[simple_series title=”Forex Beginners”]
Forex Trading is a crazy place with full of terms that many people have never heard before. Learning clearly about the terms is important for you so that you can never be confused that can mislead you. In this article, I have mentioned about some basic terms that you must know for involving in forex trading.
The Term – Forex
The Forex or foreign exchange market or currency market is place where currencies are traded. Governments, banks and individuals all over the world trade currency pairs when forex trading is in session. Each second is valuable in forex trading session, because of unstable exchange rates of currencies.
The Term – Currency Pair
In forex market, two types of money are traded for one another. For example, the currency pair EUR/USD. This currency pair is also known as “Eurodollar”. It represents the number of US dollars that you can buy with one euro. When the value of EUR increases, the exchange rate increases.
Seven major currencies are traded in most cases. In forex market, there are more than a dozen of different currencies are available. That is why you can trade with dozens of different currency pairs if you want.
The Term – Spread
The spread is the amount of pips between the asking price and the bidding price. Forex brokers use spread to make money on forex trade that is placed through their network. Spread always stays near the original price that forex broker pays.
The Term – Pip
Pip means “Price Interest Point”. Pip is the smallest unit of a forex market. Pip can also be defined as the smallest increment in a currency’s price movement. For example, if any forex trader says “I made 60 pips on trade” means that the trader profited by 60 pips.
The Term – Leverage
Leverage is the use of borrowed money to obtain an investment. With leverage, you can have more money to use for forex trading. When you succeed in trading, the higher amount of leverage works as an opportunity. On the other side, when there is a loss the higher amount of leverage may lead you to end your trading.
The Term – Margins
Margin is considered as a good faith deposit required for maintaining open positions in forex market. Margins are not transaction cost or fee. These are the portions of your account equity. These are allocated as margin deposit.
The Term – Stop Loss
Stop loss is your real friend. It is an order that ends your existing trade to help you to limit losses. Your trade will be closed at the present market value when your stop-loss order is hit on trade.
The Term – Long vs Short Positions in Forex Trade
Long position is also known as ‘long’ in forex trading. It refers to market position in which you have bought a currency pair.
Short position is also known as ‘short’. It is exactly the opposite of a long position. It means that you have traded base currency and bought the counter currency.