Before you start your forex trading experience you must make sure you are familiar with all major phrases and jargon of the forex market. Misunderstanding or using the wrong language might be embarrassing or even result in loss of money.
So, in order to make your life easier, and your forex trading understanding a little better, we have assembled a list of what we feel are the most important terms in this market. We tried to keep the list relatively short and put in it only the major, most important phrases, so new comers don’t get really confused.
You’ll pick up the rest of the terms throughout your own journey in the financial markets maze.
Carefully read and memorize the terms and their meaning and make sure you know them all before you start trading.
Currency Pair: two currencies constituting the exchange rate, e.g. USD/EUR.
Base Currency: the constant currency in a currency pair, the base currency always gets the value 1 and is always located first in the currency pair. E.g. in the currency pair USD/EUR USD, the base currency will always have the value 1. EUR’s value will determine the exchange rate for this pair.
Ask: The price that a seller is asking for a currency.
Bid: The price that a buyer is willing to pay for a currency.
Spread: the difference between the Ask and Bid prices at a certain point in time.
Stop Loss: an order that limits the price of a transaction (lowest for a seller or highest for a buyer) in order to restrict potential losses from the transaction.
Limit: an order to buy when a market reaches a certain price, when prices are falling, or sell when the market reached a certain price, when prices are increasing.
Clearing: Settling the transaction
Pips: often referred to as points. The smallest unit in a currency price, it is located in the fourth decimal place. So an increase in a currency’s ask price from 1.4555 to 1.4556 is a 1 pips increase.
Futures: a transaction for the selling/buying of foreign currency at a specific date in the future in a specific, predetermined exchange rate.
Long: buying a currency under the assumption that its’ value will increase.
Short: selling a currency under the assumption that its’ value will decrease.
Technical Analysis: using historical data to forecast future trends in the financial market.
Fundamental analysis: using economic and political information to forecast future trends in the financial market.
Appreciation: an ascent in a currency’s value.
Depreciation: decent in a currency’s value.