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Forex Trading Terms You Need To Know To Be Successful In The Forex Market

If you are a Forex trader being a beginner or guru/pro there are some Forex terms you will need to familiarize yourself with in order to be successful and work efficiently in the Forex market. I have put together some of the most commonly used terms in the Forex market to help you succeed in your trading journey.

Here are the most important FOREX terms. To a large extent, learning the syntax or lingo of FOREX is learning FOREX itself.

Ask price: This is the price at which the market is prepared to sell a specific currency in a foreign exchange contract or cross currency contract. At this price, the trader can buy the base currency. 

The quotation: The ask price is shown on the right-hand side. For example, in the quote USD/CHF 1.4527/32, the ask price is 1.4532, meaning you can buy one U.S. dollar for 1.4532 Swiss francs. 

Base currency: The first currency in a currency pair (for example, USD is the base currency in the currency pair USD/CHF). The rate shows how much one unit of the base currency is worth as measured against the second currency.

For example, if the USD/CHF rate equals 1.6215, then one USD is worth CHF 1.6215. In the foreign exchange markets, the U.S. dollar is normally considered the base currency for quotes, meaning that quotes are expressed as a unit of $1 U.S. per the other currency quoted in the pair. The primary exceptions to this rule are the British pound, the Eurozone euro, and the Australian and New Zealand dollars. 
Bid price: This is the price at which the market is prepared to buy a specific currency in a foreign exchange contract or cross currency contract. At this price, the trader can sell the base currency. It is shown on the left-hand side of the quotation. For example, in the quote USD/CHF 1.4527/32, the bid price is 1.4527, meaning you can sell one U.S. dollar for 1.4527 Swiss francs. Read also How To Calculate Pips, Profit, Loss And Value In Forex Market

Bid/ask spread: The difference between the bid and ask (offer) price. 

Big figure quote: Dealer expression referring to the first few digits of an exchange rate. These digits are often omitted in dealer quotes. 

For example, a USD/JPY rate might be 117.30/117.35, but would be quoted verbally without the first three digits, that is, as “30/35.” 

Closed position: A foreign currency position that no longer exists. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will square the position. Correlation to the stock market. At the time of this writing currencies are moving in close correlation with the stock market. This is not always the case, however. Professional traders do watch for changes in correlation as an aid to decision making in placing FX orders. The switch between being correlated and non-correlated happens slowly over longer periods of time. Read also How Much Capital to Risk Per Trade – The Complete Guide  

Counter currency: The second listed currency in a currency pair. 

Cross currency pair: A foreign exchange transaction in which one foreign currency is traded against a second foreign currency. For example, EUR/GBP is the euro versus the British pound. 

Currency pair: The two currencies that make up a foreign exchange rate, for example, EUR/USD. 

Electronic communications network (ECN): A system wherein orders to buy and sell are matched through a network of banks and/or dealers. See also market maker; no dealing desk (NDD) broker. Flat/square. Refers to a trader on the sidelines with no position. 

Foreign exchange (FOREX, FX): The simultaneous buying of one currency and selling of another. 

Going long: The purchase of a stock, commodity, or currency for investment or speculation. 

Going short: The selling of a currency or instrument not owned by the seller. 

Leverage: The ratio of the amount used in a transaction to the required security deposit, otherwise known as margin. Leverage is typically quoted as a ratio. For example, 100:1 means one dollar controls one hundred dollars of a currency. A 1 percent move of the currency is equal to a 100 percent gain or loss of margin. 

Long position: A position that appreciates in value if market prices increase. When the base currency in the currency pair is bought, the position is said to be long. 

Lot: A unit used to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots. Major currency. Any of the following: Eurozone euro, British pound sterling, Australian dollar, New Zealand dollar, U.S. dollar, Canadian dollar, Swiss franc, Japanese yen. 

Margin: The required equity that an investor must deposit to collateralize a position. 

Market maker: A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument. 

Most retail FOREX dealers are market makers. A market maker is said to have a dealing desk and is the effective counterparty to your trade. 

Minor currency: Any of the currencies between a major currency and an exotic. The South African rand and Swedish krona are minor currencies. Read also How To Open A PayPal Account That Sends And Receives Money In Nigeria 

Mundo: This is a synthetic global currency devised by James L. Bickford, calculated as the average of multiple ISO currency pairs. 

No dealing desk (NDD) broker: It provides a platform to which liquidity providers such as banks can offer prices. Routed to the best available bid or offer. See also market maker; electronic communications network (ECN). 

Short position: A position that appreciates in value if the market price decreases. When the base currency in the pair is sold, the position is said to be short. Read also Important Step For Successful Business Every Entrepreneur Should Know

Trading platform: The online set of tools used to trade FOREX. Trading platforms provide real-time prices of currencies, order entry mechanisms, accounting logs, and a variety of trading tools such as calculators, charts, and indicators.

I hope these guide is useful to you reading it and most importantly help you to make the most out of the Forex market and make a lot of money in return.

Please if you have a suggestion or ideas about others terms please feel free to share with us in the comment section and please don't forget to share this post with your friends on social media. Thank you for your time reading this post and for visit my blog.


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