Forex trading terms for beginners
The Forex market is filled with strange phrases, acronyms, and terminologies that often leave us scratching our heads. When combined with foreign terminology, not comprehending such trading lingo can be a significant impediment to a trader’s journey and profitability.
Moreover, getting acquainted with new trading platforms and software, such as MT4, MT5, and others, can be challenging enough as well as graphs and patterns for Technical analysis in Forex or correctly predicting how the latest financial news will influents global markets using Fundamental analysis are not easy without proper prior explanation.
Continue reading for a guide to some of the keywords that every Forex trader should be familiar with in order to enhance their Forex trading experience.
Popular Forex terms explained
Currency pairs trading
On the Forex market, we have to trade on currency pairs, we’re not able to buy or sell single currencies. These pairs consist of two currencies – the first one is the base currency and the second one is the counter-currency.
An example of a currency pair is the USD/EUR pair. When we buy the USD/EUR pair, we’re actually buying the US dollar and selling the euro and vice versa.
Bears and Bulls in Forex
Bears and bulls terms are used to describe different market situations, referring to whether the market trend is convincingly up or down. In a Bear market prices are falling whereas in a Bull market prices are rising.
If a trader is bearish, they expect the market, commodity, currency, or Cryptocurrency to fall. If they are bullish they expect the price to rise.
The terms are closely related to the terms “going long” and “going short”.
Going Long and Short in Forex trading
To go long in FX, as in all market trading, implies buying financial instruments with the assumption that your purchase will increase in value. Going long is the inverse of going short, which is when you expect the value to fall.
Long and Short terms refer to your trade position and can be correlated to being bearish or bullish. Taking a long position indicates that you are bullish on a commodity or price, to take a short position means that you are bearish.
Pips in Forex
The term pip is used among Forex traders to talk about profits or losses. It is a short form of Percentage in Point and represents the smallest price movement in the market. It implies quotes accurate to the 4th (a change of 0.0001) in usually EUR/USD, GBP/USD, USD/CHF and other currency pairs, or 2nd (a change of 0.01) in mostly YEN-pairs decimal places.
The term pip is used to simplify the presentation and understanding of analyses and forecasts and to improve the efficiency of comparing various tools, strategies, or trading systems.
For example, if you open a long position on GBP/USD at 1.6550 and by the time the price rises to 1.6600, you will make a profit of 50 pips.
And another example with yen-pair: if USD/JPY currently trades at 115.35 and falls to 115.20, that fall would equal to a change of 15 pips.
Bid and Ask price on the Forex market
Each currency pair has two exchange rates or prices at any one time — the bid price and the ask price. What’s the distinction between the two? The bid price represents the price at which buyers are willing to purchase, whereas the asking price is the price at which sellers are willing to sell.
Because of this, the bid price is always lower than the ask price. A transaction occurs when those 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 pay for a currency to reach a seller’s ask price.
Finally, buyers pay the ask price and sellers pay the bid price. This means that each price plotted on your chart represents the current market equilibrium – the price at which the majority of market participants are ready to interact.
Spreads in Forex trading
You have to pay transaction costs for each trade you enter into. While most brokers no longer charge commissions or fees for placing trades, the bid/ask spread remains the primary cost for Forex traders. When bulls buy at the ask price (the price at which sellers are willing to sell), they instantly incur a loss equal to the bid/ask spread.
So spread is the difference between the ask price and the bid price, which is usually measured in pips. If the bid price for the US dollar is 1.2432 and the ask price is 1.2436 the spread is 4 pips.
What is Leverage in Forex?
Leverage allows a trader to control a larger position using less money (margin) and therefore greatly amplifies both profits and risks. It defines the amount you can trade relative to your account size: trading on leverage allows traders to open considerably larger positions than their original trading account balance would otherwise allow, and the Forex market is recognized for extraordinarily high leverage ratios given by some retail brokers.
Commonly, the leverage amount is written as 1:20, 1:50, 1:100, or any other. Basically, it means that for each deposited $1 of yours the broker gives the opportunity to open a position for $20, $50, or $100 on the market respectively.
Forex trading with Margin
When trading with leverage, your broker will set aside a portion of your trading account as collateral for the leveraged trade. This collateral is known as the margin, and its size is determined by the leverage ratio on which you are trading. A leverage ratio of 100:1 requires a margin equivalent to one percent of your position size.
When trading with leverage, it’s essential to keep an eye on your free margin. Your free margin is the difference between your overall equity (account size + any unrealized profits/losses) and your used margin. If your free margin falls to zero, you will be notified and any open deals will be closed at the going market rate.
Lot size in Forex trading
The magnitude of your market position impacts the extent of your earnings and losses in dollar terms by influencing the value of a single pip. One standard lot (standard position size) in the Forex market equals 100000 units of the base currency. For example, trading one ordinary lot in the EUR/USD pair entails trading €100000 at a pip-value of $10.
Traders with lesser account amounts, on the other hand, can make smaller deals with mini-lots (10000 units of the base currency) and micro-lots (1000 units of the base currency) Some brokers will even let you trade in nano-lots (100 units of the base currency).
Stop-loss tool for Forex trading
A stop-loss order is a risk management instrument that allows a position to be closed when it hits a certain price. This can protect traders against further losses on an open trade if prices continue to move in an unfavorable direction.
The volatility of the Forex market
Volatility here refers to a market’s price changes. The more the goes up or down, the more volatile the market is thought to be. In other words, it measures how volatile/unpredictable its price movement can be. This is a good measure of how risky a currency pair is to trade.
Forex trading with demo accounts
A demo account, often known as a “virtual currency account,” or “practice account,” is a Forex trading account that uses virtual funds. This enables any trader to explore the market and make transactions in an environment that does not require the use of real capital.
Top Forex brokers providing the best UX
Forex trading may seem complex and challenging, and it is. However, with the right intermediary, tools, and education you are far strongly set to close that successful deals.
On our website recommend and review that Forex brokers that have been servicing customers for decades and meet the demanding criteria of the world’s strictest financial authorities. Despite the fact that some of them have geographical restrictions, you may still open an account with these reputable brokers from anywhere by using VPN or VPS services for FX trading. They have the best selection of currency pairs as well as other financial instruments such as stocks, commodities, and Cryptocurrencies, and some of the most favorable trading conditions, such as Forex bonuses of up to $5000 on initial deposits (subject to geographic availability), Social trading, swap-free Islamic accounts, and negative balance protection.
Plus500 CFDs broker
Plus500 has been in the industry for more than a decade, providing CFDs for currency pairs, commodities, equities, Indices, and Crypto, as well as a trading guide and all the tools needed to make trading more effective and secure.
Customers of Plus500 have access to a web terminal for PCs and laptops, as well as an Android and iOS mobile app. There are two types of accounts: actual and demo. The second will give new brokers an ideal opportunity to practice, test their trading skills, and get significant knowledge in real-world market circumstances while remaining completely risk-free.
Plus500 is a truly credible Forex broker that is licensed by the UK Financial Conduct Authority, the Australian Securities and Investments Commission, the Cyprus Securities and Exchange Commission, and the Financial Markets Authority in New Zealand. It is also a regulated financial services provider in South Africa, with a Financial Sector Conduct Authority license.
OANDA Forex broker
OANDA, a reputable US-based broker with millions of clients worldwide and a long history of operations, has earned a stellar reputation among users over the course of more than two decades, while also complying with a slew of global regulators.
The broker is an excellent alternative for new traders because it provides demo accounts, extensive educational tools, and market information, and there is no minimum deposit requirement. There are Forex bonuses of up to $1000 on your first deposit, as well as low commissions and spreads, a diverse range of trading instruments such as Forex, Indices, Commodities, and Crypto including Bitcoin and Ether, advanced trading platforms, and mobile apps, and a diverse range of trading instruments such as Forex, Indices, Commodities, and Crypto including Bitcoin and Ether.
NAGA Markets Forex broker
NAGA Markets is a fully licensed and regulated broker with over 950 trading products and assets available. Its clients can trade commodities, cryptocurrencies, Forex pairs, futures, precious metals, ETFs, indexes, and their CFDs.
NAGA is licensed by some of the world’s most prestigious regulators and regimes, including the FCA, CySEC, MiFID II, and MiFIR, allowing customers to trade with minimal risk, even if they are new to trading.
It can now be traded on MT4 desktop and mobile platforms, as well as the broker’s own NAGA Trader platforms (Mobile app and web version). Overall, a wonderful combination of platform features allows clients to trade, duplicate transactions, and interact – this is NAGA’s modern social trading platform.
eToro Forex broker
eToro is one of the most well-known brokerage firms in the world when it comes to online trading. You can invest in over 2000 different assets and marketplaces with the finest terms possible: low Forex trading costs and low minimum deposits. Since 2017, new digital currencies such as Bitcoin, Ethereum, and others have been added to the list. All instruments are classified into six categories: stocks, cryptocurrencies, commodities, currencies, and ETF indices.
eToro offers two types of accounts: Retail Client and Professional Client. The first is protected from negative balance and incorporates a Copy Trading feature, whereas the second is distinguished by its unlimited leverage. Furthermore, newcomers can always use a demo account to experiment with and try new strategies.
eToro is a highly respectable broker, with millions of clients worldwide and the fact it has licenses to operate in numerous countries and is a member of the following regulators: ASIC, FCA, and CySEC.
AvaTrade Forex broker
AvaTrade is a broker known for providing favorable conditions for a wide range of assets, including currency pairs, commodities, indices, stocks, CFDs, Cryptocurrencies, and many others. MT4, MT5, Proprietary, AvaSocial, AvaTradeGo, AvaOptions, and WebTrader are among the trading platforms accessible. AvaTrade mobile trading is for you if you are a frequent trader who does not want to be tied to a computer.
AvaTrade, for example, provides a diverse range of automated trading platforms and tools that beginner traders can use to increase the profitability of their trades. Ava Replicate Trading – AvaSocial is one of them. It allows you to imitate the performance of successful traders you choose and benefit in the same way they do.
A robust regulatory framework can be added to the benefits of AvaTrade. It is licensed by MiFID, ASIC, FSA and FFA, FSB, IIROC, and FSCA. AvaTrade has offices in nearly every region of the world, in addition to cross-continent regulatory coverage.
All of the reliable brokers mentioned above have an excellent reputations and many years of expertise in the Forex market. And, as time and experience have shown, successful traders do not confine their trading to a single broker. On the contrary, by registering and verifying an account with multiple brokers, you might not only obtain various bonuses but also find better terms for each item in your portfolio. Furthermore, you can compare trading terminals, obtain a wealth of learning resources, and tailor the trading process to your own requirements.
Forex trading terms - FAQ