Forex Jargon You Need to Know

Forex Jargon You Need to Know

Forex may be a completely new experience for you. You maybe experiencing fear and anticipation in the same moment even though it seems impossible because of this new thing you've discovered. Putting your money at risk into any investment is a big decision.

As you know money can buy you many things which can provide you enjoyment. So when you put that gratification on hold to instead buy into an investment the risk is you will never get any enjoyment out of that money.

This is the primary reason I want you to learn more about the forex markets.

Forex is the acronym some clever guy applied to the foreign currency market. This market operates similar to the stock market you know and love, or hate in this recession, only you are trading your currency for the currency of another country.

This market is normalized so that the only thing you can trade are pre-designated currency pairs. This means you can't just buy 37 Chinese Yuan with a certain amount of dollars. Of the 7 main pairs that you're allowed to trade in the US dollar/Euro pair makes up about 70% of all trades in any 24 hour period.

When these currency pairs moves it does so in increments called pips. When 1 currency strengthens it is doing so relative to the other currency in the pair. There are too many factors to list here as to why currencies move relative to one another. As with the stock market when there is good news in a country its currency strengthens. On the flip side of the coin when a country is in trouble its currency tanks.

You maybe witnessing this just like I am here in the US. Outside investors and other governments don't want dollars because they're becoming less valuable each day. The result is that more US dollars have to be given for the same amount of the investor's currency to somewhat equalize this anticipated future fall in value.

And the price of gold and other precious metals are at all-tme highs compared to the dollar because international investors would rather own gold than dollars right now because the dollar continues to sink.

Now after this brief overview I hope you have a deeper understanding of how to successfully play in this marketplace. You know some of the stock symbols for your favorite or most publicized stocks. Similar to these symbols forex currency pairs also have been given symbols. Two examples of US stocks and their corresponding symbols are Yahoo Internet company which is YHOO and Google search engine which is GOOG.

A symbol of gbpchf is the Pound swiss franc pair and the eurgbp is the Euro British pound pair.

As discussed briefly a move in any of these pairs is measured in relative terms by what are called pips. To find out how much dollar amount you'll make in profits is going to depend on the lot size. Once you know your lot size you can multiply by the pips to figure the gain or loss. When trading in bigger lot sizes like when you trade more shares of stock your potential for gain or loss is magnified.

Pips make things absolute so you can compare your trades to other peoples logically which you couldn't do when just talking in money terms because of likely differences in lot sizes. A 50 pip move is the same amount regardless of how big or small a lot size you traded. This really makes intelligent comparisons especially between accounts and time periods possible so you can gauge how your account and trading strategy is doing.

It makes it universal so when you're talking forex you can say you made 50 pips and the guy you're talking to will understand. Since talking money specifics is a mostly taboo subject this makes conversations about forex much easier.