Knowing some basic terms can help you use them right if you are planning to start forex trading. There is some vital terminology that helps traders trade efficiently in the market. It’s a step ahead toward thoughtful trading. It begins with forex exchange which is also forex or FX. Visit MultiBank Group
Understanding Forex Terms
These are some basic terms that are common in the trading industry:
Bid – Bid is the price at which a broker wishes to buy currency pair. The value of the currency pair impacts the bid price.
Pip is the smallest and lowest increment in which the currency pair has its price for trading. Pips are essential to measuring movement in forex pairs. The price can change and move as per trade timing and the amount you wish to trade.
Spread is the difference between the sell or buy price traders get when trading via a trading platform.
Ask – The price the broker or market maker wants to buy currency pairs online. Besides, it is the value of any currency pair online.
Base – The first currency or currency pair is a nominator or the top number. Here, the currency pair is the base.
Leverage – It means a way to gain exposure to large currency amounts without paying the total value of trade.
Quote – It is the second currency of the currency pair, also known as the denominator.
Margin – Margin is the initial capital that a trader uses to place an order and opens a position for forex trading online. The margin enables a trader to open a prominent role in online trading.
Bearish or Bullish – Market sentiment gives a view of the performance of the market stock and overall condition. When it is Bullish, the price rises, and when it is Bearish, the price reduces.
The financial market has several terms to use in times of currency exchange but differs in meaning in the forex market.
1. Base and Counter Currencies
In the forex market, it is buying and selling currencies so that one can exchange one money for another. The currency prices are available in pairs, which signify the unit of the first currency that you want to pay in the second currency. As the price is available in the first currency, it is the base currency.
2. Long and Short Positions
The traders in the forex market allow taking long and short positions. The meaning of short and long positions keeps changing in the market. The currencies are available in pairs. In the forex market, a long position indicates buying units of the base currency and selling units of the counter currency.
In the forex market, short is selling units of base currency and buying units of the counter currency. Here, it is about going shorter.
It is squaring off if you go back from the short or long position to the zero position. In a long post, you have to sell the square off, and in a temporary place, you have to buy the yard off.
It is a frequent term when trading in derivatives in the forex market. The future contracts in the forex market always have a definite size. The lot size mainly varies from one currency to another. Here, the market makers offer flexibility to the currency with high liquidity.
4. Value Dates and Rollovers
The value date is when a party agrees to trade and settle their accounts. It indicates that the open positions of derivative contracts close automatically on the due value date. It is how contracts become volatile as it approaches the value date.
In some cases, traders wish to roll over the contracts. It is when the traders settle for the arrangements on an expected value date, not the current date. In this, both parties should agree and pay fees on the interest rate that comes as a difference between the two currencies.
Terms Relating to Market Trading
Beyond forex trading, there are a plethora of terms in the market that a trader should be aware of to understand trading moves. A better conception of the technical terms will help understand the leading market and how to implement them.
GDP or Gross Domestic Product –
Bull Market –
Bear Market –
Inflation – The rate of increase of price in service and goods changes due to inflation in the state or national economy. The inflation rates impact forex pairs, including other assets, by heightening or lowering their value.
Federal Reserve – The federal reserve helps control inflation by changing the interest rates. When inflation is high, the federal budget impacts the interest rate and slows the economy.
Foreign Exchange Volatility – It is the price fluctuation in the market. The bigger the price moves, the more volatile the market becomes. It is how the dramatic change in foreign exchange price changes and indicates low risks of currency pair.
A trader must have a good idea of the risks and take appropriate steps. Moreover, traders should know how much interest rates the ruling authority charges. It indicates the weakness or strength of the currency.
Indicators and Reports
If you want to know better about indicators and reports in forex trading, some terms to understand are:
· Relative Strength Index
· Consumer Price Index
· Purchasing Managers Index
· Moving Average Divergence or convergence
· Purchasing Managers Index
· Quantitative Easing
· Fundamental Analysis
· Technical Analysis
· Stop Loss Order
· Close at Profit Order
· Major and Minor Pairs
As efficient traders, having an idea of the technical terms help learn and build knowledge on how to create traders’ portfolio. It also allows you to ask, research, and analyze an ongoing market trend. Depending on this, you can make suitable trading decisions, mitigating the chance of risks. Trading can be complex for beginners. But with, knowledge of the terms simplifies the process and helps traders as they continue to grow. Know more metatrader 4 download for desktop