Essential Forex Trading Terminology You Should Learn

Essential Forex Trading Terminology You Should Learn

  • Posted on 1818-0808-2021
  • by Gareth McCauley

If you’ve ever been to industry conferences and seminars as a newbie, then you know the feeling of listening in on conversations that sound alien. People left and right using terminologies, acronyms, abbreviations, and referencing people and events that you know little or nothing about.

It’s an awkward situation to be in, but you cannot let this get the best of you. Don’t let your ignorance in forex trading terms keep you from testing the waters.

The solution is simple: learn the terms that people in the forex trading community (especially our community here at Fair Forex) frequently use and talk about. Even if you don’t have anything to add to the discussion yet, you might pick up a lot of tips that will be helpful for your first forays into forex trading.

Here are some examples of forex trading terminologies that you need to know:

The Basics

  • Currency Pair – Also called forex pair, it refers to a pair of currencies — one of which you will measure against the other. The currency listed first is the base while the second currency is the quote
  • Major Pairs – Currency pairs with the USD as the base currency paired with major currencies like EUR, CAD, GBP, CHF, JPY, AUD or NZD.
  • Cross Pairs – Pairs of two major currencies excluding USD
  • Exotic Pairs – Pairs of lesser-known currencies such as the South African Rand and Polish Zloty.
  • Ask Price – The rate at which your dealer will sell a currency pair
  • Bid Price – The rate at which your dealer will pay for a currency.
  • Bid-Ask Spread – The difference between the ask price and the bid price, which means the spread can be the profit or loss. Given the exchange rate EUR 1 = USD 1.30 / USD 1.40, the spread is USD 0.10. A spread is tight if the difference between the bid and ask prices is small.
  • PIP or Percentage In Point – The single-point price movement used to express the change in the value of a currency. The pip is usually the last decimal of a price quote. For example, if the price quote for AUD/USD is 0.7435 and it moved to 0.7436, it means the price rose by one pip. If it moved to 0.7430, it means the price fell by five pips. The losses or gains are based on the number of pip increases or decreases.
  • Lot or Lot Size – The number of currency units traders buy or sell. Brokers calculate the pip value based on the current exchange rate and lot size.
  • Standard Lot – 100,000 units
  • Mini Lot – 10,000 units
  • Micro Lot – 1,000 units
  • Nano – 100 units
  • Leveraged Trading – A prevalent method of forex trading wherein traders use “leverage” or money borrowed from the trading platform they’re using to speculate or trade in major currency pairs. Leveraged trading allows you to start trading with only $200, for example.
  • Open a Position or Open Position – Entering a trade. You can enter by buying or selling currency pairs.
  • Close a Position or Close Position – Closing a trade by making the opposite transaction to when you opened the trade. This nullifies the open position and officially closes the trade.
  • Margin – The deposit you pay your broker if you want to start a trade. The margin becomes your trading account’s equity. If you trade in a losing position and the losses are exceeding your equity, your broker will automatically close the trade to protect you from bigger losses. You can get your money back when you close the trade.
  • Long Position or “Going Long” – Buying a currency pair (you buy the first currency and sell the second), which you do if you expect the price of the base currency to increase.
  • Short Position or “Going Short” – Selling a currency pair (you sell the first currency and buy the second), which you do if you expect the price of the base currency to decrease (better to sell earlier while you can still get higher gains instead of later when the price is already lower).
  • Bullish – An expression used to describe the market sentiment when prices are going up.
  • Bearish – An expression describing the market sentiment when the prices are going down.

 

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Strategies

The following are the most popular forex trading strategies that you should at least recognise:

  • Scalping – An intense, short-term trading strategy that lasts minutes or even seconds per trade. It takes advantage of small, same-day price movements during peak trading hours. Expert scalp traders earn profits by accumulating small wins. The more winning trades they make, the bigger their earnings.
  • Day Trading – A more relaxed version of scalping, day trading is ideal for traders who don’t like to leave their positions open overnight. Traders open and exit positions on the same day to avoid huge price movements after trading hours. Like scalp traders, day traders also have to make multiple winning trades in the day to earn profits.
  • Swing Trading – This is a medium-term trading style wherein traders buy or sell to gain from predictable market movements. Swing traders use several tools to analyse the market. If there are indications that a currency will dip or rise, they will take the appropriate position and then exit at the right moment (when they can get the highest gains). Swing trades last more than a day and traders can hold their positions for weeks.
  • Spread Betting – Spread betters do not buy currencies but speculate on their movements. Spread betting is essentially placing bets on whether a currency will increase or decrease in value. The beauty of this strategy is that traders can earn whether the market is up or down.

These terms will become more familiar the more you trade or read up on forex trading. Speaking of which, the Fair Forex Blog is a good place to start learning about forex trading works. You can also join other professional traders at our telegram chat group and view instructional videos once you create a trading account with Fair Forex.

You’ll get the hang of more than just trading terminology here at Fair Forex. Contact us to get started.