Before you go deeper into learning how to trade the forex market, it is important for you to understand the basic terms and jargons we are using in forex trading. Here are some of them we gathered from different sources:
BEAR/ BEARISH MARKET – A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining.
BULLISH/BULL MARKET – Favoring a strengthening market and rising prices. For example, “We are bullish EUR/USD” means that we think the euro will strengthen against the dollar.
BULLS – Traders who expect prices to rise and who may be holding long positions.
CABLE – The GBP/USD (Great British Pound/U.S. Dollar) pair. Cable earned its nickname because the rate was originally transmitted to the US via a transatlantic cable beginning in the mid 1800s when the GBP was the currency of international trade.
CAD – The Canadian dollar, also known as Loonie or Funds.
CANDLESTICK CHART – A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
CBS – Abbreviation referring to central banks.
CFDS -A Contract for Difference (or CFD) is a type of derivative that gives exposure to the change in value of an underlying asset (such as an index or equity). It allows traders to leverage their capital (by trading notional amounts far higher than the money in their account) and provides all the benefits of trading securities, without actually owning the product. In practical terms, if you buy a CFD at $10 then sell it at $11, you will receive the $1 difference. Conversely, if you went short on the trade and sold at $10 before buying back at $11, you would pay the $1 difference.
COMMODITY CURRENCIES – Currencies from economies whose exports are heavily based in natural resources, often specifically referring to Canada, New Zealand, Australia and Russia.
Cross rate – the currency exchange rate between two currencies when neither are official currencies of the country in which the exchange rate quote is given. Foreign exchange traders use the term to refer to currency quotes that do not involve the U.S. dollar, regardless of what country the quote is provided in.
Exchange Rate – The value of one currency expressed in terms of another. For example, if EUR/USD is 1.3200, 1 Euro is worth US$1.3200.
Pip – The smallest increment of price movement a currency can make. Also called point or points. For example, 1 pip for the EUR/USD = 0.0001 and 1 pip for the USD/JPY = 0.01.
Leverage – Leverage is the ability to gear your account into a position greater than your total account margin.
Spread – The difference between the sell quote and the buy quote or the bid and offer price. For example, if EUR/USD quotes read 1.3200/03, the spread is the difference between 1.3200 and 1.3203, or 3 pips. In order to break even on a trade, a position must move in the direction of the trade by an amount equal to the spread.
Bid Price – The bid is the price at which the market (or your broker) will buy a specific currency pair from you. Thus, at the bid price, a trader can sell the base currency to their broker.
Ask Price – The ask price is the price at which the market (or your broker) will sell a specific currency pair to you. Thus, at the ask price you can buy the base currency from your broker.
Bid/Ask Spread – The spread of a currency pair varies between brokers and it is the difference between the bid and ask the price.
Stop Loss order – A stop-loss order is an order that is connected to a trade for the purpose of preventing further losses if the price moves beyond a level that you specify. The stop-loss is perhaps the most important order in Forex trading since it gives you the ability to control your risk and limit losses. This order remains in effect until the position is liquidated or you modify or cancel the stop-loss order.
LONG – A position that appreciates in value if market price increases. When the base currency in the pair is bought, the position is said to be long. This position is taken with the expectation that the market will rise.
SHORT – An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.
Market order – A market order is an order that is placed ‘at the market’ and it’s executed instantly at the best available price.
Limit Entry order – A limit entry order is placed to either buy below the current market price or sell above the current market price. This is a bit tricky to understand at first so let me explain:
Stop Entry order – A stop-entry order is placed to buy above the current market price or sell below it.
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