Some Frequently asked quesitons

Forex Trading Nigeria

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Posted by on Friday January 24, 2014 15:54:2:

There are a lot of questions Nigerians have always wanted to know about forex and a lot of jargons involved in the trade. It would be good to learn about them and do research about the ones you would not find here.

Currency Pair

This deals with reading a foreign exchange quote and although it may look complicated for the newbie, it is quite simple when you have become used to it. For instance Euro/$, GBP/$, $/Y are all currency pairs.

The first currency listed is the base currency and it always carries a value of 1. However the only 3 exemptions to these are;
- GBP as in GBP/USD
- Euro as in EUR/USD
- AUD as in AUD/USD

In the above, the second currency i.e the US Dollar is not the base currency as the value of the initial currencies are mostly higher than the dollar but the dollar is still the acceptable exchange currency for international trading.

In these three currency pairs, where the U.S. dollar is not the base rate, a rising quote means a weakening dollar, as it now takes more U.S. dollars to equal one pound, euro or Australian dollar.

In other words, if a currency quote goes higher, that increases the value of the base currency. A lower quote means the base currency is weakening.

Those currency pairs that do not deal with the U.S. dollar are called cross currencies, but they still follow the same format. So, if for or example, a quote of EUR/JPY 130 simple means that one Euro is equal to 130 Japanese Yen and 1/130 euro will equal 1 Yen..

If you read further, you will often see a two-sided quote, consisting of a 'bid' and 'offer'. The 'bid' is the price at which you can sell the base currency. "Ask" or "Offer" is the price at which you can buy the base currency. It is the price which the currency is currently being offered for sale by the holder.


Fully means percentage in points. It is the smallest difference or unit by which the currency pair can change over a period of time. Example: For EUR/USD 1 pip is 0.0001, for USD/JPY the pip is 0.01. Simply put, it's the littlest fraction in the currency's price.

For example, if the EUR/USD price moves from 1.4150 to 1.4155 then it has moved up 5 pips as 5 pips refers to the difference of 0.0005.


This is the difference between the buying and selling (also termed bid and ask/offer) prices for a certain currency pair. It is based on this spread that brokers earn their money. The lower is the spread the better it is for traders. Having 2 pips is a common value for EUR/USD spread.

Forex brokers on whose platform you trade tend to make profit from this which means that for every trade you make, they keep the spread as their commission. If you are buying for instance and the real price is 1.54, you will be able to buy it only at 1.56 if the spread is 2 pips

Long positions

Long positions are those that are entered when you buy a currency pair when the price is low and earn profit when it goes up. This is mostly used when the market is bullish.

Short positions

These are positions entered when you sell a currency pair and earn profit from it going down.

This method is called short-selling and is profitable when the market is bearish.

Stop-loss profit

This is a parameter that indicates 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.


This is a sustained series of the price changes that identifies with price changes towards a certain direction — up or down (Bullish or bearish). The opposite of a trendy market (i.e predictable) is the ranging market , when the market is moving sideways(up and down). One should trade trending markets differently from ranging market.


This is like a loan or extra capital that can be applied to the money that you spend to open a positions. Brokers can "lend" you the leverage money, but his loss is limited with your margin. It normally works this way: with leverage 1:100 you can use $1 to hold 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. Trading with Leverage is not compulsory. For most brokers, you automatically trade with leverage when your capital is not sufficient to hold a position and the amount of leverage you can get is limited to what you can pay back in case of loss.

Most brokers allow between 50:1 and 100:1 margin. So, if you put up $1,000, and your broker allows 100:1 margin, then you'll be trading $100,000 worth of currency (instead of $1,000).


Once (you have) started learning about Forex trading, you would often come across the terms "Bear" and "Bull" such as on websites, Forex books and chat rooms. These are terms that describe the general mood of the market. A "bearish" market, is when the general mood of the market is down, i.e. when there are more sellers than buyers trading a currency. A "bull market" is the opposite, when there are more buyers than sellers and the general mood of the market is up. The Forex market is a place where bulls and bears struggle, and if you can observe what the general move of the market is, you could be able to make some cool profits from it.


The Online Forex market, is a continuous 24 hr cash market where popular currencies are traded, but you don't have to trade all the time. Online Forex trading is always done in currency pairs and when we say pair, we mean in twos. For example, you buy Euros, paying with U.S. Dollars, or you sell Canadian Dollars for Japanese Yen. The value of your Forex investment increases or decreases based on changes to market prices and would only affect you if you have open positions such as holding onto one currency or the other.

How is your profit or loss calculated? Well we make use of variables such as your entry price, no of pips, no of units bought or sold and then the closing price.

For example, if you bought 10,000 units of eur/usd at and entry price of 1.5444 and you closed it at 1.5484, this means that you have gained 40 pips or 0.0040. Then it means that your profit is 0.0040*10,000 = $40. If the price rather falls to 1.5404, you would have lost 40 pips and the loss would be $40.

What Forex brokers can you refer me to?

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