Learn Forex Trading Lesson #5: Basic Forex Glossary

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FOREX TRADING TERMS YOU SHOULD KNOW

Forex TermsIn today’s lesson, we will take time to identify some common terminologies that every forex trader should know. Just as there are some terms we see doctors using in hospitals, so also we have some terms which are peculiar to the forex markets. These are terms you need to be familiar with as it will help you navigate through the market in a much easier way.

Terms

Ask Price/ Bid Price

The ask over and bid price is the value at which the marketplace is prepared to trade a definite currency. This is the value where, a depositor can buy the support currency. When considering a quote, it is located on the right elevation.
For example, in the quotation EUR/USD 1.4547/52, the ask value is 1.4552.

Base currency

The first currency listed in a currency pair. E.g. in EURUSD, the Euro is the base currency.

Counter currency

The second currency listed in a currency pair. E.g. in EURUSD, the USD is the counter currency.

Bids

A Bid is the value at which the depositor is eager to buy a currency.

Ask

The Ask is the value at which the trader is eager to sell/offer a currency.

Spread

The spread is the difference in pips between the bid and offer price. E.g in a EURUSD price of 1.3210/1.3213, the spread here is 1.3213 – 1.3210 = 0.0003 (3 pips).

Dealer

A person or an association performing as a mediator, putting jointly buyers and sellers for a payment or fee, can be distinct as a dealer. They are the ones who labour on behalf of their investors.

Currency signs

EUR – Euro
AUD – Australian Dollar
CAD – Canadian Dollar
CHF – Swiss Franc
JPY – Japanese Yen
GBP – British Pound

USD- US Dollar

NZD – New Zealand Dollar

Day Trade

This is the process of opening and closing a trading position on the same day.

Leverage

Leverage is the ratio of the total amount of your capital committed to a trade, to the quantity that can be traded.

Market Order

A position that has been opened at the prevailing market price.

Limit Order

An order for a position to be opened at a price different from the prevailing market price. It could be on the buying or selling side.

Long

Simply means to buy a currency pair.

Liquidity

Liquidity is distinct as the capability of a marketplace to permit fat business deal with insignificant force on the cost stability.

Margin

Margin is the smallest amount necessary for deposit before a depositor can start trading. It can also be said to be the initial amount through which a depositor can open a forex trading account.

Pip / Percentage Interest Point

Pips are distinct as “percentage in points” and are typically the fourth decimal spot i.e. 1/100th of 1%. A pip can also be distinct as the negligible price at which an exchange of currency can take position.

Short

Simply means to sell a currency pair.

Stop Loss

This is an instruction to the dealer to close a losing position at a pre-determined level in order to restrict losses.

Take Profit

This is an instruction to the dealer to close a winning position at a pre-determined level in order to lock-in profits.

Trailing Stop

This is an instruction to the dealer to change the stop loss level from negative to positive when an ongoing trade is in a winning position. The stop loss level here is a variable one; it chases the market as the trade becomes more profitable, and maintains a stationary position if the trade starts to reverse. Either way, the trade ends in a winning position.

There are many other terms you will come to know as you advance in forex trading, but these ones above are about the most common terms a trader will see on a daily basis. Master them and you will find out how much more easily you will understand the forex market.

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