10 Forex Trading Terms You Must Understand Before You Trade
When you begin forex trading, you will come across new word forex trading Terms and phrases related to forex trading . To assist in your trading, we have compiled a list of common forex words and phrases you will encounter.
pips In forex trading, a pip represents a point in percentage. It stands for the fourth decimal position in the majority of currency pairs. This is a fairly popular term that is frequently used to describe how a trade’s price moved.
bull run When the majority of traders are buying and there is a very high demand for a currency, the price will rise sharply. This is referred to as a bull run or a bull market.
spread The spread is essentially the broker’s cut. It is the difference between the price your broker pays to purchase a currency and the amount you receive when they sell it to you. The purchase price is referred to as the ask price, while the selling price is referred to as the bid price. The ask and bid prices are typical turns in currency trading.
currency pairs Two currencies that are traded together, one against the other, are called a currency pair. The currency being bought is the base currency, which is the first one in a pair. The second currency is used to buy the base currency. exotic currency pait are the least traded as thay carry the highest trading costs due to the low volume traded
slippage This is the discrepancy between the trade’s value when you cancel it and when it is truly cancelled. If your internet is slow, it may take longer for your broker to cancel a deal than for you to do so on your system. In the end, this may result in pricing adjustments.
currency pair abbreviations and what they stand for
- EUR/USD or the Euro vs. the U.S. dollar.
- USD/JPY or dollar vs. the Japanese yen.
- GBP/USD or the British pound vs. the dollar.
- USD/CHF or the Swiss franc vs. the dollar.
- AUD/USD or the Australian dollar vs. the U.S. dollar.
- USD/CAD or the Canadian dollar vs. the U.S. dollar.
GBP/JPY, EUR/JPY, EUR/CHF, and EUR/GBP.
DRAW DOWN The amount of equidity lost when your trade drops from a peak into a vally is known as a deaw down. It is, in essence, the total amount of money that a trade is now losing.
Leverage this is what the broker offers .it alows traders to controle a laeg amount with a smaller amount of capitall 100:1 leverage means $1 controls $100.
MarginThe amount of money required to keep your account rimimg .diferent brojers set the margin regarding how mutch money you nrrd to keep in your account to keep your trade running /a margin call will be isued buy your broker when your equity falles below this set level .onse you get a equity call you must either deposit more funds to cover your trade ,or close or reduce the folume you are trading .
Lot
The unit size of a trade.
Standard lot = 100,000 units
Mini lot = 10,000 units
Micro lot = 1,000 unit
Bullish this is when the market is moving in a buy ditection ,and reflects the felling of traders as to how the currancy is fermorming.
Bearish A market condition where prices are expected to fall (selling sentiment).on a chart the candkes will be moving in a downwarts direction
Stop Loss (SL) A predefined price level where a losing trade will automatically close this is placed to protect your capitall and is the amount the trader is prepared to loos shoud the trade turn against them
Take Profit (TP) A predefined price level where a trade will automatically close in profit.a comon practice is to set the take profet at 1.5 or 2 times the stop loss value .alyhow this is entirly up to the indeviduall trader
Bid Price The price at which the market is willing to buy a currency pair (you sell at this price)
Ask Price The price at which the market is willing to sell a currency pair (you buy at this price).
Trend The general direction in which the market is moving (uptrend, downtrend, or sideways).these three types of movement form the bases of a trend trading stratergy
Volatility The measure of how much the price of a currency pair moves over a period of time.idealy traders look for periods of high volatillity to maxamice their trading profets .periods of high volotility often accur when the major markets are open ,or even better when two markets are open ar the same time
Drawdown The reduction in equity from a peak to a trough during a losing streak in trading.
Now you know the forex trading terms. Try a demo account now.
