Knowing the trends and popular terms used in the Forex market is an important step toward thoughtful and effective trading.
If you want to remain up-to-date on must-know Forex terminology that will help you with your trading, continue reading. You can also learn a lot of useful advice for your initial exploration of Forex trading.
Here are some examples of Forex trading vocabulary you should be familiar with:
Fundamentals
Currency Pair – A currency pair, also known as a Forex pair, is a pair of currencies, one of which is measured relative to the other. The base currency is mentioned first, followed by the quote currency.
Primary Pairing – A currency pair that has the US dollar as the base currency and is coupled to another primary currency such as EUR, CAD, GBP, CHF, JPY, AUD or NZD.
A cross-currency pair is two major currency pairs that do not include the US dollar.
Exotic Pairs – Currency pairs, including lesser-known currencies such as the South African Rand and Polish Zloty.
The price at which your dealer sold the currency pair.
The exchange rate your dealer pays for a currency is called the bid price.
Bid-Ask Spread – The difference between the Ask and Ask prices, which can result in a profit or loss. Given an exchange rate of 1 EUR = 1.30 USD / 1.40 USD, the spread is 0.10 USD. If the gap between the bid and ask prices is small, the spread will narrow.
PIP (Percentage In Point) – A single point price fluctuation used to describe changes in the value of a currency. The number of points in the pricing quote is usually the last decimal point. For example, if AUD/USD is quoted at 0.7435 and moves to 0.7436, it means that the price has increased by 1 pip. If it falls to 0.7430, the price is down 5 pips. The number of pips up or down determines the loss or profit.
Lot or Lot – The number of units of currency that a merchant buys or sells. The pip value is calculated by the broker based on the current exchange rate and lot size.
Lot size: 100,000 units
Small quantity of 10,000 units
1,000 micro batches
100 nanometers
Leveraged Trading – A popular type of Forex trading where traders use “leverage” or funds borrowed from a trading platform to speculate on or trade key currency pairs. Leveraged trading allows you to start trading with as little as $200.
Open or Open a Position – Trading You can start by buying and selling currency pairs.
Close or close a position – close a position by executing the opposite trade at the beginning of the trade. This cancels the open position and effectively closes the trade.
Margin – The amount you pay the broker to start a trade. Margin becomes the equity in your trading account. If you trade a losing position and you lose more than your equity, your broker will automatically cancel the trade to protect you from more severe losses. You may receive a refund when you complete the transaction.
A long position or “going long” – buying a currency pair (buying the first currency and selling the second), which you do if you think the price of the base currency will rise.
A short position or “going short” – selling a currency pair (you sell a first currency and buy a second currency) if you think the price of the base currency is falling (better to sell early, while you can still get higher gains, rather than later when prices are already lower).
Bullish – A term used to describe the attitude of the market when prices are rising.
bearish – word used to describe the market’s attitude when prices fall
Strategy
Here are the most common Forex trading methods you should be familiar with:
Scalping is a method of short-term trading in high volumes, with each trade lasting only a few minutes or seconds. During busy trading hours, it took advantage of the modest price volatility of the day. Professional scalpers make money by accumulating tiny victories. The more profitable the trades they make, the more money they make.
Day Trading – Day trading is an easier form of scalping and is ideal for traders who do not want to hold positions overnight. To prevent large price movements after trading hours, traders open and close positions on the same day. Day traders, like scalpers, must make a lot of profitable trades during the day to make a profit.
Swing trading is a medium-term trading method where traders buy or sell to profit from expected market changes. Swing traders use a variety of techniques to check the market. If they see signs that the currency is going to fall or rise, they take the appropriate stance and then leave at the right time (when they can get the highest gains). Swing trades can last for days, and traders can hold positions for weeks.
Spread betting is speculation on currency movements rather than buying them. Spread betting is simply a bet on whether the value of a currency will rise or fall. The advantage of this method is that traders can profit regardless of whether the market is rising or falling.
