Forex in Nigeria

Frequently Asked Questions about Forex

If you don’t understand some aspect of Forex trading or have some specific question about Forex, perhaps, you will find the answer to it here. This FAQ was compiled by Forex Nigeria to answer the most frequently asked questions and explain the basic concepts of Forex market.

1. What is a pip?

   Pip — the minimal difference in the currency pair’s prices. For EUR/USD 1 pip is 0.0001, for USD/JPY the pip is 0.01. Basically it’s just the smallest fraction in the currency’s price. If you want to calculate the value of a single pip for various currency pairs, you can use this pip value calculator.

2. What is a spread?

   Spread — a difference between buy and sell (bid and ask) prices for a certain currency pair. Forex brokers earn money with currency pairs spreads. The lower is the spread the better it is for traders. Good value for EUR/USD spread is 2 pips.

3. What are long and short positions?

   Long positions are those that are entered when you buy a currency pair and earn profit when it goes up. Short positions are entered when you sell a currency pair and earn from it going down.

4. What is a stop-loss and take-profit?

   Stop-loss — a parameter of your Forex position, a certain price level, in case it is reached the position will automatically close. It serves to protect you from excess losses and helps you to automate your trading. Take-profit is also a parameter of a position, if the price of the currency pair reaches this level it will automatically close. Take-profit helps to get the exact profit you are set to and protects you against price roll-backs. It also helps you to automate the trading.

5. What is a trend in Forex?

   Trend — a pretty long sequence of the price changes that clearly (more or less) identify a price movement towards a certain direction — up or down. The opposite of a trendy market (when you the price is predictable) is the ranging market, when the market is moving sideways.

6. What is leverage?

   Leverage — is the multiplier which is applied to the money that you spend to open a positions. Broker "lends" you the leverage money, but his loss is limited with your margin. Basically it works this way: with leverage 1:100 you can use $1 to open a $100 position and every pip will be costing you 100 times more in both cases — loss or profit, and you can’t lose more than your current account is. Leveraged trading can be extremely profitable, but it can also bring big losses, so don’t forget to use stop-losses on your every position.

7. What Forex brokers are good?

   You can find a list of the reliable Forex brokers here.

8. What are other good sites to learn Forex?

   More useful on-line resources about Forex trading can be found here.