What is Forex?
Foreign Exchange Market, abbreviated as Forex or FX, is derived from the term Foreign Exchange Market. The major foreign exchange centers in the world are the United Kingdom, the United States and Japan. The global foreign exchange market has been cohesive since 1971, and since 1998, with the advancement of technology, its growth and development has begun. Two major historical events played an important role in the creation and expansion of the Forex market: the gold standard and the Burton Woods system. Trading in this market means converting one currency to another at a certain rate. The exchange rate is determined in a free system based on the amount of supply and demand among traders around the world. Currency exchange rates in the Forex market serve as a reference for international trading in all relevant economic fields. The main actors in the foreign exchange market are: central banks, large financial institutions, commercial banks, investment companies, exchange offices and small traders.
According to the latest statistics, the daily volume of transactions in this market is more than 5 trillion dollars, which is the largest financial market in the world. The Forex market is open 24 hours a day from Sunday to Friday according to the international business calendar.
What is a currency pair?
Example: EUR / USD
The first currency in the currency pair is known as the base currency = EUR
The second currency in the currency pair is known as the Counter or Quote currency= USD
3. Unknown currency pairs or Exotics
Pairs of currencies that include a major currency along with the currency of one of the emerging economies are called exotic. These symbols have the lowest Forex trading rate. In addition to very high commissions, their severe and unreasonable price fluctuations have made them unpopular with traders.
- EUR/TRY: Euro/Turkish Lira
- USD/TRY: US Dollar/Turkish Lira
- USD/DKK: US Dollar/Danish Krone
- USD/NOK: US Dollar/Norwegian Krone
- USD/ZAR: US Dollar/South African Rand
- USD/HKD: US Dollar/Hong Kong Dollar
- USD/SGD: US Dollar/Singapore Dollar
- USD/THB: US Dollar/Thailand Baht
- USD/MXN: US Dollar/Mexican peso
2. Minors cross currency pairs
Pairs of non-dollar currencies are called cross or minors. In terms of transaction value and popularity, it is in a lower category than the main symbols, and the amount of commissions is usually higher. The price stability of these currency pairs is less and their liquidity is almost similar to the first category.
- AUD/CHF: Australian Dollar/Swiss Franc/bdi>
- AUD/JPY: Australian Dollar/Japanese Yen
- CAD/CHF: Canadian Dollar/Swiss Franc
- CAD/JPY: Canadian Dollar/Swiss Franc
- CHF/JPY: Swiss Franc/Japanese Yen
- EUR/AUD: Euro/Australian Dollar
- EUR/CAD: Euro/Canadian Dollar
- EUR/NZD: Euro/New Zealand Dollar
- GBP/AUD: Pound sterling/Australian Dollar
- GBP/CAD: Pound sterling/Canadian Dollar
- GBP/CHF: Pound sterling/Swiss Franc
- GBP/NZD: Pound sterling/New Zealand Dollar
- NZD/CHF: New Zealand Dollar/Swiss Franc
- NZD/JPY: Japanese Yen/Japanese Yen
1. Major currency pairs
All major currency pairs contain US dollars. More than 70% of market transactions are related to this currency pair. They often have low volatility, reasonable behavior, low commission and high liquidity. The currencies in this category belong to the leading and powerful economies of the world.
- EUR/USD: Euro/US Dollar
- USD/JPY: US Dollar/Japanese yen
- GBP/USD: British pound/US Dollar
- USD/CHF: US Dollar/Swiss franc
- USD/CAD: US Dollar/Canadian Dollar
- AUD/USD: Australian Dollar/US Dollar
- NZD/USD: New Zealand Dollar/US Dollar
Some Important Forex Market Terms
What does Pip Mean in Forex?
Pip stands for Price Interest Point and is the smallest unit of price fluctuation in the exchange rate.
The unit of Forex market fluctuations is based on Pip and Point. Each point is one tenth of a pip.
Since currency pairs are quoted to 4 decimal places, one pip is equal to 0.0001.
Some brokers now offer fractional pips that add a digit to some currency pairs to be more accurate, in this way, they are quoted to 5 decimal places. A fractional pip is called a pipette.
For example, when the euro / dollar exchange rate changes from 1.1215 to 1.1217, the pair increases by 2 pips or (0.0002).
What is Lot?
Lot indicates the amount of your trading volume. The capital required to trade in the Forex market depends on the amount you want to invest, which is measured in lots.
Types of Forex lots
There are currently 4 types of lot sizes in the Forex market.
- 1) Standard lotA standard lot consists of 100,000 units of a currency. If you trade in US dollars, then a standard lot is equal to 100,000 dollars. In addition, the average size of 1 pip in a standard lot is 10; So, if you make 10 pips, you make $ 100.
- 2) Mini lotA mini-lot consists of 10,000 units of a currency. In a US dollar based trading account, 1 pip in a trade equals $ 1.
- 3) Micro lot A microlot is the smallest trading lot offered by most Forex brokers. A microlot consists of 1,000 units of a currency, meaning that one microlot in a dollar-based trading account equals $ 1,000 and 10 cents per pip.
- 4) Nano lotAs the name implies, a nanolot is even smaller than a microlot. A nanolot consists of 100 units of a currency, meaning that a nano-lot in a dollar-based trading account equals $ 100 and is worth 1 cent per pip.
- About other lots1 lot of gold = 100 ounces of gold 1 lot of oil = 1000 barrels 1 Dow Jones lot = 10 Dow Jones contracts 1 lot of silver = 5000 ounces of silver
What is a Spread?
The spread is the difference between the buy rate (Ask) and the sale rate (Bid), which is measured by the pip.
Leverage is a tool that Forex brokers provide to traders so that traders can trade larger amounts of currency or stocks with less money in their account. Let’s start with an example, when your account has a leverage of 1: 100 (one to one hundred), you can trade one hundred dollars by paying one dollar. So you only need to pay $ 1,000 to trade one lot (one hundred thousand units). It can be said that with a leverage of 1: 100, the trading power of your money in the account will be multiplied by 100.
If you are unfamiliar with trading,
It is possible for you to trade exactly the same as the original accounts by opening a trial account before you are fully prepared.