Here are 10 most frequently asked questions by online Forex traders.
Do you know the answers to all questions? Find out today!
1. What’s Forex trading?
Foreign exchange, also known as Forex or FX, is the simultaneous buying of one currency while selling another.
The Forex market is available 24 hours a day, five days a week, and it’s one of the largest, most liquid financial markets in the world.
2. What’s the spread?
The spread is the difference between the bid and the ask price.
The bid price is the rate at which you can sell a currency pair, and the ask price the rate at which you can buy a currency pair.
With FXPro, you can trade a large range of instruments with flexible spreads.
That gives you a greater degree of price transparency on your trades.
3. What are base and quote/term currencies?
The base currency is the first currency in a currency pair. The quote or term currency is the second currency in a currency pair.
For example, in the EURUSD currency pair, EUR is the base currency and USD is the quote currency.
4. How do I calculate the profit and loss value per pip?
The profit or loss per pip is always calculated based on the quote currency.
The quote currency is the second currency in the pair – eg USD in the EURUSD currency pair.
If your account is in the same currency as the quote currency, any profit or loss made does not need to be converted.
If not however, your profit or loss will be converted into your account currency at the spot rate at the time the position is closed.
In the table below, you can find pip values.
Normally you calculate the pip value to the fourth decimal place, ie 0.00010, for all pairs except the Japanese yen (JPY) pairs where it’s calculated to the second decimal, ie 0.010.
|Lot size||Units of base currency (first currency in a pair)||Profit and loss per pip in the quote currency (second currency in a pair) / for JPY pairs|
|1||100,000||10 term currency / JPY1,000|
|0.1||10,000||1 term currency / 100 JPY|
|0.01||1,000||0.1 term currency / 10 JPY|
P&L per pip = trade colume x pip size
e.g. for EURUSD 1 lot trade:
P&L per pip = 100,000 x 0.0001 = USD10
5. What are the trading hours for the Forex market?
You can trade Forex from 22:00 Sunday UK time (0:00 Monday EET) until 22:00 Friday UK time (0:00 Saturday EET).
6. What’s “order volume” in a Forex trade?
The term “order volume” refers to the number of standard lots you want to trade.
One standard lot equals 100,000 units of the first currency in the pair, ie the base currency.
A volume of 0.1 lot equals 10,000 units of the base currency.
7. What does ECN mean?
ECN means “Electronic Communication Network”.
An ECN account gives you direct market access so that you can deal with other market counter-parties, using your broker’s name as a “stand-in” for reasons of credit.
You can take advantage of non-dealing desk execution where spreads on Forex start from 0 pips.
8. What’s the difference between instant execution and market execution?
An instant execution order is one that’s executed at the price on the screen.
When you place an instant execution order, the terminal sends the request to buy or sell at the current price on the screen.
If the price is still available in the market, your broker will execute the trade.
If not, there will be a “”re-quote”” where your broker return a new two-way price at which you can resubmit the order or have the option to cancel it.
A market execution order is one that’s executed at the best price available in the market.
There are no re-quotes, but the price will not necessary be the one you saw on the screen when you placed the order.
The price the order is filled at may sometimes differ from the price seen on the platform because:
- the price may have moved from the last market snapshot;
- or the trade volume you requested may be larger than the volume available in the market at the best trad-able bid/offer (ask) price shown on the screen.
9. What are buy/sell limit and buy/sell stop orders?
A buy/sell limit order is an instruction to deal if the price moves to a more favorable level than where it’s in the market now.
That’s why these orders are sometimes called improvement orders.
A limit order is a request to buy at a price lower than the current price or request to sell at a price higher than the current price.
If the current offer in GBPUSD is 1.61086, you might leave a limit order to buy at 1.61070.
If the current bid in GBPUSD is 1.61086, you might leave a limit order to sell at 1.61099.
A buy/sell stop order is an instruction to deal if the price moves to a less favorable level than where it’s in the market now (remember: it’s less favorable to buy at higher prices and to sell at lower prices).
A stop order is a request to buy at a price higher than the current price or a request to sell at a price lower than the current price.
If the current price of spot EURUSD is 1.38985, you might leave a stop order to buy at 1.38998.
If the current price of spot EURUSD is 1.38985, you might leave a stop order to sell at 1.38975.
10. How do I calculate my margin?
Your margin requirement equals the units of the base currency divided by your leverage.
Example 1: trade of 1 lot on GBPUSD with leverage of 1:100 1 lot = 100,000 units of base currency, in this case GBP100,000 100,000 / 100 = GBP 1,000 margin requirement.
Example 2: A trade of 1 lot on GBPUSD with leverage of 1:500 1 lot = 100,000 units of base currency, in this case GBP100,000 100,000 / 500 = GBP200 margin requirement.