Before you start forex trading in Sri Lanka, as an investor, you must understand the some of the technical terms that are used in the forex market as you will be encountering those terms while trading in the forex market:
Pip stands for percentage in point or price interest point. Basically, pip is a standardized unit for the smallest movement that can occur at a price of the pair of currency. Most of the pip values are equivalent to 0.0001 as the price of the currency is measured up to the 4th decimal place.
Usually, many forex brokers in Sri Lanka use spreads to figure out their portions of earnings. In the forex market, a spread is defined as the difference in ‘Ask’ price and ‘Bid’ price of a pair of currency like EUR/USD. A spread is one of the easiest ways to pay the transaction cost to the brokers. For example, EUR/USD has been priced at 1.1499 and the trading broker offer to buy it at 1.1500 and to sell it at 1.1498.
The main reason behind this is the supply and demand of the currency pair. For example, dollars are high in demand so brokers do not need to charge higher spread from the trader as they would have no problem selling off the dollar currency in the market. On the other hand, if it is a currency is not in higher demand and brokers might have the problem selling it off quickly, they might charge higher spread as brokers will be taking the bigger risk. It is recommended for the individual traders that they do not buy or sell currencies with low demand.
It is imperative that you understand the value of spread before choosing a broker. To understand more about types of brokers working in the forex market, and how to choose the right one, you can refer to ‘ Where to trade Forex Online and type of Forex brokers ?’
Leverage comprises of borrowing ( not actually borrowing something but in order to understand it, will consider it as a borrowing ) a definite amount of the money which is required to invest in something. In forex trading, usually, the money is acquired from a forex broker. Forex trading does not require a bigger leverage as with a small initial margin, a trader can create, control and manage a large amount of money. Forex trading is a lot more popular as compared to trading in other financial instruments because, in the forex trading, you can acquire a bigger amount with very small investment as compared to trading in other securities. With low leverage, new traders can hold up in the forex market during the initial stages.
A margin is a deposit made by traders in the forex margin account as collateral to open a trading position in the forex market. Generally, the investors borrow a short-term loan from the forex broker. In order to be able to do the trading in the forex market, first, an investor must deposit money into the margin account and then start the trading.
The main objective behind a margin account is to increase the borrowing in order to increase the return on investment. The margin accounts are managed by the brokers of the investors and settled in cash on an everyday basis.
When trading in the forex market, commissions are a very important part of it. In general, commissions are paid to the brokers and dealers for their services in forex trading in relation to the spread, which is the difference between ask and bid price of a pair of currency.
When you are trading in the forex market, it doesn’t matter whether you make profit or loss, the first thing that will be deducted from your trading account will be the commission of the broker charged for the transaction. However, the commission may variegate based on the volume of the transaction. Larger the volume of the transaction, higher will be the commission charged by the broker.
A swap is a type of currency swap in forex trading. It is a mutual agreement that takes place between two parties who agree to exchange one currency of a particular amount with another currency of the same amount based on the current spot rate. Then at a specified date in future, the two parties will return the original amounts at a specified forward rate.
In forex trading, the bid price is that price at which market participants are ready to buy a specific pair of foreign currency in the market. Similarly, ask price is that price at which market participants are ready to sell a pair of foreign currency in the market.
In the past, currencies were bought and sold in specific amounts known as lots. The regular size of a lot is 100,000 units. Nevertheless, with technological development in the last decade or so, forex brokers have begun to offer small size lots as well. There are also mini-lots of 10,000 and micro-lots of 1,000. A lot size can be divided into 3 categories, micro, mini, and standard. A micro lot contains 1,000 units, a mini lot contains 10,000 units, and a standard lot contains 100,000 units.
Given below are a few types of forex trading order:
Prathilaba October 18th, 2018
Posted In: forex school
Tags: Bid and Ask Price, Commission, forex, forex brokers, forex brokers in sri lanka, forex brokers Sri Lanka, Forex Trading, forex trading in Lanka, forex trading in sri lanka, forex trading sri lanka, Leverage, Lot Size, Margin, Order Types, Pip, Spread, Swap, what is pip, what is pip in forex
Forex has been long time assumed to be the "High Reward High Risk" scheme, which draws on the interests of many. To begin with the Forex Training it is essential to understand the potential of this particular sector that is equally outweighed by its risks.
Forex is the short form of Foreign Exchange, and to be more clear it deals with currency trading. Majorly for commerce and tourism, there is a need to change the currency of one country to its equivalent value of the currency in another country. With globalization considered as the best step towards a perfect industrial world, businesses across the world require Forex.
Commercial initiatives and businesses that work in foreign countries are under a constant risk of the fluctuations in the value of the currency. When they sell or buy services or goods in other countries, they aim to prevent losses at least, if not gain huge profits. Therefore the foreign exchange markets have a regularized way to provide a hedge against these risks by fixing a particular rate at which the transaction would be concluded by the end of a certain period. In order to comprehend these risks completely, we need to understand the concepts of decentralized markets and centralized markets.
This is often referred to as Forex Volatility. It tells about the level of uncertainty or the risk involved with changes that could be possibly involved with currency exchange rates. A higher volatility denotes how an exchange rate can be spread over a large number of values. Therefore, this risk of high volatility is one of the major things to be considered when you want to invest in Forex services.
As the risks involved with forex trade is equally perplexing as the potential for gain, it is essential to find a regulated licensed forex broker. Many forex solutions companies exist in the market today, who have gained trust through the years of service. It is recommended to go for a reputable Forex broker like IC Markets, Tickmill, IQ Option, Roboforex or Pepperstone. You can learn about each of these brokers by referring to Regulated Forex Brokers in Sri Lanka article in both English and Sinhala.
Nowadays banks are taking up the forex trading expertise to ease out the process for their clients. The interbank market is a network of various banks around the globe that have commerce and currency exchange among themselves, in various countries. The banks need to work on the sovereign risks and credit risks by themselves, through deep processes of internal auditing. This is needed to keep themselves and their clients safe from losses as much as possible.
Forex acts as an entity to circulate the various currencies with the equivalent value from and to different countries.
With most of the forex beginners opting for Forex Trading Software, most of them are available for free.
Some of the beginners resort to FX bots too. These are nothing but Expert Advisors aka EAs. Though it is designed to be helpful throughout, it is often not very reliable when the market changes and they are hardly on the high-profit side. If you are good with the code it works on, you can change it according to the market trends. But this is even more difficult while you are just a beginner.
If you still believe in rising huge profits with EAs, then the best would be MTA 4 / MT5 .
If you want to go by the news updates, the stock updates you see on CNN and Bloomberg are already the discounted prices with the inception of volatility. As the news is out, the Spreads grow, with a high number of re-quotes and slipping stop-losses. So keeping in mind that you a beginner, it is recommended to stay away from new trading until you become a professional in that mode.
cTrader is yet another trading platform similar to MT4 ( Meta Trader 4 ), with more features as it is new to the market. With a better user interface and advanced codes to take stop loss and profit systems, varying chart time frames, cTrader is a good retail trading platformyou can resort to as a beginner.
Based on the market convention, it is the smallest price move that a particular exchange rate results in.
eg : If GBP/USD jumps from 1.3360 to 1.3361, the .0001 USD is considered as 1 pip.
Upto 4th decimal place is considered in most currency pairs. Upto two decimal places considered in Jap Yen pairs.
In literal means, Leverage indicates the control over big things using something small. On the similar tone, Leverage in Forex terms means to control huge transaction in the market with just a small amount in your capital. It involves a great amount of talent and knowledge in Forex domain to take much out on the leverage part of it ( Higher the leverage, higher the risk and higher the profits ! ).
eg : 100:1 leverage means you can control upto $100 with just $1 while 500:1 leverage means you can control $500 with $1
It denotes the brokerage costs and the equivalent replacement in transaction fees. So basically this is the difference between Buy and Sell price denoted in pips. ( In Meta Trader 4 / 5 you can enable the spread column to get the values easily while in ctrader, it will be shown with currency pairs )
The investor takes a loan ( not exactly but will refer to it as loan to get the idea correctly ) from the broker on a short-term basis. This loan is equivalent to the amount of leverage taken by the investor. Before a trade can be placed, it is essential for the investor to deposit the money in the margin account. The Forex margin account is on the equivalent level of an equities margin account.
When an order is implemented, a slippage occurs if there is no limit order. Otherwise, a slippage can occur when there is less favorable rate than that which has been set initially. Slippage is widely linked with High Volatility.
If you are involved in forex trading, the analysis is the major key to success. Looking into daily, weekly, and monthly charts is essential for both short term and long term trading.
The technical analysis revolves around trend lines, support and resistance lines and eventually the indicators based on these.
The fundamental analysis is needed to understand the impact of news and commerce trends of each country on the Global forex system.
Though many believe to invest in the major currencies like the Dollar or the Euro, it is often suggested to go for more of what you see rather than what you believe. It is essential to invest in the currencies that you can significantly see a profit coming in rather than the ones you believe would yield profits later. This is mainly because the market is quite unpredictable and most often assumptions lead to disastrous losses.
So always be up to date with the current trends in the market analysis and align your investments and forex trading accordingly.
Before you jump into the deep pool of the Forex market, it is essential to have a good exposure to the requirements in a viable trading plan. Do read about the Forex Money Management Techniques before you decide on the investments wisely.
When it comes to investments, be it short term or long term, patience is what yields you the money. The longer you wait for the market to change, the larger the income. Again it could be risky, as it is FOREX - the huge trend among most people in any country.
As Forex is completely unpredictable, to get off to a good profit start in this domain, we would like to suggest you use a demo account in one of the online trading platforms, without any investment so as to learn the way the market analysis works. Once you make some good improvements, it is better to begin the journey of Forex ventures through a small investment as low as $1 ~ $200. This keeps you confident enough as you learn along, preventing huge losses and yet good incomes.
You can refer useful Forex Trading articles section to learn about Forex in English and Sinhala in Sri Lanka.
Prathilaba July 21st, 2018
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