Before we start with the terminologies related to forex trading, what is forex trading in a nutshell? Forex trading is the exchange (buying/selling) of virtual currencies and commodities through an online decentralized marketplace. The Forex market is the most traded marketplace, turning over $6 trillion daily. Now for the terms;
1. Long: Going long in the forex market means buying a base currency and selling a quote currency at the same time
2. Short: Going short in the forex market means selling a base currency while buying a quote currency
3. Currency pair: This is used to show the exchange rate between two different currencies that are traded in the forex market at the same time. This is because currencies are not traded individually, but in pairs.
4. Brokers: Brokers provide the platform through which traders can evaluate the Forex market. i.e. helping traders to fill their long or short orders
5. Candlesticks: Also known as Japanese candlesticks, they represent market movements. (either up, down or sideways) in the forex market over a period of time. It consists of a body and a wick, but in some cases it can only consist of either a body or a wick.
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6. Bears: The term bears is used to describe sellers in the forex market (traders going short in the forex market).
7. Bulls: The term bulls is used to describe buyers in the forex market (traders who go long in the forex market).
8. Pip: A pip (percentage of point movement) is a unit of measurement used in forex trading, just like “meters or pounds”, it is used to measure the rate of movement/price change in the forex market for currency pairs and other commodities. A pip is represented as the fourth decimal place for most currency pairs, with the exception of Japanese Yen pairs, i.e. H. 0.0001
9. Eyedropper: This is a fraction of a pip movement, usually represented as the fifth decimal place for most currency pairs except Japanese Yen pairs ie 0.00001
10. Spread: A spread in forex represents the difference between the ask and bid price of a currency pair or other commodity, i. H. the trading costs calculated by the broker
11. Bid: This is the price at which sellers in the market are willing to sell a particular asset (currency pair or commodity).
12. Ask Price: The ask price is the price at which buyers in the market are willing to buy a specific asset (currency pair or commodity).
13. Lot Size: This represents the percentage of the trader's money (equity) that the trader is willing to risk per pip movement in the forex market. For example, a lot size of 0.01 means the trader is risking 10 cents per pip movement in the forex market. while a lot size of 0.1 means the trader is risking $1 per pip movement in the forex market. 1 lot = 100000 units
14. Equity: This is the available equity that a trader has after the losses or profits on open trading positions have been deducted or added to/from the initial balance
15. Leverage: This is a term used to describe the percentage of a trader's equity that is loaned to the trader by the broker. Leverage allows traders to take larger market positions that their capital/equity alone would not be able to, Leverage is expressed as follows: 100:1, 500:1. and this means that for every dollar deposited, he has $100 available has trading levers and so on
16. Margin: This is the minimum amount that a Forex trader must hold/deposit in their trading account in order to place trade orders in the Forex market through a broker. this can be determined mathematically: total lot size/leverage
Conclusion: There is a lot of terminology related to Forex, but these are some of the basic terms you need to know. We will explore more terms in the future.
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