fbpx

Eight Forex Terms Every Trader Should Know

Make yourself able to get close to basic terms that every FX trader should know. First of all, one should know the exact meaning of FOREX TRADING or Market which is also called EXCHANGE MARKET. By which we can easily be able to buy or sell currency pairs. This is the largest market around the globe with an average turnover of around 3 trillion USD per day.

Moving to our topic which is about the terms about traders:

 

  • Exchange Rate:

It is the figures for one value in terms of another currency. For example: if you need to purchase 1 GBP for USD, you need to pay 1.31 USD. That means 1 GBP is worth 1.31 USD. The standard way to show this exchange rate is GCP/USD=1.3100, the currency rate left to slash mark is known as “base currency” and the right one is called as ‘quote currency”.

There are four major currency pairs. They are:

USD/EUR

USD/GBP

USD/JPY

USD/CHF

 

  • Leverage:

In short, it is money or amount which is borrowed from the trading account. Leverage trading allows traders to open or starts by less expenditure including high contract size.

Without investing fewer amounts of capital high leveraged trading allows you to trade your good FOREX pairs, cryptocurrencies and many more. For example: If you are investing your own 100
$ with a ratio 1:100 leverage, that shows that you are investing 10,000$ (100 multiply by 100) which gathers your own 100$ and 9,900 $ borrowing from the broker.

But let’s suppose if the exchange rate decreases by 10 pips. This will cause a loss of 100$, decreasing your initial investment as well. So, therefore, Leverage has got many benefits in rising markets but also is harmful as well in declining market.

 

  • PIP:

It is a mini fraction that the currency pair can swing. For example: If the currency pair rate for GBP/USD is 1.3100 and the currency pair value has increased to 1.3105, this shows that the value reaches up to 5 pips. FOREX mostly goes with pips as the smallest fraction. In order to gather accurate fractions, some of the resources use fifth decimals instead of fourth, which is known as a pipette.

 

  • Bid And Ask Price:

It is an amount which brokers or market will buy from you. Stating in another way, it is a price at which you sell the base currency to the market. It is the price, which a trader will buy a currency pair.

 

  • Spread:

It is specifically the difference between bid prices and asks the price. In the market, A broker mostly will buy currency (bid price) at a lower price and sell it (ask price) for more profit.

 

  • Margin:

It is an investment required to sustain your position. It is not a transaction or fee, but traders own a balanced deposit invested to sustain the position.

 

  • Bulls And Bills:

While trading in FOREX MARKET you often get to know BULL and BILL market. The “BULL MARKET” is used when the currency exchange rate is towards the sky, and “BILL MARKET” is used when the currency’s rate is in a downwards manner.

 

  • LOT

It is one of the most important terms a trader should know about. Dividing them into three types:

1-STANDARD LOT

2-MINI LOT

3-MICRO LOT

A standard lot is the original trade size, which is equal to 100,000 units of the base currency in FOREX TRADING. A mini lot is equivalent to 10,000 units of the base currency, and the micro lot is equal to 1,000 units of the base currency in FOREX TRADING.

Winding up the whole discussion you may say that there are major terms in the schools of FOREX TRADING. As being professional traders, we should always try to enhance our knowledge to get better with the flow, in order to get more profits and benefits.

Leave a Comment