brokers and in the banking network. Because interest rates are different in different countries, brokers calculate the difference between the interest rates of open trades (ongoing trades) of customers and take their interest rates into profit and loss. This is for transactions that take more than 1 business day and are not closed by you. If you intend to make long-term transactions, be sure to get information on how to calculate broker swaps and interest rates in different countries.

Types of trading orders

Familiarity and learning of various commands and how to execute them is one of the most important basic concepts in the Forex market . Trading in the foreign exchange market is done by identifying 4 factors:

Type of currency pair
Transaction volume
Determine the purchase or sale order
Admission price

These trades are done in Forex in two ways:

Market Order
Pending Order

Introduction to Market Orders

An order or purchase or sale order that the trader records manually and instantly based on available market rates. This order is done instantly and the desired currency pair is bought or sold. This is one of the most widely used commands in the basic concepts of the Forex market.

Introduction to Pending Order

Orders and buy or sell orders that are done based on future price changes are called pending orders in Forex market concepts. For example, if the price of the EUR / USD pair is 1.4550, the trader can send an order to the broker to buy or sell for him if the price reaches 1.4600.

Types of Pending Order:

A) Buy Limit is an order in which the purchase order is placed at a price lower than the current market price. This command is used when the trader predicts the beginning of an uptrend below the current market price.

B) Sell Limit ( Sell Limit ) is an order in which a sell order is placed at a price higher than the current market price. This command is used when the trader predicts the beginning of a downtrend higher than the current market price.

C) Buy Stop is a command that puts the purchase order at a higher price than the current market price. This command is used when the trader predicts the start of an uptrend above the current market price.

D) Sell Stop is a command that puts a sell order at a lower price than the current market price. This command is used when the trader predicts the beginning of a downtrend below the current market price.

Familiarity with other trading orders

Stop Loss is a statement that determines how much the trade closes (do not lose more than a certain amount if your analysis is wrong).

Take Profit is a statement that determines how much profit a trade should be closed (the ultimate growth or decline of the market that you have analyzed).

Methods of reviewing and analyzing financial markets

In general, three basic methods are used to analyze and predict the market.

A: Technical Analysis is the study of charts and the study of price movement trends to predict and analyze future movements. Technical traders believe that any price action is taken into account. Types of technical analysis theorizing styles:

– Changing prices is targeted

– Prices move according to trends

– In the case of price, the date is repeated

B: Fundamental Analysis are traders who, based on political variables, the realities of the international economy and the state of the domestic economy, seek the motives and reasons for price movements with a fundamental interpretation.

A: Technical & Fundamental Analysis Traders who combine and analyze technical and fundamental factors to analyze and predict the future price in the market.

These are the most important basic concepts in the Forex market and will be explained in detail in the following articles.

Basic concepts in the Forex market