As we all are acquainted, Forex is a huge market, and there are a lot of nuances to acknowledge about it. As a beginner, it is indispensable for you to know every nitty-gritty detail about Forex and its market.
With a strong knowledge of the forex market, you can trade with ease and flexibility. Forex news and educational resources also help you gain knowledge about the forex market.
In this article, we have gathered information about the key terms of the forex market. Let’s dive into it.
Top Key Terms to Know for Traders:
Currency Pair
It is the quotation of one currency pair to another. If it’s EUR/USD, USD is the counter currency, and EUR is the base price. When you reckon to buy EUR/USD, you are buying EUR and selling USD and vice versa. Some of the major currencies are EUR, CAD, NZD, AUD, JPY, and CHF. These major currencies contain USD as the base or counter currency.
Pips
The word PIPs stands for Percentage in Point, the smallest measurement in forex trading. It is the fourth decimal of a currency pair. For example, if CAD/USD moves from 1.1152 to 1.1156, this increment is equal to four pips.
Bid Price
It is the price at which the trader is willing to sell the currency pair on the trading platform.
Ask price
It is the price at which the trader is willing to buy the currency pair on the trading platform.
Margin
The margin is the amount of capital which is required to open and maintain a trader. Moreover, margins also allow traders to open a large trade. However, margin comes with both profit and losses; it is critical for you to understand the market.
Leverage
The leverage gives you the opportunity to trade on a bigger trade with a small amount of capital. This means you can control a larger position in the forex market with a small amount. It is one of the reasons why professional traders are still attracted to forex trading.
Spread
The spread in Forex is the difference between the ask and bid price. It’s the trader’s sell and buys rate. It is essential for you to keep track of this as most of the brokers don’t charge fees but cover up it through large spreads. It also represents the profit and cost of a trade.
Stop Loss
Stop loss helps traders against potential losses. A stop loss is the level at which the trade will exist. You can set a specific beyond level; if the market moves against it, the trade will automatically close.
Take Profit
Take profit as the vice versa of stop loss. If the market moves in favor of the trader, it will automatically close, resulting in profit for the trader. It helps the trader make a profit and also plays a vital role in sprouting your portfolio in Forex.
Lot Size
The lot size is the standardized or common unit for measuring the size of forex trade. Generally, standard lots equal 100,000 units of the base currency. For example, if it’s CAD/USD, the lot size will be €100,000 because the base currency is EUR.
It is important for a trader to get familiar with lot sizes as they represent the potential profits and losses. There are also mini and micro lot sizes with 10,000 and 1,000 units, respectively.
Short and Long Position
Both terminologies are easy to understand. As a trader, If you purchase a currency pair expecting its value to increase, it is a long position. In contrast, you can also take short positions if you think the market might decline. It will save you from potential losses.
The Bottom Line
The Forex market has a swath of terminologies, which is essential for every trader to get familiar with them. In the above article, we have described important forex terms which can help you get acknowledgment about the platform.
