The Lirunex team is passionate about providing the perfect forex trading experience, whether you’re a seasoned investor or completely new to the forex market. If you’re just starting out in the markets, or you’re looking for a refresher, our guide to trading is designed to break down the terminology and answer the most frequently asked questions by traders.
With our guide, you’ll be trading more quickly and with more confidence in no time.
Forex
Forex is short for foreign exchange (sometimes abbreviated to just FX) and is the global, decentralized trading market of the world’s currencies. Traders, investors, banks and exchanges buy, sell and speculate on these currencies, and in turn this activity determines the foreign exchange rate.
Forex Trading
In forex, all trading is carried out through the so-called ‘interbank’ market. This is an online channel wherein the trading of currencies is conducted 24/5. Some estimate that the total daily trading volume is $5 trillion – making it one of the largest trading markets in the world.
Forex Brokers Do
Like all brokers, a forex broker acts as an agent helping traders access the interbank that conducts all forex trading. We provide different options tailored for different clients. Whatever your trading goals are, our range of accounts are designed to work with every objective. You can check out our different forex trading accounts here and if you’re only just starting, we suggest you open a demo account to start practicing how to trade without risking any real money.
What is a position?
A position is a trade which is currently in progress. In trading, you can get long positions and short positions:
Long position: this is when the trader has bought a currency with the expectation that it will increase. Once the currency is sold back, the long position is considered closed.
Short position: this is when the trader has sold a currency with the expectation that it will decrease. Once the currency is bought back, the short position is considered closed.
EUR/USD Position
What are currency pairs?
Forex is all about speculating on the fluctuating currencies between two countries. These two currencies are referred to as ‘currency pairs’ and they’re made up of the base currency and the quote currency. The most traded currency pair of all is the Euro against the US Dollar, which is normally presented as EUR/USD.
This is the first currency set that appears in the forex pair. It’s the one that’s bought or sold for the quote currency. In the example above, the EUR is the base currency.
This is the second currency that appears in the pair, and is also known as the ‘counter currency’. In the example above, the USD is the quote currency.
1.0916
This is the price that a trader is willing to Sell a currency pair at. It fluctuates constantly.
This is the price that a trader would ask for when Buying the currency pair. The ask price also changes constantly and is driven particularly by market demand, although it’s also susceptible to economic and political factors
Ask Price-Bid Price
1.0918 – 1.0916
= 0.002 (2pips)
A spread is the number you get when you deduct the bid (buy) price from the ask (sell) price. This difference is actually the cost of the trade and is extremely important for forex traders. You’ll often hear the term ‘tight spread’ – this means that the trading costs are low.
1.0918 – 1.0916
= 0.002 (2pips)
Pip is short for ‘point in price’ (but can also stand for ‘percentage in point’ and ‘price interest point’ depending on who you ask). To clarify, we use pips to measure price movements and changes in currency pairs. Pips are usually estimated to five decimal points.
FAQ
These major pairs are associated with stable economies and therefore offer low volatility and high liquidity. Major currency pair is consider the pair which is composed of any two of the following currencies: U.S. Dollar, Euro, Japanese Yen, Great Britain Pound, Canadian Dollar, Swiss Franc. Example of major pairs include the aforementioned EUR/USD, the USD/JPY (the US Dollar and the Japanese Yen), GBP/USD (British Pound and the US Dollar) and the USD/CHF (the US Dollar and the Swiss Franc). Another characteristics of major currency pairs is that there’s a smaller risk of them getting manipulated and the spreads are usually pretty small.
Examples include USD/MXN, GBP/NOK and CHF/NOK.
For ease, forex relies on abbreviations for the various currencies. Here’s a sample of the most talked about ones:
EUR: Euro
USD: US Dollar
GBP: British Pound
CHF: Swiss Franc
AUD: Australian Dollar
CAD: Canadian Dollar
NZD: New Zealand Dollar
MXN: Mexican Peso
NOK: Norwegian Krone
DKK: Danish Krone
CNY: Chinese Yuan Renminbi
MAJORS:
EUR/USD : “Fiber”
USD/JPY : “Ninja”
GBP/USD : “Cable”
USD/CHF : “Swissie”
AUD/USD : “Aussie”
USD/CAD : “Loonie”
NZD/USD : “Kiwi”
MINORS:
EUR/GBP : “Chunnel”
EUR/JPY : “Yuppy”
GBP/JPY : “Guppy”
NZD/JPY : “Kiwi Yen”
CAD/CHF : “Loonie Swissy”
That’s where we come in. Newcomers to forex trading should always use a broker who is a) regulated and b) has a five-year track record, minimum. With trading, you will need to deposit funds to make the first trade, in what is called a margin account. Needless to say, you can make all the rookie mistakes you want with forex trading on a demo account first, without risking any of your actual money, until you gain more confidence.
Sign up for a demo account today, and take your first steps into the exciting and highly profitable world of forex trading.
Forex Charts
A lot of forex trading will use charts to demonstrate movements within the markets. These will usually involve one of three types of chart: the Japanese Candlestick, the Bar and the Line.
The Japanese Candlestick Chart
or Candlestick Chart for short, conveys a lot of information, making it one of the most popular charts for forex traders. With the simplest components, traders can see the high, low, opening and closing prices on a candlestick chart.
These charts have three points – the open, close and the wicks. The wicks represent the high to low range, and the wide section will explain whether the closing price was higher or lower than the opening price. If it closed higher, the candlestick will be filled. If it closed lower, the candlestick will be empty.
The Bar Chart
shows the opening, closing, high and low of the currency prices. So the top of the bar shows the highest price paid, while the bottom shows the lowest price traded during that particular length of time.
The bar itself is indicative of the currency pair’s trading range, while the horizontal lines show, on the left, the opening prices and, on the right, the closing prices.
The Line Chart
is the simplest of all three graphs, which is why forex beginners love them and advanced traders tend to use Candlesticks or Bars. The line chart simply shows the price movement of a currency pair – by having a line drawn from one closing price to the next – during a specified length of time.
