The Alpari International team is passionate about providing the perfect forex trading experience, whether youre a seasoned investor or completely new to the forex market. If youre just starting out in the markets, or youre looking for a refresher, our guide to trading is designed to break down the terminology and answer the most frequently asked questions by traders.
With our guide, youll be trading more quickly and with more confidence in no time.
Forex is short for foreign exchange (sometimes abbreviated to just FX) and is the global, decentralized trading market of the worlds currencies. Traders, investors, banks and exchanges buy, sell and speculate on these currencies, and in turn this activity determines the foreign exchange rate.
In forex, all trading is carried out through the so-called interbank market. This is an online channel wherein the trading of currencies is conducted 24/5. Some estimate that the total daily trading volume is $5 trillion making it one of the largest trading markets in the world.
Like all brokers, a forex broker acts as an agent helping traders access the interbank that conducts all forex trading. Alpari International is one of the most well-known forex brokers in the world. We provide different options tailored to the many different clients that we look after. Whatever your trading goals are, our range of accounts are designed to work with every objective. You can check out our differentforex tradingaccounts here and if youre only just starting, we suggest you open ademo accountto start practicing how to trade without risking any real money.
Forex is all about speculating on the fluctuating currencies between two countries. These two currencies are referred to as currency pairs and theyre made up of the base currency and the quote currency. The most traded currency pair of all is the Euro against the US Dollar, which is normally presented as EUR/USD.
This is the first currency set that appears in the forex pair. Its the one thats bought or sold for the quote currency. In the example above, the EUR is the base currency.
This is the second currency that appears in the pair, and is also known as the counter currency. In the example above, the USD is the quote currency.
This is the price that a trader would ask for whensellingthe currency pair. The ask price also changes constantly and is driven particularly by market demand, although its also susceptible to economic and political factors.
This is the price that a trader is willing tobuya currency pair at. It fluctuates constantly.
A spread is the number you get when you deduct the bid (buy) price from the ask (sell) price. This difference is actually the cost of the trade and is extremely important for forex traders. Youll often hear the term tight spread this means that the trading costs are low.
Pip is short for point in price (but can also stand for percentage in point and price interest point depending on who you ask). To clarify, we use pips to measure price movements and changes in currency pairs. Pips are usually estimated to five decimal points.
Totrade forexis to buy and sell currencies with the aim of making a profit. Forex trading will always involve two currencies at a time, the base currency and the quote currency. The difference in price is where youll make your profit or loss.
Any kind of trading has its risks and thats crucial to always keep in mind, but it can also create profits which is why so many people do it. Again, we cant encourage you enough to start trading on a demo account if youre new to forex trading. Once youre ready for a live account, you should always fully consider the risks involved.
A position is a trade which is currently in progress. In trading, you can get long positions and short positions:
this is when the trader has bought a currency with the expectation that it will increase. Once the currency is sold back, the long position is considered closed.
this is when the trader has sold a currency with the expectation that it will decrease. Once the currency is bought back, the short position is considered closed.
What currency pairs are most popular in forex trading?
While you can trade almost any currency pair in theory, there are certain pairs that are consistently the most traded. These are called Major pairs (its in the name) they make up 80% of the entire trading volume in the forex market.
These major pairs are associated with stable economies and therefore offer low volatility and high liquidity. Example of major pairs include the aforementioned EUR/USD, the USD/JPY (the US Dollar and the Japanese Yen), GBP/USD (British Pound and the US Dollar) and the USD/CHF (the US Dollar and the Swiss Franc). Another characteristics of major currency pairs is that theres a smaller risk of them getting manipulated and the spreads are usually pretty small.
Cross currency pairs are also known as Crosses, and are pairs that do not include the US Dollar which immediately makes them more volatile and less liquid than Majors. While the US Dollar features in every major pair, Crosses are concerned with more minor currencies like the EUR, the GBP and so forth. Popular pairs in the Crosses family include the EUR/GBP, the GBP/JPY and the EUR/JPY.
Exotic pairs or just Exotics for short are those currencies that come from smaller economies and the so-called emerging markets. Theyre usually paired up with a major currency. Because these offer the least amount of liquidity and the highest volatility of the three brackets, they are regarded as the riskiest to trade.
Examples include USD/MXN, GBP/NOK and CHF/NOK.
For ease, forex relies on abbreviations for the various currencies. Heres a sample of the most talked about ones:
In forex trading, the various combinations of currency pairs have developed their own nicknames. Some are self-explanatory, some have historical relevance. Check them out below:
A lot of forex trading will use charts to demonstrate movements within the markets. These will usually involve one of three types of chart: the Japanese Candlestick, the Bar and the Line.
or Candlestick Chart for short, conveys a lot of information, making it one of the most popular charts for forex traders. With the simplest components, traders can see the high, low, opening and closing prices on a candlestick chart.
These charts have three points the open, close and the wicks. The wicks represent the high to low range, and the wide section will explain whether the closing price was higher or lower than the opening price. If it closed higher, the candlestick will be filled. If it closed lower, the candlestick will be empty.
shows the opening, closing, high and low of the currency prices. So the top of the bar shows the highest price paid, while the bottom shows the lowest price traded during that particular length of time.
The bar itself is indicative of the currency pairs trading range, while the horizontal lines show, on the left, the opening prices and, on the right, the closing prices.
is the simplest of all three graphs, which is why forex beginners love them and advanced traders tend to use Candlesticks or Bars. The line chart simply shows the price movement of a currency pair by having a line drawn from one closing price to the next during a specified length of time.
Thats where we come in. Newcomers to forex trading should always use a broker who is a) regulated and b) has a five-year track record, minimum. With trading, you will need to deposit funds to make the first trade, in what is called a margin account. Needless to say, you can make all the rookie mistakes you want with forex trading on a demo account first, without risking any of your actual money, until you gain more confidence.
Sign up for a demo account today, and take your first steps into the exciting and highly profitable world of forex trading.
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Risk Warning:Trading Forex and Leveraged Financial Instrumentsinvolves significant risk and can result in the loss of your invested capital. You should not invest more than you can afford to lose and should ensure that you fully understand the risks involved. Trading leveraged products may not be suitable for all investors. Before trading, please take into consideration your level of experience, investment objectives and seek independent financial advice if necessary. It is the responsibility of the Client to ascertain whether he/she is permitted to use the services of the Alpari International based on the legal requirements in his/her country of residence.
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