Forex Basic Terms – Foreign Exchange Terminology

Forex is a trades one currency with other currencies where there invest. If the transaction in money changer or bank for sale and purchase between the US Dollar with the Canadian Dollar, so-called Forex transaction ‘Spot’ (buying and selling happened place – handover happened in place). Non-Spot Forex Transaction is a sale and purchase transaction of currency contract, so not a direct handover of goods, only the contract only.

Lot, Mini Contract and Standard / Regular Contract
If we buy oil, the size is liter, if the sugar is the size is kilogram. For forex, its size is called Lot. How big is 1 Lot it?

If in the world Shares 1 Lot = 500 shares, at Forex 1 Lot = 10,000 currency in question, for example 1 Lot USD / JPY = 10.000USD and 1 Lot GBP / USD = 10,000 GBP.

Size 1 Lot = 10,000 is called Mini Contract, why is it called Mini? Because previously in the world of forex 1 Lot = 100,000 currency in question (also called Standard / Regular Contract), then because of the high interest in forex trading then made a mini contract where 1 Lot = 10,000 currency related

Margin
is a guarantee in forex trading, suppose like the Advance purchase of a house. When you hand over a down payment of 30 million Canadian Dollar for a house worth 100 million Canadian Dollar then we get a contract of sale and purchase agreement, legally you are the rightful owner of the house even if it only holds its contract.

This contract you can sell at full price to others, for example, to be 120 million. You will get a net profit of 20 million (120 – 100jt). The same is true in forex, which is traded is a currency contract, eg USD / JPY then the value of 1 lot of his contract is USD 10,000, to get it we simply issue a margin (down payment) of USD 100. Why USD 100? This is related to the Leverage discussed below.

Margin is deposited when opening a position and then will be returned when closing the position, just like the sale and purchase transaction of the house earlier. You deposit 30 million when you buy and then resell it for 120 million, when you receive 120 million, then 100 million we leave it to the first seller and the seller returns the advance (initial capital) of 30jt and we have 30 million of initial capital and excess 20 million.

Leverage
Leverage is the ratio to determine how much margin (down payment) required in a transaction, where the ratio will be multiplied by the contract size. Example: Leverage 1: 200 on mini account contract 10.000 then margin used is (1/200) x 10,000 = 50 units of currency traded.

For example, opening a USD / JPY position of 1 lot for a mini contract, then purchased is 10,000 USD, the required margin is 1/200 x USD 10,000 = USD 50. If trading with GBP / USD then the margin used is 50 Pounds Sterling. For Standard account, the contract used is 100,000 with 1: 100 Leverage, so 1 lot USD / JPY = USD 100.000 and margin required 1/200 x USD 100.000 = USD 1000

Buy
Is the position in Forex Trading to Buy and done if the estimated price will rise. In short, buy when cheap and sell when expensive, your profit is the difference between the prices when buying with the resale time.

Sell
Is a position in Forex Trading to sell and is done if the price is expected to fall so that when the price falls you can close your Sell position with a lower Buy. In short such as consignment, we sell first with a high price (borrow) and then we buy back when the price is cheap, the difference becomes our profit. Read more in Two Way Opportunity

Order and Position
Order is an order to buy or sell at a certain price but if the Order delivered is ‘match’ or ‘there is an opponent’, for example, if you order buy at 9500 prices and there happens to be selling at the same price, then Order becomes Position. So as long as the order has not ‘match’ then the name remains order but after ‘match’ then now a Position. To resell the position you already have (closed position) it can be done by doing the order back but with the direction bid (if position Buy then closed with Sell and vice versa)

Floating Loss / Profit and Realized
When you have a buy position at 9500 and then the price moves down to 9000, then if your estimated loss is 9000-9500 = -500. However, the value can still change tomorrow, either increase it down to 8700 or rebound to 9700. Well, the value -500 at this time is called Floating Loss (Loss), if the value is positive, for example, the price now becomes 10,000 then the difference 10.000 – 9500 = + 1000 is called Floating Profit. If you decide to sell/close your position when the price is 10,000, then the value of +1,000 becomes Realized Profit (no longer Floating/floating but has become Real / Pure)

Pip
is the value of 1 point up or down the price movement. For mini accounts, the value of 1 point is $ 1, for the standard account is $ 10.

Technical Analysis
Is an analysis in Forex trading to measure price movements through price charts. Things that should be known from this technical analysis is the trend, saturation, support, resisting, and Pivot Point.

Fundamental Analysis

Is an analysis in Forex trading to predict price movements based on Fundamental news. Fundamental news here in the form of economic news, politics, and security that affect price movements.

Resistance
Is the upper price limit which is the psychological price, for example currently (in 2010) the dollar exchange rate is 9000 and has a price limit of 10,000 Canadian Dollar, which can be interpreted if the dollar exchange rate penetrates the price of 10,000 Canadian Dollar then it is likely to go up stay away from 10,000 but as long as it has not touched 10,000 possibilities the price will only move up and down below 10,000.

Support: ic markets discount

Is the price limit below which is the pair of the resistance (above), for example currently (in 2010) the dollar exchange rate has a price limit of 8,500 Canadian Dollar, which can be interpreted if the dollar exchange rate fell through the price of 8,500 Canadian Dollar then there is likely to drop steadily away from the 8500 but as long as it has not yet touched 8500 possibly the price will only move up and down above 8500 (support) and below 10,000. (Resistance)

Leave a comment

Your email address will not be published. Required fields are marked *