Frequently Asked Questions
What Is Forex?
FX or Forex describes the Foreign Exchange Market, a marketplace where the world’s various currencies are traded. Its huge volume and fluidity made the Forex market the largest and most significant financial market in the world, with well over $7 trillion traded daily which is almost 10 times larger than the stock market. Due to the fact that forex currency trading has no centralized marketplace, currencies can be traded in whatever market is open at any given time, creating a great opportunity for traders to buy and sell currencies around the clock 24 hours a day, 5 days a week with the exception of weekends. (Weekend FX Products will be coming soon in Q2 of 2022)
The major participants of the Forex market are commercial and central banks, large corporations, and hedge-funds. However, you do not need to have millions or thousands of dollars to start! Due to leverage and marginal trading, you can start trading with $100 or $500 and enjoy the same trading conditions as the large market players. With LDN Global Markets, either you are John Smith or a top tier Bank, you will benefit for the same trading conditions and trade on the same spreads and execution quality.
The recipe for success is to buy it at the cheapest price and then sell at a higher price. Or the other way round – sell at a higher price and then buy cheaper. Whether a currency is increasing or declining in value, there is always a way for you to make money in Forex. Knowing the right time to buy or sell will do the trick. This is where market analytics, good trading education, indicators, signals and automated trading systems come in handy.
What Is Leverage?
Leverage is used by both investors and companies.
Investors use leverage to multiply their buying power in the market.
Companies use leverage to finance their assets: instead of issuing stock to raise capital, companies can use debt to invest in business operations in an attempt to increase shareholder value.
Leverage is the ratio of your own funds to the size of the borrowed funds provided by a broker for trading. 1:50 1:100 1:200 1:300 1:400.
Example:
1:100, the meaning of 1:100, it’s that the broker allocates you funds for trading 100 times
greater than yours.
For that reason, you can invest 100000$ instead of 1000$.
Let say you want to invest 1000$, and you want to trade on oil, cost 50$ per barrel.
Without leverage: you can buy/sell 20 barrels of oil
With Leverage 1:100: you can buy/sell 2000barrels of oil
Do not forget that high leverage allows making big profits but it can also cause major losses.
What Is Margin?
Margin trading allows you to take a position of much higher value than the monies deposited in your account. Margin trading or trading with leverage allows trading in the Forex market without having a large amount of capital.
What Is Pip?
Is the smallest price change on the exchange rate in the direction of a decrease or increase.
Example:
1Pip in EUR/USD is equal to 0.0001
Old price: 1.07050
New price: 1.07060
The price changed by 1pip
The monetary value of pips depends on the volume of a trading transaction and is expressed in the quote currency second currency of the pair.
For comparative analysis of the major currency pairs, PIP is accepted to quote to 4 decimal places: 0.0001.
Volume
It is the number of lots traded in a currency pair or the entire market within a specified period (also known as the Turnover). As a measure of trading activity, it is simply the amount of currency that changes hands from sellers to buyers. Being the spot FX a decentralized market, partial volume figures are taken as a proxy for the overall numbers: either from a particular market maker or derived from liquidity aggregators. Notice that volume is not synonymous of speed or volatility, as price can rapidly rise or fall in a thin market as well.
Lot
A lot is the amount of the currency pair that you are buying or selling. The three most common types of lots are: Standard, the mini, the micro lot
1 standard lot = 100000 units of the base currency
1 mini lot = 10000 units of the base currency
1 micro lot = 1000units of the base currency
Example: 1 lot 1mini lot (0.1) 1micro lot (0.01)
EUR/USD = 100000€ 10000€ 1000€
GBP/USD = 100000£ 10000£ 1000£
USD/JPY = 100000¥ 10000¥ 1000¥
Spread
Spread Is the difference between bid (sell) and Ask (buy)
For example, if EUR/USD
ASK: 1.14010
Bid: 1.14000
So the spread will be: ASK- bid= Spread
1.14010-1.40000=0.00010
The spread of EUR/USD is 1pip
Take Profit (TP)
A take profit order is an order that closes your trade automatically once it reaches a certain level of profit. When your take profit order is hit on a trade, the trade is closed at the current market value. Take profit orders are also sometimes referred to as limit orders
Take-profit orders are limit orders that are closed when a specified profit level is reached.
Take-profit orders are placed using technical analysis.
Take-profit orders are beneficial for short-term traders interested in profiting from a quick bump in the security costs.
Stop Loss (SL)
A stop-loss is an order that you place with your FX broker and CFD Broker in order to sell a security when it reaches a particular price. A stop-loss order is developed to reduce a trader’s loss on a position in a security.
A stop-loss order is an automatic trade order to sell a given stock but only at a specific price level.
A stop-loss order can limit losses and lock in gains on stock.
The brokerage uses the prevailing market bid price to execute the stop-loss order.
Volatile market conditions or dramatically fluctuating individual stocks can inadvertently trigger a stop-loss order.
Volatile conditions may also cause the final realized price to be lower than the stop-loss price.
A take profit order is an order that closes your trade automatically once it reaches a certain level of profit. When your take profit order is hit on a trade, the trade is closed at the current market value. Take profit orders are also sometimes referred to as limit orders
Take-profit orders are limit orders that are closed when a specified profit level is reached.
Take-profit orders are placed using technical analysis.
Take-profit orders are beneficial for short-term traders interested in profiting from a quick bump in the security costs.
Technical Analysis
Technical analysis is the study of historical price action to identify patterns and determine probabilities of future movements in the market through the use of technical studies, indicators, and other analysis tools.
Technical analysis of a market can help you determine not only when and where to enter a market, but much more importantly, when and where to get out.
Technical analysis boils down to two things:
Identifying market trend
Identifying support/resistance through the use of price charts and/or timeframes
Markets can only do three things: move up, down, or sideways.
Prices typically move in a zigzag fashion, and as a result, price action has only two states:
Range – when prices zigzag sideways
Trend – prices either zigzag higher (up trend, or bull trend), or prices zigzag lower (downtrend, or bear trend)