Preschool - How do you trade Forex Flashcards
What is the objective of FX trading?
The objective is to trade one currency for another in an expectation that the price will change.
What is BASE and what is QUOTE currency
GBP/USD - GBP is the base and USD is the quote. 1 GBP = how many USD - exchange rate.
E.G GBP/USD 1.5123
When buying - I have to pay 1.5123 to buy 1 GBP
When selling - I will get 1.5123 when selling 1 GBP
Bid, Ask and Spread - What is BID
Bid is the price the broker is willing to buy the base currency in exchange for the quote currency. Bid is the best value price, me, the seller will get to sell. I sell to the buyer at the BID price
Bid, Ask and Spread - What is ASK
The ASK is the price the broker will sell the base currency to me the buyer. The ASK is the best price at which me, the buyer, can buy the base currency. Also known as the offer price
Bid, Ask and Spread - What is SPREAD
The SPREAD is the difference between the Bid and the Ask
Provide the different Lot sizes
- Micro Lot = 1000 units
- Mini Lot = 10 000 units
- Standard Lot = 100 000 units
What is Leverage
Leverage is the ratio of transaction size / position size to the actual cash / trading capital used in the margin
E.g 50:1 Leverage also known as 2% Margin, means $2000 margin can open a position of $100 000
What is Rollover
Position held after cut-off times at the broker incurs a rollover fee. Interest is paid on currency that is borrowed and Interest is earned on the currency that is bought. If you buy a currency with a higher interest rate than the currency being borrowed then the net will be positive and you will earn the interest rate. vice-versa
What is a PIP
Pip is the smallest measurement of a currency quote - last decimal place of price change. All except JPY = 0.0001, four decimal places, JPY = 0.01 two decimal places
What are fractional Pips
Fractional Pips, also called points or pipettes are 5th and 3rd decimal places being quoted. Tenth of a pip.
What is a market order?
Buy and sell market order executed immediately at current price
What is a pending order?
Pending orders only executed based on the conditions set, once triggered
What is Buy Limit and What is Sell Limit order
Buy limit is to buy an order below specified price
Sell limit is to sell an order above specified price
-Once the order reach the Limit price it is executed
What is Buy Stop and What is a Sell Stop order
Buy stop order is when you buy once the price has reached the set stop price
Sell stop order is when you sell once the price has reached the set stop price
