Forex Trading Terminology: 15 Must Know Terms #1 Currency. The world’s currencies are traded on the Forex market. But let’s start with the very basics – What is a #2 Currency blogger.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # ). Forex trading involves significant risk of loss and is not suitable In FX trading, the Ask represents the price at which a trader can buy the base currency, shown to the left in a currency pair. For example, in the quote USD/CHF /32, the base currency is Forex Trading Terminology. The Forex market comes with its very own set of terms and jargon. So, before you go any deeper into learning how to trade the Fx market, it’s important Scalping: It is a short-term trading as in minutes. Spike: It is the sudden and unexpected rise in the price. Exchange Rate: It is the rate at which one currency exchanges for other currency. ... read more
Since people have memory, they remember certain price-levels where the price had difficulties to break below in the past. They place their buy orders around those levels, as they believe that the price will again fail to break below.
This is how support levels are formed. In other words, a support level is a previous low at which the price has a large chance to retrace and move up. While support levels are based on previous lows, resistance levels track previous highs at which the price had difficulties to break above.
Traders remember those levels and place their sell orders around them, as they believe that those levels will again provide selling pressure and move the price down. Since fresh memory is more important than old memory, recent support and resistance levels usually have a higher importance than old support and resistance levels.
The Forex market is open around the clock and offers traders to profit not only on rising prices, but also on falling ones. However, there is another reason why a large number of traders feel attracted to the Forex market — leverage. Trading on leverage allows traders to open a much larger position size than their initial trading account size would otherwise allow, and the Forex market is known for extremely high leverage ratios offered by retail brokers.
However, bear in mind that trading on extremely high leverage is very risky, as it boosts not only your profits, but also your losses.
Beginners should consider trading on a lower leverage until they gain enough experience and screen time. This will reduce losses and make sure that you stay in the game in the long run. Learn more, take our Trading for Beginners course 14 Margin When trading on leverage, your broker will allocate a portion of your trading account size as the collateral for the leveraged trade. The position size you take on the market determines the size of your profits and losses in dollar value by affecting the value of a single pip.
In the Forex market, one standard lot standard position size equals to Fortunately, traders with smaller account sizes can take smaller trades with mini-lots Some brokers even allow you to trade on nano-lots units of the base currency.
In any case, calculate your lot size in dependence of the size of your stop-loss so that you remain inside your risk-management boundaries. So, you want to become a day trader and join the hundreds of thousands of day traders who are living in the UK? Then this….
Day trading is one of the most popular trading styles in the Forex market. However, becoming a successful day trader involves a lot of blood,…. Want to day trade for a living? Online trading allows you to trade on financial markets from the comfort of your home. All you need to start trading is a computer with…. Next: Step 2 of 4. Phillip Konchar April 25, Read: How Do Forex Brokers Make Their Money Naughty Broker Practices you Should Take Note Of Some Cool Forex Trading Examples 7 Spread Each time you enter into a trade, you have the pay transaction costs for that trade.
Get started in trading. We encourage you to learn more by starting with these: Take our free course: Getting Started with Charts Take our free course: How Traders Interact with the Markets Take our premium course: Trading for Beginners. For example. A leverage allows a trader to open a position that is a hundred time larger than their initial deposit. Or an economist say we are now in a bear market?
Being either bullish or bearish refers to what side of the market you are on. If you are bearish you think that the price is likely to fall. One of the most popular and widely used technical analysis techniques in the stock and Forex markets is support and resistance.
As price moves up and down price action traders are constantly analyzing the prices movements. Technical analysis and price action traders believe that the price moves inline with the fundamentals. On the flip side, resistance levels are seen as levels of supply and areas where price has found resistance to the move higher. Currencies are not able to be purchased or exchanged individually.
A currency pair is the two currencies that are being exchanged. If you are new to Forex, then learning how to read a price action chart can be incredibly confusing. I am using all aspects of technical analysis and price action in my trading with a goal to help you learn to do the same. Skip to content.
Table of Contents. Investagal If you are new to Forex, then learning how to read a price action chart can be incredibly confusing. But what exactly IS the spread in FX prices? The Bid and Ask or Buy and Sell price. The spread is simply the difference between the two prices and represents the cost of doing a trade. But why is this important, and what does it have to do with value?
For your trade to become profitable, the price you buy or sell at needs to move in the correct direction far enough that it has covered the difference in price — the spread — to become profitable. The tighter the spread between two prices, the less the market needs to move in order for your trade to earn value. Financial instruments and assets will always rise and fall when the market feels an asset has become either over or under-valued.
These changes in confidence drive volatility within a market and create both opportunity and rise for traders and investors. Bear markets are typified by dropping prices as more and more traders, and investors dump their assets or take Sell positions. Bear markets can last for short time frames of hours or days or continue over periods of months or even years before correcting. When confronted with a Bearish market, traders will need to decide whether or not to hold their position.
This is where a deep understanding of the market and a solid, responsible trading strategy are invaluable. Many responsible traders take a long view of market movement, ignoring short-term volatility in favor of more stable, long-term returns.
A Bull market is the polar opposite of a Bear market. It is when investor confidence in an asset or market is sky high. As confidence increases in a market, more and more investors and traders open Buy positions.
This pushes up the price and by extension, raising confidence further. Like Bearish markets, a Bull market offers traders both opportunity and risk; and this makes deciding when to enter a Bull market crucial. Traders ideally want to open a position at the start of a Bull run to maximize their returns as the market grows in confidence and prices rise.
Famous Bull markets include the Cryptocurrency run before its recent crash and the US Stock Market bull run, which started around What drives both of these markets are exponential investments as prices rose with the consequent knock-on effect of solidifying confidence.
No Bull market lasts forever, and FX traders should be wary of short-term trading on high volatility as this presents significant risk. Understanding the factors and correlated assets and events which can drive confidence in your chosen FX pair or market is crucial to building a long-term, successful FX trading plan. These terms have confused many new traders. The concept itself however is simple. A lot is the unit of measurement for trade size.
It allows standardization across the market. Because the differences in values are so small, FX trading happens in lots. This is to allow traders to trade extremely small price movements in large enough batches. This helps their position to be viable. The value of a lot is set by an exchange or market regulator. It is to standardize trading volumes across the entire market.
Similarly to a lot, a Pip is a measurement of value in Forex or FX trading. We have also seen how traders can speculate on underlying price movements. This happens between these pairs by opening a Buy or Sell position.
Forex trading terminology covers all the trading language being used in trading. Being familiar with them enhances understanding of the market. As a Forex trader, it is very imperative to be familiar with some important trading terms.
You will need them to fully understand the market. When they are mentioned in the market, you will not find them difficult to understand. And they will help you a lot.
So let us start now to learn some of them. Note that the list is not exhaustive. Ask Price: This is the market price a trader pays to buy a currency. It is also called offer price. Bid Price: It is the price a buyer is willing to pay for a security.
It is always lower than the Ask price. Swap: It means the interest that a trader either earns or pays for a trade that he keeps open throughout the night. They are of two types: Swap long used for keeping long positions open overnight and Swap short used for keeping short positions open overnight.
They are expressed in pips per lot, and they vary depending on the financial instrument you are trading. Algorithm Trading: It is also known as Automated Trading. This trading is done without human intervention. All trading transactions are done by computers. It is solely based on computers using advanced mathematics model.
The trading decision includes these electronic market feeds: timing, market price, and market order value. Arbitrage: A trading strategy designed to profit from small price fluctuations, or differences, of similar asset by buying the asset in one financial market and selling it in another at the same time. For example: Bank X buys EUR at 1. Bank Y buys EUR at 1. A trader notices this discrepancy before it becomes public knowledge. He quickly buys EUR selling at 1.
This is called arbitrage trading. Did you get it? Now what is his profit? Profit: 1. If he invested USD, guess what has earned. Account Balance: The amount in your account. It includes profit, or loss, and equity. Account Currency: It is the currency your deposit or withdrawal is denominated.
Your account can be opened in USD, EUR, GBP, and so on. Asset: It is an instrument currencies, stocks, indices, bonds that can be traded on financial markets worldwide. Interest Rate: It is the amount in percentage paid for funds borrowed.
It is determined by Central banks. Bears: They are the traders that believe that market prices will go down, or south. So, they go short. What does go short mean? Simply they sell. What of Bulls? Bulls: These are the traders that believe that the market prices will go up.
So, they go long, or buy. Base Metals: They are non — ferrous metals like copper, zinc, aluminum, nickel. Buy Limit Order: It is an order placed in advance in the market to purchase an asset at a specific price.
When the price is going down, and a trader senses that the price would reverse at a predetermined level, a buy limit order is placed in advance. When such price target is reached, open trade position is triggered. The lower currency, USD, is the quote currency.
Contracts for Difference CFDs : They are a popular type of trading instrument. It involves derivative financial instrument that gives investors leveraged opportunities of trading on the changes of an underlying asset like Forex, commodities, indices, without owning the asset. Consumer Price Index CPI : It is an estimated indicator that measures the changes in the prices of goods and services bought by urban consumers.
It helps to gauge level of inflation. Consumer Confidence Index CCI : It measures the level of trust and optimism about the condition of an economy of a country. Low CCI may indicate the economy is getting weaker. Counter-Trend Trading: When a trader trades against the market trend with the hope of market price reverse, it is counter- trend trading.
Commodity: Any raw material that is traded in financial markets is called commodity. You can think of Gold, Silver, Copper, Crude oil, wheat, Coffee. Commission: The fee you pay a broker when a trader carries out a trade transaction.
Leverage: As explained earlier, it is your power to gain control over a huge fund using little or no money. Let us see a real-life example of leverage. That is the power of leverage from your broker. Trusted Forex brokers like Exness , Xm , HotForex , FBS , FXTM , and FBS have leverage ratios up to 1: Demo Account: This is a virtual, or practice account for Forex newbies.
You can open the account as many times as possible to build your trading knowledge without any cost. It is a reflection of Live account. Day Trading: When you open a trading position and you close the position within a day, it is day trading. Day Order: It is the order to buy or sell that expires at the end of the trading day you gave the order.
Equity: It the real amount of money in the trading account after considering profit or loss from open positions. It is different from balance in the account. If open positions are in profit, equity will be greater than balance. However, if they are in loss, equity will be less than balance. Margin: The minimum amount in percentage that is allowed to open and keep a position. Simply put, it is the minimum percentage amount of money from your account balance to make money from the market.
The higher the margin, the higher the risk, or profit. Inflation: Economic condition in which the consumer goods and services prices are rising thereby weakening purchasing power. Lot: A standard lot size equals , units of any currency. Mini lot size equals 10, units of any currency. Micro lot size equals 1, units of any currency. Nano lot size equals units of any currency. Over- The- Counter OTC : Trading financial instruments between two parties directly.
Overbought: A condition in a currency pair when the price rises higher than expected, hence a price fall is expected. The opposite is oversold. Resistance: When price is going up, it gets to the point at which rising further becomes difficulty. This point is called resistance or ceiling point. It is the point where fighting for direction between the bears and the bulls is intense. If this point is broken and the bulls win, then the next level upward becomes resistance point where the bears will be waiting to resist further upward movement again.
Support: When price is going down, it gets to the point at which falling further becomes difficulty. This point is called support or floor point. It is the point where fighting for direction between the bears and the bulls is fierce.
If this point is broken and the bears win, then the next level downward becomes support point where the bulls will be waiting to struggle for upward movement again. Exchange Rate: It is the rate at which one currency exchanges for other currency. Trading Position: It is a trade that is currently open. If you buy or sell a currency, you hold a trading position.
If you buy a currency in expectation that it would rise, it means you go long or bid. If you sell a currency in expectation that it would fall, means you go short.
If your calculation is correct in either case, you make profit. Major Pairs: The most traded currencies in the world are called Major pairs. The pairs are associated with stability of the economies of two currencies making up the pair.
Forex Terminology, Definitions and Slang With Free PDF 1. Pip. Pip stands for “Percentage in Point”. A pip in the Forex market is a common measurement for how far the price 2. Forex Trading Terminology: 15 Must Know Terms #1 Currency. The world’s currencies are traded on the Forex market. But let’s start with the very basics – What is a #2 Currency Now that we know the ins and outs of a forex trading account, let’s understand two basic terms in the forex terminology handbook that is bound to help you in your trading account. They The Basic Forex Terminology- A Complete beginner Guide #5 Leverage. Leverage is the loan that brokers pay traders to take a trade. By using leverage, traders can make trades #6 Pending In FX trading, the Ask represents the price at which a trader can buy the base currency, shown to the left in a currency pair. For example, in the quote USD/CHF /32, the base currency is Forex Trading Terminology Bid-Ask Spread. Thе difference bеtwееn the bid (trader’s sale price оr thе dealer’s cost price) аnd thе ask (trader’s cost price оr thе dealer’s sale price) іѕ called ... read more
In order to be successful in the forex industry, there are some forex terminology that you need to understand first. For example, one lot of a currency pair has a value of , units of currency, Euros or , U. This is to allow traders to trade extremely small price movements in large enough batches. Just like other assets, the forces of supply and demand determine the value of a currency relative to another currency. It includes profit, or loss, and equity. They are as follows:. Margin is the amount of capital you need to open and maintain positions with your CFD trading account.A pip then represents a single change in price, usually at the fourth decimal place in a quoted price, forex trading terminology. If this point is broken and the bulls forex trading terminology, then the next level upward becomes resistance point where the bears will be waiting to resist further upward movement again. Like support, resistance is an area, not an exact price level. A leverage allows a trader to open a position that is a hundred time larger than their initial deposit. But why is this important, and what does it have to do with value? For example; 0.