This guide is designed to provide a very basic overview of what Forex is, and some common terminology that is used, to ensure that you're comfortable when it comes to opening trades based on ForexSumo Notifications.
We don't cover how to read charts, candlesticks, analysis methods etc, because it's not necessary to have that information in order to use ForexSumo's Notifications.
However, if you're interested in a more detailed guide to Forex Trading, we'd suggest checking out Babypips. This isn't a requirement for trading ForexSumo's Notifications; the information in this Help section is to ensure you're comfortable when placing trades.
What is Forex?
Forex is known as foreign exchange, FX or currency trading. It's a decentralized, global market comprising of various currencies.
You've most likely made Forex transactions in the past - for example, if you've taken a trip to France and coverted your pounds or dollars into euros. That's a forex transaction.
The forex exchange rate between the two currencies determines how many euros you'll get for your pounds. This exchange rate can fluctuate over time. For example, on Monday you might get 1.20 euros to the pound; but by Wednesday, you'll only get 1.18 euros to the pound.
What is Forex Trading?
In Forex Trading, when you buy a currency (for example, Pound Sterling), you are buying a 'share' in the UK economy.
You are betting that the UK economy is doing well, and will even get better as time goes. Once you sell those 'shares' back to the market, hopefully, you will end up with a profit.
In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country’s economy, compared to other countries’ economies.
As explained earlier, the Forex Market is a decentralized, global market comprising of various currencies.
Unlike the stock market, which has limited trading hours, the Forex Market is open 24 hours a day from Sunday 8pm GMT through to Friday 9pm GMT.
Buying and Selling Currency Pairs
Forex trading is the simultaneous buying of one currency and selling another, in the expectation that the price will change. Currencies are traded through a broker or dealer, and are traded in pairs. Example pairs include the euro and the U.S. dollar (EUR/USD), or the British pound and the U.S. dollar (GBP/USD).
As a basic example, if we believe GBPUSD will increase from 1.30 USD to 1.40 USD, we would buy GBPUSD now at 1.30 USD, and sell it when it reaches 1.40 USD, therefore making 0.10 USD for every 1 GBP.
A typical online broker's pricing for a currency pair may look like this:
Taking the sell price as an example, this does not mean we'd get 1,3187.0 USD for 1 GBP! Most brokers will remove the decimal place that you'd typically see on a currency pair, instead using whole numbers.
In this example, 13187.0 means we'd get 1.31870 USD for 1 GBP.
Let's look at some of the terminology that you'll come across, both here and on your broker's trading platform:
|Base Currency||The left side of the slash (e.g. GBP in the above example).|
|Counter or Quote Currency||The right side of the slash (e.g. USD in the above example).|
|Sell / Short||We would sell (or go 'short') on GBPUSD if we believe the base currency (GBP) will depreciate (lose value) relative to the quote currency (USD). In the above example, we'd receive 1.31861 U.S. dollars when selling 1 British Pound.|
|Buy / Long||We would buy (or go 'long') on GBPUSD if we believe the base currency (GBP) will appreciate (gain value) relative to the quote currency (USD). In the above example, we'd have to pay 1.31870 U.S. dollars to buy 1 British Pound.|
|Spread||The difference between the Sell and Buy price. In the above example, this is listed as 0.9 (the difference between 13187.0 - 13186.1).|
|Pip / Point||The unit of measurement to express the change in value between the two currencies. For example, if GBPUSD moves from 1.31870 to 1.31880, that 0.0001 USD rise = 1 Pip. Some brokers describe this as a Point; others describe it as a Pip.|
|Pipette||The unit of measurement to express the change in value between the two currencies. For example, if GBPUSD moves from 1.31870 to 1.31871, that 0.00001 USD rise = 1 Pipette. If your broker (such as in the above example) quotes prices this way, it's usually easiest to just ignore the value after the decimal place, and read 13187 as meaning 1 GBP = 1.3187 USD.|
|Size||The amount of money per pip that you want to trade. This will depend on how much of a starting deposit you have. The Risk Management section will help you calculate the amount of money per pip to trade.|
|Drawdown||Quoted as a percentage, this is the amount by which your deposit / account has reduced in size. For example, if your account started at £1,000 and you entered losing trades which resulted in your account being £500, that would be a (bad!) 50% drawdown.|