Forex Trading – Essential Terminology & Acronyms You Need

We are living in a digital world and the number of online traders is growing significantly, especially in developed countries where those with some trading experience decide to trade privately, which you can do if you connect with a leading trading broker.

Like most specialist industries, online trading has its own language and before you can start trading, you need to familiarise yourself with the following, in no particular order.

• Currency pairs – When you trade on Forex, you select one currency, say Euro and you predict that it will gain against the U$; This pairing is displayed as EUR/USD and you can pair any combination of currencies for the purpose of trading. Using a state-of-the-art platform like MT4 gives you access to many online features and is generally regarded as the best.
• Floating exchange rate – The market forces dictate current exchange rates, which change at any time.
• Fixed exchange rate – The value of a currency set by a central bank.
• Leverage –Leverage means borrowing money from your broker to make a trade; a broker that offers 50:1 leverage means that you can borrow up to 50 times the sum of money you have in your account.
• Bid price – The bid price is the highest price that a buyer is willing to pay for a currency pair.
• Ask price – The ask price the lowest amount a buyer will pay for a currency pair.
• Spread – The spread is the difference between the ask and bid price.
• Long/short position – A long position trade is when a trader expects the currency to rise on value, while a short position is when a trader expects a currency to decrease in value.
• Margin – The amount of money you must put up to open and hold a position.
• Pip – A pip is considered to be the smallest unit of measure when making a trade.
• Bear market – A bear market is one that is falling and investors are selling their holding.
• Bull market – A bull market is a market that is on the rise and investors are buying.
• Call option – A call option is when you have the option to buy at a specific price within a set time.
• Chartist – This is a name given to an analyst who uses charts to determine future market trends.
• Clearing – This is the process of settling a trade.
• Closed position – This is when a trade is closed, which might be done manually by a trader or automatically with a stop-loss order.
• Controlled risk – Using a stop-loss order, a trader can minimise their losses in a trade.
• Counter currency – This is the second currency in a pair.
• Day trading – This is when a trade is completed within a single day of trading and this is popular with less-experienced traders.

Of course, there are many more terms that are used when trading Forex and when you register with a leading global trading broker, you can access everything you need.