• Bid & Ask – The most popular pair traded is the Euro vs. the American Dollar, or EURUSD. The currency on the left is called the base currency, and is the one we wish to buy or sell; the one on the right is the secondary currency, and is the one we use to make the transaction. Each pair has two prices – the price for selling the base currency (ask) and a price for buying it (bid). The difference between them is called a spread, and represents the amount brokers charge to open the position. The more a currency is traded, i.e. high liquidity, its spreads will be narrower. The rarer the pair is, the wider the spreads will be, since lower liquidity usually entails increased volatility. The increased risk – consequently – entails a wider spread.
• Quote – Usually a quote will be presented with four numbers after the dot, for instance 1.2356. In the case of EURUSD it means for every Euro the trader wishes to buy he will have to invest 1.2356 US dollars. Any change in the currency value will usually be seen on the fourth figure after the dot, mainly known as a PIP The spreads, gains and losses will usually be presented in pips.
• Long & Short – Some other terms of the online forex trading world are Going long and Going short, which stand respectively for ‘buying’ and ‘selling’.
• Bullish & Bearish – A trader who speculates the market will rise is called a ‘Bullish Trader’, while on the other side stands the ‘Bearish Trader’, who is more on the defensive side. In accordance, the terms ‘Bull Market’ and ‘Bear Market’ are used to describe the way the market goes.
• Bull & Bear Market – A bull market is on the rise, and a bear market is usually decreasing. Experienced traders will decide their strategy depending on the market trends, and will make sure to follow all relevant events so they can precede the changes in the market and gain profit.
• Trading Platform – In the past, every trader called his broker and instructed him on actions to be made. Today the trades are done directly by the client on a software, called a trading platform. Every trader has his own trading strategy, and he should find the platform that will enable him to perform it in the best way possible, i.e. that he will feel most comfortable in.

• Liquidity Provider -Liquidity providers are groups of large banks and other non-banking financial institutions that connect with orders from our clients. With the increasing supply of price quotes, it helps to drive down the bid-ask spread and the commission for traders. Moreover, high liquidity allows traders to instantly execute their orders at their ideal quotes, without a severe delay.

• Bridge – To consolidate the incoming pricing data from several LPs, we use a liquidity bridge (or simply a “bridge”) system. A bridge is a software that functions as an intermediary between the LPs and iCapitals MT5 trading platform. Using our bridge system and wide networks of LPs, we are able to provide our clients with True ECN pricing.

• Leverage Trading – Leverage is given by the broker to enable traders to hold trading positions that are larger than what one’s own capital would otherwise allow.

  It is important to remember that the profits and losses are determined by the position size, and as leverage trading can magnify profits also losses can be enhanced, thus proper risk management techniques have to be used.

What affects the forex market?

The forex market has high liquidity, due to an elevated supply and demand rate. Traders apply transactions based on financial events, as well as general events. Naturally, when a currency will be on a high demand, its value will raise comparing to the other currencies, and vice versa.

Financial events are frequent statements by countries, central banks or other financial institutions, on topics such as unemployment rate, manufacture numbers and many more. A decrease in a country’s unemployment rate can indicate that the economy is strong, and this can lead to an increase of the local currency.

If it’s a major one it will affect other currencies as well. Before the event takes place traders speculate on its content, and based on these speculations open positions. All the events can be seen and followed on the economic calendar.

Example – Going back to the popular trading pair – the EURUSD. Once logged into the platform the trader will check the ask and bid prices; for the purpose of the example they will be 1.2356 (ask), and 1.2359 (bid). The difference, as noted, is of 3 pips and this will go to the broker.

If the trader believes the Euro will go up he will enter a ‘buy’ command. Then he will be required to select an amount – say 10,000 units. The price for that is $12,356, and using leverage it comes to $30.89. If the market responded the way the trader predicted and the Euro rose from 1.2356 to 1.2360 – 4 pips, the trader would have made a profit from this trade.