Forex or foreign exchange market is a worldwide trading place for exchanging national currencies, which are being traded against each other as exchange rate pairs. It also exists as a spot or cash markets as well as currency swaps, derivatives markets, options, offering forwards, and futures.
The following are the most common terminologies used in forex trading.
Forex Account
Forex accounts are used to trade currencies in trading platforms. It has three types depending on the lot size. It includes micro, mini, and standard which allows investors to trade up to $1,000, $10,000, and $100,000 worth of currencies in one lot, respectively.
Bear Market
It is one in which prices plummet among currencies and signifies a market downturn. It is the result of depressing economic fundamentals or catastrophic events, including a financial crisis or a natural disaster.
Bull Market
It is one in which prices rise for all currencies, signifying a market uptrend. It is the result of optimistic news regarding the worldwide economy.
Ask/Offer
It is the lowest price at which a trader is willing to buy a currency. For instance, if an investor placed an ask price of $1.38910 for GBP, then numbers mentioned are the lowest he is willing to pay for a British pound in USD.
Bid
It is the price at which a trader is willing to sell a currency. For example, if an investor placed a bid price of $144.540 for JPY, then these figures are the highest he is willing to pay for a Japanese yen in USD.
Contract for Difference (CFD)
It is a derivative that authorizes traders to speculate on currencies’ price movements without owning the underlying asset. Investors who are betting for the price of a currency pair to rise would buy CFDs for the pair, while those who believe that the price would fall will sell CFDs relative to that currency pair.
Leverage
It is the use of borrowed money to accumulate returns. The foreign exchange market is characterized by high leverages, and traders are using these leverages in boosting their positions.
Margin
It is the money set aside in a forex account when trading currency, ensuring the broker that the trader would remain debt-free and be able to meet monetary obligations. The amount of margin an investor has depends on the balance over a period of time.
Pip
Also known as percentage in points or price interest points, it is the minimum price move, equivalent to four decimal points, made in the currency market.
1 pip = 0.0001
100 pips = 0.0100
10,000 pips = 1.0000
100,000 pips = 10.0000
Spread
It is the difference between the bid or sell price and ask or buy price for a currency. Forex traders make money through spreads since they don’t change commissions. The spread size is influenced by a lot of factors such as trade size, currency demand, and volatility.
Sniping and Hunting
It is the process of buying and selling of currencies near predetermined points to maximize profits. Brokers are indulged in this practice, and the only way to seize them is to network with fellow traders and discern patterns of such activity.
