The Forex (Foreign Exchange) Market is the largest market in the world. It is the market where currencies are traded. Quite simply, Forex trading is the act of buying and selling currencies. This is the world’s largest financial market with a daily turnover of $5 trillion and it involves many people – and many currencies. Because you are always buying one currency using another currency, you trade ‘currency pairs’.
Basic FOREX Terms
- Currency rate: A currency rate against another currency rate.
- PIP: A Pip is the "Percentage In Point" (PIP), sometimes also referred to as "Point". It is equal to the minimum price increase of a Forex trading rate. The most common Pip is 0.0001.
- Ask price: The ask price is the price you can buy a currency at. It is also the price at which the market is willing to sell the currency to you.
- Bid price: The bid price is the price you can sell a currency at. The market is willing to pay you this price for this particular currency.
- Spreads: Spread are the difference between bid price and ask price.
Forex Liquidity And Volatility
Liquidity refers to how active a market is. It is determined by how many traders are actively trading and the total volume they’re trading. One reason the foreign exchange market is so liquid is because it is tradable 24 hours a day during weekdays..
Volatility is the measure of how drastically a market’s prices change. A market’s liquidity has a big impact on how volatile the market’s prices are. Lower liquidity usually results in a more volatile market and cause prices to change drastically; higher liquidity usually creates a less volatile market in which prices don’t fluctuate as drastically.
The ABCD Pattern
A visual, geometric price/time pattern comprised of 3 consecutive price swings, or trends—it looks like a lightning bolt on price chart. A leading indicator that helps determine where & when to enter and exit a trade.Each pattern has both a bullish and bearish version. Bullish patterns help identify higher probability opportunities to buy, or go "long." Bearish patterns help signal opportunities to "short," or sell. Each turning point (A, B, C, and D) represents a significant high or significant low on a price chart. These points define three consecutive price swings, or trends, which make up each of the three pattern "legs." These are referred to as the AB leg, the BC leg, and the CD leg.