Forex Trading Terms

Forex Trading Terms
Forex trading terms can often seem complicated to the uninitiated. In this section, we’ll be taking a look at some of the most basic Forex trading terms.

•Bid Price - The price at which a buyer is willing to purchase a currency. Always expressed as a 5 digit number.
•Ask Price - The price at which a seller is willing to sell a currency. Always expressed as a 5 digit number.
•Spread - The difference between the bid price and ask price.
•Margin - Collateral for a position. This comes into play when the market moves in a downward direction and the forex trader requires additional funds. This is done by requesting a “margin call.”
•Long Position - The trader buys a currency at a certain price, expecting to sell it later at a higher price.
•Short Position - The trader sells a currency with the expectation of buying it back later at a lower price.
•Spot - A two-day delivery transaction which indicates a direct exchange of currencies.
•Forward - In this style of exchange, money does not change hands until an agreed-upon date in the future.
•Future - Currency which matures at a future date and usually carries a three-month contract.
•Swap - The swap is the most common type of forward transaction. In these cases, two parties agree to swap currencies and then swap them again at a future date.
Forex Trading Participants
There are a wide range of Forex trading participants, meaning those who actively buy and sell currency on the foreign exchange market. Keep in mind that the Forex is divided into multiple levels of access, with the top level only being accessible by the inter-bank market and its collection of the world‘s largest investment banking firms (which accounts for 53% of all transactions). Forex participants include:

•Hedge Funds - These investors speculate on the movement of a currency. A very powerful investment group which controls billions of dollars in equity (with access to billions more).
•Banks - Each day, large banks may trade billions of dollars of currency. Some of this is done on behalf of the bank, while the rest may be done on behalf of customers.
•Central Banks - These are the banks which trade on behalf of their own nation. They often have target rates for their own currency and seek to control factors such as interest rates, money supply and inflation.
•Commercial Companies - These are often companies seeking foreign currency in order to pay for goods or services.
•Non-Bank Foreign Exchange Companies - Offer international payments and the exchange of currency to private companies and individuals.
•Investment Management Firms - These are firms which manage accounts such as endowments or pension funds for their customers.
•Money Transfer Companies - These are companies such as Western Union which assist economic immigrants in transferring money back to their native countries.
•Retail Foreign Exchange Brokers - These individuals or firms make Forex investments on behalf of their customers. In the past, it wasn’t uncommon for brokers to trade against their clients, but this is quickly becoming less common thanks to policies such as NDD (No Dealing Desk) and STP (Straight Through Processing).
Forex Rates
So what determines Forex rates? Well, there are actually three major factors in the movement of Forex rates. These include:

•Political conditions
•Markey psychology
•Economic factors (such as a government budget deficit)
Online Forex Trading
Before you begin your online Forex trading career, here are a few things you might want to consider:

1.Know Your Diagrams - Diagrams and currency charts are used by investors to analyze market conditions, recognize behavior patterns and create forecasts. Numerous types of charts exist, and it’s important to at least understand how one of these works before you begin your online Forex trading. This will allow you to analyze trades and market movement over the course of seconds, minutes, hours, days, weeks or months.
2.Get A Broker - You’ll need to obtain the services of a broker in order to take advantage of online Forex trading. Every broker is different, and it’s important to find one you feel comfortable with. Always examine their record before beginning a relationship, as this will allow you to see how they’ve done on the Forex market over the years. If their performance has traditionally been poor, it might be advisable to seek the services of another Forex broker.
3.Mock Accounts - Once upon a time, it was sink or swim when it came to online Forex trading. Now, potential traders can access mock accounts which allow them to trade for free and learn how the system works. This is an excellent way to test out what you know--and what you think you know--without losing a bundle of real money. When you feel comfortable, then you can jump in with the big boys.
4.Live Trading - Success isn’t guaranteed when it comes to live online Forex trading. If you make a profit right out of the gate, try not to get too cocky; you’ll probably be brought back to Earth soon enough. If, however, you’re experiencing losses from the beginning, try not to lose your patience. Examine your Forex losses and try to determine if you made a mistake or the market simply made a move beyond your ability to predict. Remember: you’re in this for the long haul, so don’t get easily discouraged.
5.Automatic Trading - You can also purchase automatic trading software which will make trades on your behalf. You input certain parameters, and the software does the rest. You can set it in the morning before you go to work, and then check back when you get home to see how much money you’ve made (or lost).
6.Remember The Advantages - Online Forex trading can seem complicated to the beginner, but keep the following encouraging news in mind: Forex offers quick trade executions and low commissions, plus the addition of margin loans allow Forex traders to operate at far more than the limiting 2:1 margin of the traditional stock market.
I hope this article on Forex trading has been of some assistance. Forex trading is an exciting way to make money, and it’s a shame that most people aren’t even aware that it exists. Here at AskDeb.com, we’ve got a whole section devoted to Forex trading, so feel free to look around and read our other articles. For that matter, you might also want to look at some of our helpful advice and answers on life, love, and health.