The following are the common most-used forex trading terms that you need to know:
Currency Pair
Forex trading is primarily the process of exchanging one currency for another. That is why currencies in the forex market are traded in pairs. The currency pair is a quotation for one currency against the other; known as quote currency and base currency.
Currency pairs use the abbreviation of currency and country names. For example, the USD/JPY currency pair refers to the US Dollar against the Japanese Yen.
Exchange Rate
The exchange rate is the value of a currency relative to another currency. It is the price at which one currency is being exchanged for another. For instance, if the exchange rate of the EUR/USD pair is 1.1200, this means that one euro equals $1.20, or it takes $1.20 to buy one euro.
The rise in exchange rate reflects that the base currency is appreciating against the quote currency. Similarly, the fall in exchange rate reflects that the base currency is depreciating against the quote currency.
Bid and Ask Prices
Bid and askindicate the price at which a currency pair or another asset can be sold or bought at the current time. The bid price is the price that the trader is willing to pay for the base currency in forex trading.While the ask price is the price that the trader is willing to receive from selling the base currency.
The ask price is always a little higher than the bid price, the difference between both is known as the spread.
The quote is the market price for buying/selling a currency pair. It is always consisting of two figures; the bid/ buying price and the ask/selling price. For instance, the quote for USD/GBP currency pair can be $0.7130/32. The first figure represents the bid price of $0.7130, while the second figure represents the ask price, and the difference between the two is the spread worth of 2 pips.
Bullish and Bearish
Markets move in three directions: up, down, or sideways. In forex terms, bull and bear are used to describe a market condition. The bullish market is when prices are rising or are expected to rise.On the other hand, the Bearish market describes falling prices or a descending price trend.
The terminology is based on how the bulls and the bears attack their prey. Bears stomp their paws on the prey pushing it downwards, while bulls thrust their prey upward.
In a bull market, traders usually buy the base currency against the quote currency. Whilst in a bear market, traders look for selling the base currency to buy the quote currency.
Long and Short
In forex trading terms and common language, long is a position type meaning buying the asset. So, if a trader has a long position, that means buying the currency pair. Long positions are used in bullish markets where there is an ascending price trend. In long positions, the base currency is being bought while the quote currency is being sold.
Entering a short position is selling the currency pair. In contrast to long positions, short positions are used in bearish market trends when the prices are falling. In short positions, the base currency is being sold while the quote currency is being bought.
What is the Pip？
Thepipis the standard measuring unit for the change of value in a currency pair. It is represented as the last decimal point in the price quote and is equivalent to one basis point. A pip stands for percentage in point or price interest point. Pips are used to calculate the profit or loss of forex trade.
One pip is displayed as $0.0001, it is one-tenth of 1% and is equal to 1 basis point. For example, if the EUR/USD Pair moves from 1.1050 to 1.1055, then it did move 5 pips.
Pipettes or fractional pips are smaller units used to precisely define fluctuations in forex rates. Every pipette is equal to a tenth of the pip.They are additional decimals, the 5th and 3rd decimals, beyond the standard of 4 and 2 decimals.
What is the LotSize？
The lot is one of the main forex trading terms. A lot is the quantity of the traded currency pair. It is basically the standardized unit of measuring the quantity of the trade.
There are four common types of lots in Forex trading; Standard, Mini, Micro, and Nano. The standard lot size is 100,000 units of the currency pair, mini is 10,000 units, micro is 1,000 units and nano is 100 units.
Determining the proper lot size plays an important role in yourforex risk management. Learn more about how to determine the properlot sizeand calculate profits.
What is the Forex Leverage？
Theforex leverageis basically a borrowed capital from theforex brokerto trade currency pairs in the forex market. Instead of trading with $100 in your trading account, with a 1:100 leverage, you can trade with $10,000. The leverage enhances the trading capacity for any forex account. It is a common trading facility offered by most brokers.
As leverage is one of the most important forex trading terms, it is essential to know that leveraged trading is a double-edged sword. Thats why it is usually advised that forex traders know how to manage leverage properly and strictly apply a risk management plan to mitigate potential losses.
Enjoy competitive forex leverage with aximtrade, up toInfinite Leverage. aximtrade provides a leverage range that helps you choose your preferred risk level.
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