Forex trading terminology or jargons are the terms used basically in the forex market. To trade efficiently in the forex market, you must understand the forex terms, and have a good knowledge of how they apply to the forex market. There are quite a lot of them but here are 10 of the most common forex terminologies
- CURRENCY PAIR:
Currency pair is made of two different currencies that make up the exchange rate. The value of a particular currency is determined when it is compared to another currency. This value is also known as the exchange rate.
A pip is the unit of measurement used in expressing the change in value between two different currencies as quoted in a currency pair. It is the smallest unit of price for any foreign currency. It is calculated to the fourth decimal point.
Bid is the best possible price at which a trader can buy any security displayed in the forex market for sale. This price varies with time and other things.
The ask price of a security is the best possible price a security can be sold for in the forex market. It is the lowest possible price a security can be sold for.
Spread is the difference between the bid and the ask prices of a security in the forex market.
Leverage is the ratio of percentage increase a forex trader enjoys in relation to the trade deposit available in the trader’s account. With leverage, a trader can make trades far greater than his trade deposit can allow. Terms and condition applies in the use of leverage.
Margin is the amount of money a trader must have in her account before she is liable to trade with leverage. It is also the amount of money that must be maintained in the account of a trader who trades with leverage.
- LONG POSITION:
Long position is an investment position that appreciates in value if the market appreciates. If a person buys into a trade with the expectation that the value of the bought security would rise, it is known as a trade with long position.
- SHORT POSITION:
Short position is an investment position that would benefit from depreciation in the market price of a security. It is the opposite of long position.
A broker (an individual) or brokerage (a firm) is the mediator between the forex market and the forex traders. They render a number of services for a fee.