1. Forex (FX) is the marketplace where various national currencies are
traded. The forex market is the largest, most liquid market in the world,
with trillions of dollars changing hands every day. There is no
centralized location, rather the forex market is an electronic network of
banks, brokers, institutions, and individual traders (mostly trading
through brokers or banks).
Currencies trade against each other as exchange rate pairs. For
example, EUR/USD.
The forex market is open 24 hours a day, five days a week, except for
holidays. Currencies may still trade on a holiday if at least the
country/global market is open for business.
A spread in trading is the difference between the buy (offer) and sell
(bid) prices quoted for an asset. The spread is a key part of CFD trading,
as it is how both derivatives are priced. Many brokers, market makers
and other providers will quote their prices in the form of a spread.
This means that the price to buy an asset will always be slightly higher
than the underlying market, while the price to sell will always be
slightly below it.
Below we can see an example of the forex spread being calculated for
the EUR/USD. First, we will find the buy price at 1.13398 and then
2. subtract the sell price of 1.3404. What we are left with after this
process is a reading of .00006. Traders should remember that the pip
value is then identified on the EUR/USD as the 4th digit after the
decimal, making the final spread calculated as 0.6 pips.
A pip, short for percentage in point or price interest point, is known to
be the smallest numerical price move in the exchange market. When a
price changes on the exchange it is generally referred to as a Pip/s or
Pipette change. As most currency pairs are priced to 4 decimals places
($0.0001) the smallest change would be to the last number after the
decimal point for example: $0.0001 which is illustrated as the one
indicated on this example. The difference between a pip and pipette is
simply a 5 decimal place and not 4 such as a pip.
A buy stop order would be an order to buy the market at a price above
the current price. It's just the inverse with sell orders.
A sell limit order would be an order to sell the market at a price above
the current price. A sell stop order would be an order to sell the market
at a price below the current price.
A limit order sets a specified price for an order and executes the trade
at that price.
Support is the level at which demand is strong enough to stop the stock
from falling any further. In the image above you can see that each time
the price reaches the support level, it has difficulty penetrating that
level. The rationale is that as the price drops and approaches support,
3. buyers (demand) become more inclined to buy and sellers (supply)
become less willing to sell.
Resistance is the level at which supply is strong enough to stop the
stock from moving higher. In the image above you can see that each
time the price reaches the resistance level, it has a hard time moving
higher.
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