In the world of forex trading, various terminologies and concepts can be confusing for beginners.
One such term, often heard in trading conversations, is the “big figure.”
Let’s explore what the big figure means, why it is important, and how traders use it in their daily operations.
What is the Big Figure?
The big figure, also known as the “handle” or “big figure handle,” refers to the first few digits of an exchange rate.
These digits usually remain constant, while the last few digits fluctuate throughout the trading day.
For example, if the EUR/USD currency pair is trading at 1.1850, the big figure would be 1.18.
Why is the Big Figure Important?
The big figure is important for several reasons:
- Simplification: Traders often refer to the big figure when discussing price levels, omitting the last few digits for simplicity. They might say “The EUR/USD is trading around 1.18” instead of specifying the exact exchange rate. This makes communication more efficient among traders.
- Psychological Levels: The big figure can represent significant psychological levels in the market. When a currency pair approaches or crosses a big figure handle, it can trigger increased buying or selling activity, leading to potential price reversals or breakouts.
- Support and Resistance: The big figure can also act as a support or resistance level, as traders and investors may place orders around these round numbers. As a result, price movements may stall or reverse when they reach the big figure.
How Traders Use the Big Figure
Traders use the big figure in various ways, including:
- Entry and Exit Points: Traders often use the big figure as a reference for entry and exit points, setting their orders around these round numbers. This can result in increased trading activity and liquidity around the big figure levels.
- Risk Management: By considering the big figure when setting stop losses and take profit levels, traders can better manage their risk. This is because price movements tend to stall or reverse around big figures, making them a suitable location for protective stops or profit targets.
- Technical Analysis: Technical analysts may use the big figure as a reference for chart patterns or trend lines. For example, a trend line might be drawn from a big figure level to another big figure level, providing additional confluence for potential trade setups.
Summary
In summary, the big figure is the first few digits of a quoted price or exchange rate and is significant in trading because it can affect buying and selling activity and the size of trades or orders
The big figure is a crucial aspect of forex trading, serving as a reference point for trade execution, risk management, and technical analysis.
By understanding the importance of the big figure and incorporating it into their trading strategies, forex traders can improve their decision-making process and increase the likelihood of successful trades.