Search
Friday 22 October 2021
  • :
  • :

Top 6 Important Terms Used in Forex Trading

Top 6 Important Terms Used in Forex Trading

If you are new to the trading industry, it is normal to not know everything. The Forex market is already complicated as it is, and in addition to that, it is also full of unusual terms, words, and acronyms that will give every new trader a headache. It is challenging to know all these things. But thanks to trading platforms that have easy to understand interfaces like the MetaTrader 4 (MT4), Forex trading has been given a better light.

All those trading languages and alien terminology, it hinders the journey of every trader and its profitability as well. Knowing these terms will give you a better understanding of the market.

Currency Pair

There are currently 180 recognized currencies utilized by 195 countries. Traders in the Forex market speculate the performance of a particular currency through the use of different tools and analysis that determines how each currency will perform, whether its value goes up or down.

When trading currencies, they always go in pairs. There are three kinds of currency pairs – the Major pairs, Cross pairs, and Exotic pairs.

There are 8 major pairs namely and each of them has USD as base currency; EUR, CAD, GBP, CHF, JPY, AUD, and NZD. Cross pairs are NZD/CAD, GBP/AUD, EUR/CAD, and more. Exotics stands for its name as they are not very known currencies and are extremely volatile. These are the Polish Zloty, South African Rand, and Hungarian Forint.

Leverage

It is the amount you borrow from your trader to enhance your presence in the market. When you trade with leverage, you can open a high contract size without spending too much on capital. High leveraged trading is a good way to trade your preferred Forex pairs and cryptocurrencies. This is all possible without investing a lot of money to cover the capital.

Bid/Ask Price

For the Bid price, it is the amount that the trader sells a currency pair. The ask price, on the other hand, is the price that the trader buys a currency pair. In the trading platform, MT4, it is found on the left side of the display, near the ‘Market Watch’ section.

Going Long/Short

When going long, the first part is bought and the second part is sold. Going long means that you are expecting the currency price to decrease.

When going short, the first part is sold and the second part is bought. Going short means that you are expecting the currency price to decrease.

Margin

Margin and leverage are connected to one another. Margin is the initial capital that you have to put in so you can open a trading position. Through the use of margin, a retail trader can have the chance to open a larger trading position without paying so much on the capital.

PIP

Percentage In Point also known as PIP, is an acronym widely used in Forex trading. It is the smallest movement that is reflected on the exchange rate at a given currency pair. PIP can be seen as the 4th decimal at the price quote given at a currency pair. It is also used in MetaTrader 4 (MT4).