(ThyBlackMan.com) The Forex market has a unique set of terms. Before you can fully understand how to trade in this market, you need to understand the terminology surrounding it.
Ask – This is the lowest price at which the broker will sell to you.
Bid – This is the highest price a broker will pay.
Exchange Rate – The value of one currency compared to another currency, eg. if EUR/USD is 1.3300, this means that one euro is worth US$1.3300.
Currency Pair – When trading currencies, you are always buying one currency and selling another. The price of the currency pair is the cost of one currency in relation to the other. It is denoted as
EUR/USD when comparing euros and US dollars.
Entering a Position – Or opening a position is when the trader decides to buy or sell.
Exiting – Or closing a position is when the trader decides to close their open position on the market for a profit or a loss.
Hedge – This is a position or a combination of positions that limits your risk in your primary position.
Japanese Candlestick Chart – This is a chart that indicates price movement. The illustrations show by color whether the price has moved up or down, the opening price and closing price for a period and the highest and lowest price during that period.
Leverage – Leverage allows traders to control large amount of money in the market, risking minimal capital on any one position. For example, leverage of 500:1 means that for every $1 in your hand, you can trade $500 on the forex market.
Long Position – This is once you have entered a trade that you believe will go up.
Margin – This is the amount of money needed in your trading account to be able to open a trade.
Pip – This is a measurement of the price movement of a currency. It stands for Percentage in Point. Pips are how traders tend to measure their profit.
Profit Target – This is the point that you exit the market and collect your profit. It is generally set ahead of time and is viewed as a goal of how much money you aim to make on a particular trade.
Short Selling – This is the act of selling an asset that you do not currently have with the view that the price will go down and you will buy it back at the lower price, therefore making a profit. With currency trading, this means that with the EUR/USD currency pair, you are buying the USD or selling EUR/USD.
Spread – This is the cost of trading or the fee your broker takes which is seen in the difference between the price that the broker is prepared to buy off you and the price he will sell to you.
Stop Loss – This is an order to automatically close a trade once it reaches a specified point. This is designed to prevent you losing your entire trading account on a trade that is losing money.
Staff Writer; Larry Poole