To become a successful trader in the global foreign currency exchange, the world’s biggest market, it is important to familiarize yourself with important terminologies. The fact that over $5 trillion is traded daily in the lucrative Forex market means there is potential to reap great gains from any funds invested. With the right knowledge and experience, it is possible to navigate effectively through the Forex market system and garner great returns for a long time to come. The following terms are used regularly in the Forex market and understanding them will start to build your foundation as a confident trader.
Percentage in Points or Price Interest Point (PIPS)
A PIP (Percentage in Points or Price Interest Point) is a standardized unit in the Forex market that is used to describe the smallest amount that a currency pair in the Forex market can change by. A currency pair refers to the pricing structure of currencies that are being traded in the market, and shows how one currency is valued compared to another. The first currency in the pair is known as the base currency, while the second one is called a quote currency. A currency pair shows how much of the quote currency is needed to purchase a base currency. For instance, if a currency pair is quoted as USD/EUR 1.25, it means that it takes 1.25 Euros to purchase a US dollar.
Traders in the Forex market use PIPS as one of the terms used in describing the value of a currency pair. The PIP is normally $0.0001 for US Dollar based currency pairs, or 1/100th of 1%, and is also known as one basis point. This standardized value was set in order to protect investors from making huge losses. An example of a one PIP increase in a USD/EUR currency pair is a change from 0.6636 to 0.6637. This change means that it is possible to purchase more Euros with one dollar as opposed to the previous amount.
Base Currency / Quote Currency = Exchange Rate (what you will pay in units to purchase the Base Currency)
Forex signals are indicators that alert Forex traders and investors about lucrative opportunities to buy and sell currencies. They are created by Forex professionals who conduct thorough technical analysis of the market, but can also be created by software systems that use complex algorithms to determine the best currency pairs to trade in. Signals can be sent to traders and investors through email, cell phones, RSS feeds, tweets and other media and are available via subscription to the signal provider’s site, or as part of Forex trading software from brokerage firms. Forex signals have several advantages. They are ideal for investors who do not have enough time to monitor movements in the currency markets to take note of opportunities to trade. They also help investors in different time zones to be aware of profitable openings in the Forex markets that they might not have noticed on their own. Forex signals are crucial for traders and investors because transactions in this market are very time sensitive and any delays in information or action have the potential to result in huge losses. They also assist investors to become more competent in determining the best times to get into a trade or when to pull out before a currency depreciates. As a result, investors are able to maximize profits on their investments as well as take advantage of any big opportunities when they arise.
Signals are divided into several categories; unpaid signals, signals that come from several signal sources, subscribed signals from specific providers, or automated signals from an Expert Advisor which is a robot or Forex signal software that is located in a broker’s computer or trading system. Getting the right Forex signal is crucial to ensure that the investor does not lose funds invested in the currency market, as well as to help them take advantage of advantageous movements in the currency market that have the potential to help them make huge profits. As a result, it is important for traders and investors to ensure that they select the right signal provider. The right provider will ensure that you get quality and accurate signals 100% of the time. You will also want to ensure that the signal provider is a professional with a good trading reputation, or barring that, a brokerage firm with access to a live trading room. Since having the wrong information can be very costly, you should ensure that you get your signals from the very best providers.
With the right information, it is possible to become an expert trader and maximize investments on any funds invested in the Forex market.