Currency trading glossary

New to trading? Getting confused with all the acronyms, terms, and glossary? Searching through the length and breadth of the internet but can’t find all of their meaning?

Well for your convenience here is a currency trading glossary that can help you learn all those fancy terms involved in Forex trading. Some of these are basic which you need every day and some of them are uncommon and hardly used.

1. Exchange Rate

Exchange Rate is the value of one currency expressed in terms of another to help in conversion. For example, the exchange rate between EUR/USD (euro and US dollar) is 1.2345. It means €1 = $1.2345.

2. Leverage

A certain amount of money required to control a large amount forms the leverage. For example, a   trader only has to invest $2000 in order to make a trade of $100,000 with a 50:1 leverage.

3. Spread

The spread, another currency trading terminology means the difference between the bid and ask price. The bid price applies to the sell order while the ask price applies to the buy order.

4. Pip  

A pip or percentage in point is the movement of an exchange rate up to a 4 decimal point. For example, if an exchange rate moves from 1.2345 to 1.2346, then there is a movement of 1 pip.

5. Margin

The minimum deposit a trader has to make in order to start trading. Margin comes in 2 forms: used and free.

Used - A margin used to maintain an open position

Free - A margin that one requires to open a new position.

6. Currency pairs

Another currency trading glossary, a currency pair is the currency of two countries used to trade in the Forex market. The EUR/USD (euro and US dollar) is the most popular and widely used pair. The USD/JPY (US dollar and Japanese yen), GBP/USD (British pound sterling and US dollar), and USD/CHF (US dollar and franc) are the major pairs in Forex trading along with the EUR/USD.

7. Rollovers/Swaps

Another one of the currency trading glossary of terms that traders might come across - Rollovers/Swaps. It is the interest that a trader has to pay to his/her broker to hold a position overnight. A trader earns a rollover when the interest on currency he/she bought is higher than the interest on currency he/she sold. Likewise, a trader pays a rollover when the interest on currency he/she bought is lower than the interest on currency he/she sold.

8. Hedging

Hedging means to protect an existing trade by opening a new position in the opposite direction of an already open position.

9. Commissions

Commissions are fees that a trader pays to his/her broker after every successful trade.

10. Forex Robots (Expert Advisors)

A Forex Robot or an Expert Advisor is a program that automatically trades without the traders help. These programs also suggest traders on what decisions to take to make profits. Traders can even customize these programs for their betterment. Forex Robots, purchasable range between $100 to $1000.

The above were some currency trading glossary that traders require in almost all of their trades.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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