Understanding Forex: Pips And Spreads
If we see in todays financal world many things are very difficult to understand for an average common man as they are really complicated.like for eg. people easily understands some things like equity markets as it connotes to investment in shares of different companies and nothing else but if we go on the other side of finance world which is known as Forex Market people dont have complete knowledge about it.If you ask me personally i think people do not have any knowledge of forex market and one of the reason behind this is forex markets are largely dominated by large financial institutions, banks, hedgers etc. And of course the bigger reason is the money required in forex market is on big part as common man does not have that big money to invest in forex markets. If we go on like this the story of forex market will never end but my aim for writing is to give proper understanding about some of forex markets as well as of commodity markets. So lets disscuss about some of the basic terms of the related topic.
First we will define Forex market of currencies:
It is a market where mechanisms are applied to value different currencies relative to one another,and exchanged.it is a market where individuals or institutions buys one currency and sells another in one transaction.Foreign exchange markets are located world over and different currencies are traded on it indifferent countries; European Currency Unit, Japanese (Yen), Swiss (Franc), Canadian (Dollar) etc .Further currencies are always traded in pair like (USD/JPY or Dollar/Yen) on a floating exchange rate.
Now we will understand the term called PIPS:
In forex market the exact text book defination of PIP is change in price of one "point" in Forex trading is usually pip, and it is equal to final number in currency pair's price. Now let us understand this defination to 0.0001.In Yen a pip is counted from second decimal place, 120.94 Yen based currency are exceptions in pips.
Now let us understand term called Spreads in Forex market:
Basically a spread is difference between bid price and ask price.
Now let us understand the term commodities in Forex market:
It is a market where people can purchase and sell different products useful in day to day working of life with the exchange of money. Commodity market offer great potential to become a great idea of savings for market savvy investors, arbitrageurs & speculator.it is easy to understand as far as fundamentals of demand of supply is concerned.World over one will find market exists for all the commodities known like Gold, Silver, Nickel, Copper, Wheat, Corn, Coffee, Sugar, Crude Oil, Natural Gas etc.
Now let us understand Volatility & Signals in Forex market:
Volatility is how much a price fluctuates over a period of time. A market with high and erratic price range is said to have high volatility. for example in a day trading in currencies of USD/YEN the price range was day's high was 110.10 and day's low was 103.05 so here there was movement of nearly 7 dollars and when the high of the day was 110.10 and low was 108.95 so here there will be low volatility in comparison.
Now let us understand Signals in Forex market:
It is an indication of when to trade, which could be either given by human analyst or some computer software that is observing current movement,trends related to foreign exchange market.Large investors mainly put their trades based on these signals and in many cases try to predict impact of related signals will have before making their move.In these days traders usually go to subscription based forex signal signal service which imparts its signals via real time news feed.
So i hope i have helped many of the people who are reading this article for their understanding of various terms of Forex market which will improve their knowledge about Forex market.
All trading can be a risk!
