Forex is a prominent market, getting bigger with each passing day. Even today, the trading volume of the forex market is more than $5T daily and is expected to grow. More people, especially young ones, are taking an interest in the currency place to earn a side income. Due to this, it has become recurrent among beginners to search for things like best forex trading tips or forex trading education.
But, what they miss is getting aware of the forex trading terminology first. The market has its own slangs, acronyms, unusual terms & words, and jargons and without knowing them, it would be a little confusing for you. And that’s why, here we are sharing a list of 7 crucial forex terms, without which the market is incomplete.
Table of Contents
7 Important Forex Trading Terminology For Beginners
1. Currency Pair
The quotation of one currency with another one is the currency pair. For example, in the pair GBP/USD, the first currency is the base currency, and the latter one is the quote currency. All the money in the world is represented with some standard ticker sign, for example, the US dollar as USD, pound sterling as GBP, Japanese Yen as JPY, etc. There are 180 currencies globally circulating in 195 countries.
Now, there are three kinds of forex pairs in the market. They are:
Major Pairs: There are in total of eight “major pairs”. Major pairs include US dollar as one of the currencies, i.e. either base or quote. The other currency with USD should be from one of the following – CAD, EUR, JPY, CHF, GBP, NZD, and AUD.
Exotic Pairs: As the name suggests, these are all exotic pairs which possess extreme instability in the market and include Hungarian Forint, Polish Zloty, and South African Rand.
Cross Pairs: The pair which do not have US dollar in either of the sides, i.e. quote or base, are cross pairs. These are comparatively volatile than Major Pairs.
ET finance offers all types of currency pairs at highly tight prices. Moreover, the broker is regulated and works under the Cyprus Securities & Exchange Commission (CySEC) with license number 359/18.
The broker offers dozens of pairs, tradable from PC as well as the mobile phone.
PIP, or pip, stands for percentage in points and measures the change in currency pair rates. One PIP is equal to one by 10000 or 0.0001 and is the smallest change, one unit, in an exchange rate on a pair. For example:
The current rate for the cable currency pair, i.e. GBP/USD, is $1.3217. It means one can buy 1.3217 US dollar for 1 pound sterling. If tomorrow the cable falls by 50 pips, then the rate would become $1.3167. It means now the person can buy fewer dollars in exchange for 1 pound.
Margin is the amount required to trade or execute an order. It can be said as the minimum money or collateral which allows a trader to take leverage, or loan, giving you access to a more massive multi-fold amount. In simple words, when trading in the margin, a trader needs to provide a certain percentage of the total order value, and the broker gives the remaining amount.
For example, an investor wants to trade ten stocks trading at $1000 per share, but he only has $500 in his pocket. So, he would take a 20X margin from the broker, i.e. 20 times of his amount, and will trade.
However, a trader should be aware that margin trading maximises both profits as well as loss.
4. Long and Short
In forex trading education and market, to “go long” means to buy the first currency in the pair and expect the forex pair to rise. It also means that the trader is selling the second currency. Similarly, to ‘go short’ means to sell the first currency and buy the second currency in the forex pair, i.e. the trader expecting the pair to fall further.
For example, take the pair GBP/USD. Going long in the cable would mean forecasting the pair to rise in favour of pound sterling. Similarly, to go short in, it would mean to sell pound and expecting the pair to fall.
5. Bid/Ask Price
The bid price is the rate at which a trader is ready to sell the pair. ‘Ask Price’ is the price at which the investor is willing to buy the currency pair. The prices are displayed with every broker and are real-time.
For example, the pair AUD/USD is trading at 0.9385/0.9384. So, here the bid price is 0.9385, where the trader will buy the pair, and 0.9384 will be the ‘ask price’, where the trader will sell the pair.
Spread is the difference between the bid and the ‘ask price’. It is the difference through which the broker earns from the traders. In simple words, it is the cost of executing a trade. For example, the GBP/USD is currently trading at 1.3217/1.3215, where the difference between the two, i.e. two pips, is the spread.
A good broker is that which offers tight, narrow spreads to all its users like HF trading. The broker is an Australian Securities & Investment Commission (ASIC) regulated company which provide right trading products and services to all its users. Further, the spreads offered by HF trading are one of the best and utterly transparent to understand.
7. Lot Size
Forex pairs are traded in fixed quantities called lots. A single standard lot contains 100,000 units of currency. However, now most of the genuine brokers like 2investoffer other trading lot sizes such as Nano, mini, and micro-lots. A single Nano, micro, and mini lot contain 100, 1000, 10000 units of currencies, respectively.
In other words, a Nano lot = 0.001 Standard Lot,
Micro Lot = 0.01 Standard Lot
Mini Lot = 0.1 Standard Lot
The Bottom Line
Forex is a complicated place. There are many ups and downs in the market, and daily thousands of people win as well as lose capital. But, there’s another side to it too. The market is packed with fraudsters also, who only work to eat up people’s money. It can be anything, an individual, an organisation, or a broker. Thus, one significant forex trading tips would be to double-check the authority and regulations before transacting funds. For instance, to verify the trustworthiness of a broker, read reviews and check its services in the free trials. A broker should be like ET finance, HF trading, or 2invest, that makes sure the clients and their funds are safe and secure at every cost to them.
All three of them are regulated with trusted and top financial bodies of the world like CySEC, ASIC, or more. Try their free demo service and decide the one for yourself.