Some Basic Forex Terminology

 

Forex is likely something you have never even heard of. As such you’re probably pretty scared and excited at the same time. Taking on any new investment means your money could go up in smoke.

As you know money can buy you many things which can provide you enjoyment. So when you put that gratification on hold to instead buy into an investment the risk is you will never get any enjoyment out of that money.

This is the primary reason I want you to learn more about the Forex markets.

Since foreign currency market is a mouthful some clever investor shortened it to Forex. This market operates similar to the stock market you know and love, or hate in this recession, only you are trading your currency for the currency of another country.

This market is normalized so that the only thing you can trade are pre-designated currency pairs. So you can’t just say you want to buy Iraqi denars. The market is organized into the 7 main currency pairs with the US dollar, Euro, and British pound being prominent.

Pips are the term used to describe movement in the pair. As 1 of the currencies in your pair moves up the other one is obviously moving down. There are too many factors to list here as to why currencies move relative to one another. When a country’s economy is doing well it’s currency is worth more compared to other country’s currencies. On the flip side of the coin when a country is in trouble its currency tanks.

No matter where you are in the world you are getting to observe this first hand as the US dollar continues to plummet. Other countries and investors are tired of buying our dollars because of all the inflation and excessive speding the Federal Reserve is doing. This means more US dollars have to be offered for the same amount of foreign currency in order to entice these investors to keep making the exchange.

One other way you can see this manifest is that the price of gold is at all-time highs compared to the dollar but nowhere near its highs against the Euro.

Now after this brief overview I hope you have a deeper understanding of how to successfully play in this marketplace. Like most any stock market there are symbols to designate the currency pairs. In the US Apple Computer is APPL and IBM is just simply IBM.

A symbol of gbpchf is the Pound Swiss franc pair and the eurgbp is the Euro British pound pair.

Pips simply designate a certain move in 1 of these currency pairs. To find out how much dollar amount you’ll make in profits is going to depend on the lot size. Once you know your lot size you can multiply by the pips to figure the gain or loss. When trading in bigger lot sizes like when you trade more shares of stock your potential for gain or loss is magnified.

Pips are a more absolute to compare apples to apples no matter the lot size you trade. A 50 pip move is the same amount regardless of how big or small a lot size you traded. It really equalizes it so intelligent comparisons and decisions can be made.

You can talk to other investors and have an intelligent conversation now. This way you don’t have to get into specific dollar amounts.

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