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What is Online Forex Trading.

Updated on October 28, 2009

Forex trading definition

Forex Trading Definitions

Welcome to the second hub of Online Forex Trading Basic, if you missed the previous article on you can have access through this link Why Forex Trading? Which we discussed the benefits of trading currency

Forex – This is the Foreign Exchange Market where investor trade currencies, as a forex trader you have the ability to trade in different foreign currencies like EUR, USD, AUD, CHF and many more. What happens in forex exchange is the simultaneous buying of one currency and selling of another, here is what happens in forex market EUR/JPY. As we have said you buy one currency while at the same time selling the other. Assuming you are executing a buy order on the paired currencies above, you will be buying EUR while at the same time selling JPY. Assuming you will be executing a Sell order, you will be Selling EUR while at the same time buying JPY

Over The Counter Trading

OTC – Over The Counter, forex market is referred to as OTC because it has neither physical location; forex market is run electronically with so many banks and also known as interbank market

Currencies Traded and their Symbols

Country                          Symbol                    Currency

Australia                          AUD                       Dollar

Canada                          CAD                        Dollar

Switzerland                     CHF                        Franc

Euro Countries              EUR                         Euro

Great Britain                 GBP                         Pound

Japan                           JPY                           Yen

New Zealand                NZD                          Dollar

Those are some of the major currencies traded on the Forex Market, there are many small currencies that one can trade with other than the above mentioned one

Long/Short – in Forex Market you are either going long, which means you are buying a base currency while selling quote currency. While going short you selling the base currency while buying the quote currency

Base/Quote Currencies – The base currency is the first currency in any traded pairs while the quote currency is the second currency in any traded pairs. EUR/USD – Here the base currency is the EUR while the Quote currency is USD

Bid/Ask – The bid is the price at which you will sell a base currency. While Ask is the price at which you will buy a base currency

Pip – Refers to an increment in the currencies prices. If AUD/NZD is 1.0056 to 1.0060, the increment that occurs in that last decimal place is 4

Lots – Currency are traded in sizes known as lot, the standard lot size is 1, with other small lot sizes like 0.01, 0.02, 0.05, the bigger lot you traded the higher profit chances and the higher the risk

Margin call – When your broker feels that your account is almost being wiped out, they will automatically closed all opening position and at the same time sent you alert message, this is normally known as margin call. Brokers does this to protect themselves from incurring loses also

Those are some of the Basic definitions that Forex Traders need to know before getting involved with currency trading. Our next hub/article which is accessible through this link will be on Types of Forex Order Types


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