Basic Forex Terms
If you plan to engage in risky, but promising currency trading, start by learning the basics. There are certain terms and words in Forex that you need to be familiar with in order to understand the principle of effectively making buying and selling currencies. Knowing the terminology commonly used by other traders, you will feel free to learn. The following are the most important terms.
Currency pair
This refers to two types of currencies that circulate with each other. You can use almost any currency in combination with another on Forex, but basically everyone trades in pairs involving the US dollar, the Australian and Canadian dollars, the Japanese yen, the euro, the British pound sterling and the Mexican peso. The market is always unstable, and currency prices are constantly moving relative to each other.
Bid
Purchase price of currency.
Ask
The selling price of the currency unit.
Spread
The term describes the disparity of supply and demand. If you are a trader, you are forced to resort to the services of a broker who adds his spread to the value of currencies. So the broker makes a profit. Keep track of the numbers in the pair you are trading in order to get profit, not loss.
Margin and Leverage
This is a form of collateral, allowing the trader to keep his position in the trade. How much margin you take will determine your leverage. In turn, leverage is money that you additionally manage with respect to the deposit.
Pips
The last figure in the price of exchange. Suppose the euro is 1.3746 against the US dollar. If the selling price is 1.3749, then there was an increase of 3 pips. If the selling price is 1.4746, this is an increase of 100 points. In the forex market Pip the smallest unit.
Stop loss
By setting a stop loss, you can minimize potential losses, regardless of the direction that the market will take. There is a regular stop loss, it remains at a predetermined level. And there is a trailing stop, moving along with your position, it protects a decent amount of profit that you have already earned.
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