Learn forex trading - basic terms part 1 of 3

To make money in forex, beginner traders must have a good understanding of the market. It is very important to be patient and take a long time learning forex trading, focusing on the basics first. Trading forex requires a clear understanding of economic world, trading knowledge, skills, and discipline. As a beginner trader, create a hard work plan to educate yourself, develop a solid trading start, and to manage risk effectively. It's possible for newer traders to achieve success in the forex market.

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Introduction to basic terms of forex - part 1 of 3

Continuing to learn and improve trading skills can help traders stay ahead of the competition. Trading success requires basic education and training through free online platform and demo accounts. Learning in this article the basic terms of forex trading can be a good option for those who want first to set up the right beginning of their journey.

As we know, well-managed forex trading can be a lucrative and exciting way to make money, but it's very important to approach it with caution and to educate yourself as much as needed before diving in. You will learn in this article the most basic trading terms that you must know thoroughly. I recommend you save all these definitions and read them again.

Forex orders

Forex orders are the most commonly used and powerful tools in forex trading to manage and execute trades. By placing orders strategically, traders can be able to set specific criteria for optimizing trades and take advantage of market movements. Orders such as market orders, limit orders, and stop-loss orders are the most commonly used in forex trading to manage risk and maximize profits.

To succeed in forex trading and to increase your chances of making profitable trades, it's very important to have a solid understanding of the different types of orders. This helps you set certain conditions for your trades, such as the price at which to enter or exit a position. Don't worry, Here are in the next following lines the most popular types of forex orders used in forex trading :

Buy order

In forex market, a buy order is a type of order that is typically used to purchase a currency at a specific price when its value got down to the opportune level or better, when a trader expects the currency value is going to rise upward movements, and therefore he will take advantage of potential profits. Feel free to send us an email if you have any questions at any point in time, We answer all messages we receive.

A buy order is an instruction and powerful option that gives you more control over your trades and allows you to make potential profits at the point where the market will rise and capitalize on upward price movements. But keep in mind that we buy the currency when its value is lower.

Sell order

A sell order on the contrary to buy order, is an instruction placed at uplevel of a currency when its value is overbought, a trader wants to sell a currency pair at a specific downlevel of the price, it's very important to understand the different types of orders to effectively manage your trades. In forex trading, we use sell orders to exit a long position in a currency pair. This is done through a market order, which executes the trade at the current market price.

Selling a currency in the forex market can be done through a sell order. A sell order is a vital component where we sell a currency in exchange for another. We can use different types of sell orders, such as stop-loss and limit orders, to limit losses or lock in profits that suit our specific trading strategies. This is a common tool used by all traders to exit the market when they realize profits.

Buy limit

A buy limit order is a type of order that is pre-placed below the price level when you expect the price of a currency will drop down to a specific lower level and then rise up more than the current market price. The order will be triggered by the platform at the specified price when the price becomes less than the value of the order plus the value of the spread.

Buy limit order is a useful option for the trader who believe that a currency pair price will be undervalued, and it will increase in the future to enter a long position at a specific price or lower. This strategy is used to take advantage of price dips and enter a trade at a more favorable price. A buy limit order can be used in combination with other types of orders, such as stop-loss orders, to manage risk.

Sell limit

In the forex market, a "sell limit order" is a type of order that allows traders to place a sell position at a specific price. This type of order is often used by traders who believe that the currency pair will rise and reach a certain level before falling in value. A sell limit order is usually placed at a resistance level, which is very useful for those looking to take advantage of a potential price increase, as the order will be triggered only at that price or higher.

Forex traders can ensure that they will sell a currency pair only when it reaches that higher point, rather than holding on and potentially losing value. That's why they prefer to set a specific high level at which they will only sell at a certain price point. A sell limit order is a powerful tool that enables traders to ensure that they are able to capture gains when the currency pair reaches a high price level. Traders should avoid emotional decisions, stay disciplined, and stick to their trading plan to minimize risk, regardless of market conditions.

Buy stop

A buy stop order is a type of order that allows a trader to set a specific price at which he wants to buy a currency pair. It is often used by traders who expect the currency pair will increase in value after reaching the pre-placed position (buy stop order), usually in a resistance zone or above. This can be useful for traders who are willing to take advantage of a potential price increase, as the order will be triggered only at that specified price and continue ascending.

Traders often use a buy-stop order to capture a secure profit when they are able to ensure that the value of a currency pair will go up when it reaches a specific higher point, such as a resistance zone, due to certain good news or events, rather than missing out on this potential gain. Buy-stop orders provide traders with greater control over their investments in the forex market.

Sell stop

On the contrary of buy stop, a sell stop order often used by traders to set a specific price at which they are willing to sell a currency pair usually in a support zone or bellow, when they expect the currency pair will reach a certain level of support zone before falling down in value, below the placed position (sell stop order).

This can be very useful for those looking to capture profits when they ensure that the value of a currency pair will fall due to certain unpleasant news or events. A sell stop order in forex trading is a powerful tool for expert traders who are able to predict if a currency pair is going to fall and continue to descend based on their advanced analysis. You can also reach out to us through our social media profiles.

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Forex Price

In forex trading, the price is the value of a currency pair at a specific level, it's one of the most fundamental concepts in the world of trading and is considered among the primary factors that a trader uses to make informed trades when buying and selling a currency pair. Better Understanding how the price moves up and down is very crucial for success in the market; this principle is known as the "law of supply and demand", as it's one of the most basic concepts in trading.

There are factors that influence the price of a currency pair, such as news, disasters, data releases, GDP, employment, inflation, interest rates, and more big economic events. For example, when central banks decrease interest rates, the currency associated with the bank tends to depreciate in value, while a raise in interest rates can cause an appreciation, because higher interest rates increase demand for the currency and attract more investors.

Not only fundamental analysis but also technical analysis is an important tool for understanding the price movements of each currency pair, using chart tools such as technical indicators such as moving averages (MA), Bollinger bands, and Fibonacci retracements to analyze past price movements and predict future price movements. It is highly recommended to keep accurate track of all economic data releases, changes, and technical analysis to control the price movement of the currency pair.

Ask price

Also known as "ask rate," this is essentially the price at which traders sell a currency in the forex market; it's one of the two prices that are quoted in a currency pair, along with the "bid rate." The ask price is used to calculate the spread, which is the difference between the current price of a currency and the ask price. As a forex trader, it's very important to pay attention to the "ask rate," as it can have a significant impact on your potential profit or loss of your trades, according to market conditions.

The ask price is also used as a reference point when placing stop-loss or take-profit levels in a trade, but be careful, it can have a significant impact on the potential profit or loss if the stop-loss position is closer to the trade position overnight when the market conditions aren't in our favor. The "ask" price represents the lowest price that a seller is willing to accept for selling a currency.

The tighter ask price tells us the measure of the liquidity of the currency pair. In general, currency pairs with a narrow bid-ask spread are considered more liquid than those with a large bid-ask spread, this can help traders make an informed decision when they are willing to enter or exit their trades on a currency to increase their chances of success in the forex market.

Bid price

The "bid price" is one of the two quoted prices in a currency pair, along with the "ask price". It is essentially the price at which a trader is willing to buy a currency, it represents the highest price that a buyer is willing to accept and pay for a currency. As mentioned earlier above with the ask price, the difference between the bid and ask price is the bid-ask spread, and we consider it a measure of the liquidity of a currency pair.

We also use the bid price as a reference point for setting stop-loss and take-profit levels in the trades by understanding the bid price and its impact on the value of a currency pair. Keep your eyes on the bid price, it might have a significant impact on your trade when you buy the currency pair.

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pip

Pip is a small unit by which the price of a currency pair moves up and down, making a significant change in the exchange rate. In forex pairs, one pip is equal to 0.0001 of the quoted currency. For example:

The EUR/USD exchange rate could be 1.1000, which means one EUR is worth 1.1000 USD. Because the exchange rate fluctuates based on a variety of factors, including central bank policies, economic data releases, and other geopolitical events.

Keep in mind that the value of a pip can vary based on the currency pair and the size of the trade. In general, a pip is worth less in a trade with a lower value and worth more in a trade with a higher value. For example:

A single trade with a higher value will generally have a higher value for a pip. Because the value of the trade is directly tied to the value of the pip. Let me explain: when trading EUR/USD with a size of 100,000 units, a one-pip change is worth around 10 EUR. However, when trading a smaller lot size of 10,000 units, a one-pip change is worth only 1 EUR.

There are many other factors that impact the value of a pip in forex trading, including the amount of money that is required to open a trade, known as the "margin requirement", and the amount of money that is borrowed from your broker to increase the trade size, known as "leverage". These two factors can significantly impact the value of a pip, as they affect the overall value of your trades.

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Forex spread

In the forex market, spread is the difference between the bid and ask price of a certain currency pair, typically measured in pips. As we explained in the above, the "bid" price is the price at which traders can sell a currency pair, while the "ask" price is the price at which they can buy a currency pair. The "pip" is the smallest unit by which the price is incremented or decremented. Spread, also known as "bid-ask spread", The main determinant of the bid-ask spread is the number of market participants and the liquidity.

Spreads can vary depending on many factors, including the liquidity of the currency pair, market conditions, and the policies of brokers. Some brokers offer variable spreads based on liquidity and market conditions, while others prefer to offer fixed spreads. A smaller value of the spread means that the cost of buying and selling is lower, which is why it's considered the most preferred by traders.

You should always keep a close eye on the spread values before choosing a broker that offers competitive spreads. That's why it's very important for newer traders to shop around and compare spreads from different brokers. This can help you minimize costs and increase the profit of your trades. understanding the concept of spread becomes very essential for those looking to make informed decisions to increase their chances of success in the market.

Another crucial idea about the variable spread is that it could be affected by the volatility of the currency pair in the market. We know that currency pairs are considered more volatile because there is a greater level of uncertainty surrounding the movement of these currencies, which can lead to larger price movements. So, be careful when executing orders, and keep a close eye on the spread value of the currency pair you are willing to buy or sell.

The spread value can also be affected by the day of the week and the time of the day, while the spread value can be wider during low-volume trading times. But fortunately, its value can be tighter enough due to increased liquidity during high-volume trading times, such as the opening of the New York or London markets. In conclusion, spread is an important concept and has a significant impact on profitability. Volatility and market conditions are the main factors that affect the spread. By keeping an eye on the spread, you can increase your chances of success in forex trading.

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Conclusion

All those types of orders mentioned in this article are essentially the most important part of the trading process, they enable traders to enter or exit their trades at any specific price. Market orders are used to buy or sell a currency at the current market price, limit orders are used to enter or exit a trade at a specific pre-determined price, and stop orders are used to protect against potential losses.

It's very important for traders to understand the differences between these types of orders and how they can use them effectively to be able to make informed decisions and make more profit in the forex market. Traders are recommended to stay up-to-date with all the latest economic news and other factors that can unexpectedly affect exchange rates. This can be done through technical analysis and other resources such as economic calendars and indicators.

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