Introduction to Forex
Introduction to Forex
There are some issues to be considered while making a buying or selling decision in FOREX transactions, which are also defined as the international foreign exchange market. Since it is a leveraged market, besides providing the opportunity to make big profits, your investment amount may be reset with the effect of leverage. Therefore, before investing in forex, the risks it carries, as well as the product to be invested, should be investigated. With the free and unlimited training support offered by Phase Forex to all its investors, you can reduce your investment risk, it is very important to try yourself in the trial account to try forex in real market conditions.
Below you can find the most frequently asked questions and answers by our investors who are new to forex:
1. What is Leveraged Trading?
Leveraged trading in Forex is a system that provides the opportunity to trade in multiples of the amount invested for investment. With the leverage system, it creates an opportunity to create high returns from a small amount of deposit (investment amount). The important thing in this system is the size of the transaction, together with the effect of the leverage used. The profit or loss obtained over the multiples of your investment amount is reflected directly on your main balance.
E.g; It is sufficient to keep only 1% of the collateral (investment amount) for a transaction of 100,000 USD in USDTRY parity using 500 to 1 leverage. Thus, with a guarantee of 1,000 USD, it is possible to earn a profit corresponding to 100,000 USD. Of course, it should not be forgotten that besides making profit, there is also the possibility of loss.
2. What are “buying” and “selling”?
If you think that a currency that you have determined will increase in value against the other currency, invest in the currency that will gain value. Therefore, you will earn a profit by selling the foreign currency purchased at a low unit price when its value increases.
E.g; If you think that the USD will appreciate against TL in the USDTRY parity, which is at the level of 5,6000, you buy the Dollar at this price and sell the Turkish Lira in return. So, you switch to the long position of USDTRY. When the parity price rises to 5.6500, if you anticipate that the upward trend of the Dollar against TL has ended, you will make a profit when you sell the Dollar and buy TL again. In other words, you terminate your USDTRY long position.
The opposite scenario happens as making a sale. To explain with an example, if you think the Dollar will depreciate against the Turkish Lira, you sell the Dollar. Thus, you will earn a profit by repurchasing the currency sold at a high price when its value decreases.
3. How to calculate profit or loss?
If you buy on a product in your Forex investment, you expect its value to increase, and if you sell, you expect it to lose value. This means the same thing as an increase or decrease in the price of the parity.
E.g; If you opened a 1 lot buy position on the GBPUSD parity, which is at the level of 1.65000, in other words, if you bought 100,000 GBP (base currency - primary currency) and the price increases to 1.65250, you will make a profit. Calculating this is pretty easy because forex trading profits and losses are calculated in the secondary currency. In this example profit and loss are in US dollars.
The example above was an example showing the purchase of 100,000 GBP from 1.65000. This also means that you sold 165,000 USD. If you closed your position when the GBPUSD pair price was 1.65250, you have sold 100,000 GBP at 1.65250. This means you receive 165,250 USD.
So in this example, you have made a profit of 250 USD. If the pair had fallen by the same amount (price had dropped to 1.6475), you would have lost 250 USD.
4.What is Point/Pip/Tick?
A point, pip or tick is the smallest unit of movement for a pair. When you check the “Market Watch / Marketwatch” section on the Metatrader 5 platform, you can see that the EURUSD parity is priced at 1.10000, that is, with five decimal places after the comma.
In Forex, the 4th digit after the comma is called a pip and is the smallest price tick in leveraged markets. In the most recent example, we performed a profit calculation when the pair rose from 1.65000 to 1.65250. The difference between the two prices is 25 pips (pip/tick/point) movement. If you traded in USD/JPY, that is, the pip calculation of the value of the US Dollar against the Japanese Yen (For example, if USD/JPY: 95,250) is based on the 2nd decimal place.
5. What is the lot size?
The volume you want to invest, the transaction size is called LOT. Basically 1 Lot in Metatrader 5 is equal to 100,000. A trade of 1 lot of EURUSD (buy or sell) is equivalent to €100,000, and a trade of 3 lots of USDTRY (buy or sell) is equal to $300,000. Lots can also be entered in decimals, so a 0.1 lot EURUSD transaction represents 10,000 € positions, while 0.2 lot USDTRY transactions represent $20,000 positions.