TERMINOLOGIES USED IN FOREX
Terms and Terminologies:
Is the Field of Forex, that need to be learn about,the Terminologies so as to be able to communicate with the Market, Analysts and also with Traders.
- Currency Pair
180 recognized currencies in circulation being used in 195 countries. As traders, we can speculate on the performance of a certain currency by using a range of analysis and research to determine how that currency will perform in the marketplace.
How we trade these currencies is based on one currency’s performance against another – Forex Trading.
Pairs are categorized into 3 core groups:
*Major Pairs – The 8 common pairs all of which contain USD as the base currency or counter currency and one of the following – EUR, CAD, GBP, CHF, JPY, AUD, NZD.
Cross Pairs – These are any 2 major currencies which do not contain the US Dollar as the base or counter currency. These are deemed more volatile than Major Pairs.
Examples include GBP/AUD, EUR/CAD, and NZD/CAD to name a few.
*Exotics – These are quite literally exotic currencies, lesser well-known currencies which can be extremely volatile in the market.
- Leverage
Leverage is, in essence, borrowed money from within a trading account. Trading with leverage allows a trader to open a position with a high contract size with less expenditure.
High leveraged trading is an effective way to trade your favorite Forex pairs, cryptocurrencies and much more without investing vast amounts of capital.
Based on a contract size of 100,000 per lot a trader without using leverage would need around $130,000.00.
130,000 / 500 = $260
Using 1:500 leverage, a trader can open a position with just $260.00.
- Bid / Ask price
The bid price is the price a trader is willing to sell a currency pair.
The ask price is the price a trader will buy a currency pair. Difference between the bid and ask price is known as The Spread.
- Going Long / Short
When a trader is going long on a currency pair the first part of the pair is bought while the second is sold. Going long or buying a currency means that you expect the price to rise.i.e. AUD / USD
- Margin
Margin is the initial capital that a trader needs to put up in order to open a position. Margin also gives a trader the opportunity to open a larger position size.
Margin opens the door to leveraged trading but, be wary, margin magnifies both profits as well as losses.
- PIP
The acronym PIP stands for Percentage In Point.
PIP is the smallest movement reflected in an exchange rate on a currency pair. The PIP is the 4th decimal on a price quote for a currency pair. It is used to measure value.
- Lot Size
A Lot in Forex trading is the size of trade/position that you will open.
1 Lot in standard Forex trading on a currency pair is the equivalent of 100,000 units of the base currency of the pair.
If we look at EUR / USD, this means that opening a trade in USD would mean the trade size is $100,000.
EUR being the base currency.
1 standard PIP is worth $10
This means a 10 PIP incremental movement in a buy trade, this would represent a $100 gain.
- Bullish / Bearish
Market sentiment gives a view of the performance of a particular market or the stock market overall.
When Market sentiment is Bullish, this means the price is going up.
When Market sentiment is Bearish, this means the price is going down.
An easy way to distinguish the difference is that bulls have horns and toss things in the air when provoked. Prices rising.
When bears are provoked, they get on their hind legs and tear things down. Prices decreasing.
Summary
As you have read, there are many technical terms and acronyms in the world of Forex trading.
As traders, we should always be reading, learning and building on our existing knowledge to make us more of a well-rounded trader with a view to becoming more profitable.