Foreign exchange, also called Forex or FX, is meant to replace another currency with another currency .
for example EUR/USD (eur/USD exchange) USD/JPY (USD exchange in Japanese yen) and GBP/USD (exchange sterling in US dollars). Unfortunately, the replacement process is not as easy as it seems, but is interspersed with some difficulties. Therefore, before you start trading on currency pairs, you should learn about some of the terms commonly used in the forex world, because a correct understanding of these terms is your first step towards developing your own trading strategy.
Basic Forex Terms
Here is a list of the basic terms you’ll hear a lot in the forex world:
Pip (pip) – In general, the lowest change in the price can be seen in exchange rates. Points are used to measure the price movement that occurs to a currency pair.
Bid – the price at which a trader accepts to sell a currency pair.
Ask – Purchase price – is the price at which the trader accepts to buy a currency pair.
Spread – is the difference between bid/ask prices, which are offered to the trader through the trading platform. When a broker offers lower spreads or spreads than its competitors, it means that traders on its platform will have a lower price difference between the buy and sell price of the currency pair they wish to trade.
Base – the first currency in a currency pair, also referred to as the candidate (or top number).
Quote – the second currency in a currency pair, also referred to as the common denominator (or low number).
Leverage – is a way to trade larger amounts of currency without paying this amount in advance. Fully effective, leverage allows you to trade in higher amounts with less capital. For example, a 1:50 leverage means you’ll use $200 capital to open a $10,000 trade. This means amplifying both profits and losses.
Trading market terms
To help you understand many technical concepts and terms, we’ve compiled a summary of the key market terms to consider:
Bear Market – the bearish market – where traders expect prices to fall, suggesting that there will be many sell-offs (or traders will open sell positions).
Bull Market – Bull Market – a highly regarded market, where traders have a great passion for increasing purchases (also known as “buy”).
Broker – is the intermediary between traders and financial institutions and is responsible for executing transactions.
Federal Reserve ( Federal Reserve) – Is the official central bank for regulating economic activity in the United States of America. It is often shortened to ‘Fed’.
GDP (GDP) – is the total amount generated by the country’s economic activity.
Inflation ( inflation) – the rate of increase in the cost of goods and services in the state economy.
Interest Rates – interest rates charged against lending to banks or credit lenders to funds. In general, central banks control the interest rate rate rate, which is a major factor in the rise or fall in the currency rate.
LIBOR (London Interbank Interest Rate) – the globally accepted rate at which banks lend money to each other on the London market.
Foreign Exchange Volatility – the volatility level of the currency pair, or the measure of its sudden/unpredictable price movement. This is generally an indication of how dangerous it is to trade a certain currency pair among other currency pairs.
Indicators and reports
Chart indicators and economic reports have a significant impact on assets such as currencies and commodities, and you can find all major data releases through the economic calendar, and many different charting tools available on our platform. Here are the most important indicators you should be aware of:
RSI (RSI) – An indicator that shows whether the asset is in the overbought or oversold area. The units of measurement are between 1-100.
CCI (Commodity Channel Index) – is an indicator to measure statistical change from a specific average, and the units of measurement for this indicator are between -100 and +100.
MACD (MACD) – Is a trading indicator that identifies moving averages and helps to illustrate both the uptrend and the bearish trend of the market.
Correlation – a match between two origins, indicating that they are identical (or different). Links range from +1 to -1.
CPI (Consumer Price Index) – a popular indicator of inflation that tracks the prices of goods and services.
PMI (PMI) – an indicator that reports on relative strength in the industry.
QE (Qualitative Quantitative Assessment Index) – is an indicator of the process of pumping money into the market as it helps the major economies avoid recession.
Additional forex-related terms
The following list contains the main terms you’ll find on trading platforms.
Stop Loss – a market order used to close a losing position once it reaches a certain level.
Stop Limit – a market order used to close a winning position as soon as it reaches a given level.
Fundamental Analysis – an analysis based on broader economic and political data to predict how a currency pair will move.
Technical Analysis – an analysis based on the past performance of the currency pair, to predict how the currency pair will move in the future.
Major Pairs – is a list of the world’s most traded currency pairs, which represent the largest share of the Forex market, priced and traded against the US dollar.
Minor Pairs – are largely non-traded currency pairs and do not have as much liquidity as major currencies. Sometimes it’s referred to as Exotics (or rare pairs)
Cross Currency Pairs – Pairs of currencies that do not contain the U.S. dollar as one of the two ends. Common intersections include EUR/GBP, EUR/CHF and AUD/JPY.
These are some of the basic terms you need to know before you start trading currency pairs. There are thousands of terms that are important to you, depending on the currencies you want to trade as well as the types of trades you want to execute. If you want to trade CFDs, theforex.info offers you a sophisticated and easy-to-use platform where you can trade currencies and thousands of other CFD trading tools.
This article contains general information that does not take into account your personal circumstances.