If you're new to the Forex market, you've probably come across an article or a forum post that includes phrases like "pips," "cross-pairs," "margin," and others.
These are the fundamental words of the Forex market that all traders must understand.
To assist you get started in the market, we've compiled a collection of the most relevant Forex trading jargon.
While this is not an exhaustive list, it does contain the 15 most commonly used words among Forex traders.
Forex trading terminologies
1. currency as a forex trading terminology
The Forex market is where the world's currencies are exchanged.But first, let's go through the fundamentals: what exactly is a currency?
The term currency is derived from the Latin word "currens," which meaning "in circulation" or "running." Currency is money that is used as a means of exchange, such as banknotes and coins. According to some sources, currencies are a type of money system that is utilized among individuals in a country.
The United Nations now recognizes 180 currencies used in 195 countries throughout the world. Currency examples include the US dollar, Euro, British pound, and Japanese yen, all of which serve as a store of value and are exchanged on the worldwide foreign exchange market (Forex).
The value of a currency in relation to another currency is governed by supply and demand dynamics, much like the value of other assets. The value of a currency decreases as supply increases, but it increases as demand increases.
2. Currency Pair is a forex trading terminology
Despite the fact that currencies are exchanged on the Forex market, we cannot purchase or sell individual currencies. We must trade on currency pairings every time we enter the market. Currency pairings are made up of two, one of which is the base currency and the other is the counter-currency.
A currency pair is illustrated by the EUR/USD currency pair. When we purchase the EUR/USD pair, we are essentially purchasing the euro and selling the US dollar. Similarly, when we sell the EUR/USD pair, we are selling the euro and purchasing the US dollar.
3. Major Pairs is a forex trading terminology
Currency pairings are classified into three types: main pairs, cross pairs, and exotic pairs. Major pairings are currency pairs in which the US dollar serves as either the base currency or the quote-currency and one of the other seven major currencies is used (EUR, CAD, GBP, CHF, JPY, AUD, NZD.)
If you're new to trading, stick to the big pairs because they often have cheap transaction fees and adequate liquidity to prevent significant slippage. EUR/USD, GBP/USD, and USD/CHF are examples of significant pairings.
4. Exotics and cross pairs as a forex trading terminology
Cross pairings, on the other hand, are any two major currencies that do not contain the US dollar. Cross pairings, as opposed to main pairs, have greater transaction fees and, during periods of low liquidity, traders may experience slippage. In addition, cross pairings are often more volatile than major pairs. EUR/GBP, EUR/CHF, and AUD/NZD are examples of cross pairings.
Finally, exotic pairs consist of currencies that are not among the top 10 most traded, such as the Mexican peso, Turkish lira, or Czech koruna. Because certain currencies may be exceedingly volatile, they should only be traded by professionals.
5. Exchange Rate is forex trading terminology
The exchange rate of a currency pair is of importance to all traders. Because it shows the price of the base currency stated in terms of the counter-currency, the exchange rate is sometimes referred to as the price. For example, if the EUR/USD exchange rate is 1.15, it implies that one euro costs $1.15, or that it takes $1.15 to acquire one euro.
A increase in a currency pair's exchange rate indicates that the base currency is gaining against the counter-currency or that the counter-currency is depreciating against the base currency.
A fall in the exchange rate, on the other hand, shows that the base currency is losing value against the counter-currency or that the counter-currency is gaining value against the base currency.
6. Bid/Ask Price is forex trading terminology
At any one time, each currency pair has two exchange rates or prices — the bid price and the ask price.What's the distinction between the two? The bid price is the price at which buyers are willing to purchase something, whereas the ask price is the price at which sellers are prepared to sell something.
Due to the nature of the market, the bid price is always lower than the ask price. A transaction happens when the two prices coincide, either when sellers decrease their ask price to meet a buyer's bid price or when buyers increase the rate they're ready to purchase a currency in order to meet a seller's ask price
Finally, the ask price is paid by buyers, and the bid price is paid by sellers. This implies that each price displayed on your chart represents the current market equilibrium - the price at which the majority of market participants are prepared to interact.
7. Spread as a forex trading terminology
When you enter into a deal, you must pay transaction expenses for that trade. While most brokers no longer charge commissions or fees for placing trades, the bid/ask spread remains the primary expense for Forex traders. When bulls purchase at the ask price (the price at which sellers are prepared to sell), they instantly incur a loss equal to the bid/ask spread.
If you're a day trader or scalper, you should be aware of the bid/ask spread since it may devour a significant percentage of your gains at the end of the day. Swing and position traders who use a longer-term strategy to trading are less influenced by the spread since they start fewer positions and have larger profit objectives.
8. Pip as a forex trading terminology
When Forex traders talk about their profits and losses, they usually use the term "pips." A pip is an acronym for Percentage in Point and is the lowest increment by which a percentage may be expressed. An exchange rate may go up or down. In most currency pairings, one pip equals the fourth decimal place.
For example, if EUR/USD is now trading at 1.1558 and increases to 1.1562, the difference would be 4 pips. However, other currency pairings, primarily yen-pairs, have their pips situated at the second decimal point. If the USD/JPY is now trading at 110.25 and drops to 110.10, the difference is 15 pips.
9. pipette is a forex trading terminology
A pip represents the fourth decimal place in most currency pairings, however prices can move by an even smaller increase. Because a pipette is one-tenth of a pip, 10 pipettes equal one pip. A pipette is found at the fifth decimal point in the majority of pairings (in yen-pairs, they are located at the third decimal place).
Despite the fact that some brokers utilize pipettes in their trading platforms, most traders do not monitor movement in them. Pipettes are commonly used to measure bid/ask spreads if a tenth of a pip is required. In the EUR/USD, for example, the spread may be 1.4 pips, or one pip and four pipettes.
10. Going long/short is a forex trading terminology
You've probably heard the term "going long" or "going short" on a currency pair. Going long simply means buying, and going short implies selling. Most traders in equities markets are long in expectation of higher prices. However, in derivative markets such as options and futures, there is always an equal number of longs and shorts because each new contract purchased necessitates a matching seller who must go short, and vice versa.
Because retail Forex is usually traded with CFDs, traders may wager on both increasing and falling values. When they purchase, they go "long," and when they sell, they go "short."
11. Support as a forex trading terminology
One of the most fundamental ideas in technical analysis is support and resistance. Technical traders only analyze price movements because they think that the price represents accessible fundamental information, and support and resistance trading is an important part of that study.
The markets are made up of masses of individuals who speculate, hedge, trade, invest, or gamble. Because individuals have memories, they recall particular price levels that were tough to break below in the past.
They arrange their purchase orders at specific levels because they believe the price will not go below them again. This is how support levels are established. In other words, a support level is a prior low at which the price has a high probability of retracing and rising.
12. Resistance as a forex trading terminology
Resistance levels, like support levels, are an essential element in a technical trader's toolbox. Support levels are based on previous lows, whereas resistance levels are based on previous highs that the price failed to break above.
Traders recall past levels and place sell orders around them, believing that they will again create selling pressure and cause the price to fall. Because recent memory is more relevant than old memory, recent support and resistance levels are typically more essential than old support and resistance levels.
13. leverage is forex trading terminology
The Forex market is open 24 hours a day, seven days a week, and allows traders to benefit not only from increasing but also from decreasing prices. However, there is another factor that draws many traders to the Forex market: leverage.
Trading on leverage allows traders to open considerably larger positions than their original trading account size would normally allow, and the Forex market is recognized for retail brokers' extraordinarily high leverage ratios.
A 100:1 leverage, for example, permits a trader to start a position that is a hundred times greater than their original investment. Even if you merely deposit $1,000, you may start a position worth $100,000!
However, keep in mind that trading with extremely high leverage is extremely dangerous, since it increases both your earnings and your losses. Beginners might try trading with a lesser leverage until they have gained sufficient expertise and screen time. This will cut your losses and keep you in the game in the long run.
14. Margin as a forex trading terminology
When you trade on leverage, your broker will set aside a part of your trading account as collateral for the leveraged deal. This collateral is known as "margin," and its amount is determined by the leverage ratio on which you are trading. A leverage ratio of 100:1 necessitates a margin equal to 1% of your position size.
For example, if you establish a $100.000 trade with a 100:1 leverage, your margin will be $1,000, or 1% of the position size. Similarly, if you initiate a $40.000 trade with a leverage ratio of 100:1 and a $1.000 trading account, your broker will assign a $400 margin.
When trading with leverage, it's critical to keep an eye on your free margin. Your free margin is equal to your overall equity (account size plus any unrealized profits/losses) less your utilized margin. If your free margin falls to zero, you will be notified and any active deals will be terminated at the current market rate.
15. Lot Size is forex trading terminology
The magnitude of your market position influences the extent of your earnings and losses in monetary terms by influencing the value of a single pip. In the Forex market, one standard lot (standard position size) equals 100.000 units of the base currency. For example, if you trade one standard lot of the EUR/USD pair, you are actually dealing 100,000 euros at a pip-value of $10.
Traders with lower account balances, on the other hand, can conduct smaller transactions using mini-lots (10.000 units of the base currency) and micro-lots (1.000 units of the base currency.) Some brokers will even let you trade in nano-lots (100 units of the base currency.) In any event, determine your lot size based on the amount of your stop-loss to stay within your risk-management parameters.
16. Bullish vs. Bearish is a forex trading terminology
Market sentiment provides insight into the performance of a certain market or the stock market as a whole.
When the market attitude is bullish, the price rises. When the market attitude is bearish, the price will fall.
The fact that bulls have horns and fling objects in the air when agitated is a simple method to tell them apart. Prices are increasing.
When angered, bears stand on their hind legs and rip things down. Prices are falling.
