Foreign exchange trading, or Forex trading, has become hugely popular over the past few years. Many traders have realized that there is potential in the Forex market, and they can make a lot of money if they trade intelligently. However, the Forex market is extremely complex, and it can take a while to get a full understanding of how everything works. Here is a look at some of the basic terms and characteristics of Forex trading.
Forex trading takes place 24/7 for five days a week. The first trade of the week begins at 22:00 GMT on Sunday, and the last trade comes to a close at 21:00 GMT on Friday. Depending on the instruments being traded, there may be specific trading hours. However, most instruments will be open for trade as long as the Forex market is running.
PIP is short for Percentage In Point. This is the equivalent to the smallest price difference that can occur to an exchange rate. For example, if an exchange rate changes from 1.1215 to 1.1216 the change of .0001 can be defined as the PIP.
A person is trading with leverage when they are using borrowed money to increase their potential return on a Forex investment. Leverage allows you to increase the purchasing power you have. For example, someone who makes a deposit of only $1000 can use leverage to get purchasing power up to $30,000.
This is the different between the buy and sell prices for two different currencies. As an example, we will take the Euro and United States dollar. If they EURO/US Dollar exchange rate is trading at 1.43 for buy and 1.4295 for sell then the spread of the trade is 5 PIPS.
Automatic rollover allows an investor to keep their position open for as long as they want. Every new position that is opened has an expiry date. If that expiry date is reached, the processes will be automatically rolled over until the next expiry date (or a time of your choosing).
Automatic Risk Management System:
The automatic risk management system at iForex (www.iforex.in) is designed to ensure that you do not lose more than your initial investment. This ensures that whenever the market is turning against your prediction, you are closed out of that trade when you are at a risk of losing more money than you put in.
Example of a Trade on iForex:
You open up your trading account and decide to invest $200. iForex allows you to increase your leverage up to 400, which means you can open up a trade for as much as $80,000.
However, you decide that you do not want to put in too much leverage. Thus you decide to leverage at 10 times what you put in. You have also chosen to trade in Euros/US Dollars. The currencies are trading at 1.33 when you begin your trade, and you purchase 2000 euros ($2660).
After a few days pass, the value of the Euros/US Dollars is now 1.345. At this price, you decide to convert your 2000 euros back to Dollars and it leaves you with $2690. This means that you made a total profit of $30 on the trade.