5 Major Forex Trading Terms Every Investor Should Be Aware Of

Like the conventional stock segment, the forex trading market, too, comes with its own set of jargon and terminology. Hence, before you start delving into deep waters, it’d be best for you to learn about them first. So, here’s what we’ll do here.

First, we’ll focus on the fundamental terms that‘re used on a regular basis in the forex market. And then, I’ll share some insights about a few jargon you must keep in mind to improve your overall trading experience. Let’s get started with it, then.

Basic Terms To Know About

These terms are generally used in the market on a daily basis. Thus, if you want to become a frequent trader, you should note these down somewhere in your notebook.

And, yes… you’ll need to know about them even if you’re using a simplified hosting server provider, like forexvps. So, let’s begin.

  • Pip: This term is all about noting the smallest or lowest increment in which a pair of currencies is priced. However, it’s subjected to alteration quite frequently due to the amount of money being traded and the timing of the movement.
  • Bid: The price at which you or a broker is willing to buy a currency pair. It might be changed from time to time depending on the underlying value of the pair.
  • Spread: The difference between the selling and buying price of a currency pair. You can find this term mostly in a trading platform while comparing the pricing.
  • Quote: It’s the second currency situated within a currency pair. In some cases, it may be referred to as a denominator as well.
  • Base: This one is the first currency available in a pair. For example, if you’re trading a USD/CAD pair, USD would be the base here. And the quote will be CAD.
  • Leverage: It refers to gaining exposure to a substantial amount of the currency without paying the whole value. It allows you to trade more without sharing too much money.

Stepping Into The Advanced Zone

Now, in this section, I’ll tell you about some terms that you may not have to use regularly, but they’re important nonetheless. Let’s keep scrolling.

Terms To Know – 1: Cross Rate

The term “cross rate” refers to the exchange rate between two currencies. But, this phrase can also be utilized to cite a currency quote that doesn’t feature the U.S. dollar.

For instance, if a pair of Euro and Yen was published in an American newspaper, it’ll be cited as cross-rate in this aspect. It’s because none of the aforesaid currencies belong to the USA.

Terms To Know – 2: Margin

Margin, in essence, is the deposit you’ll require to maintain or open a position. It’ll be either “used” or “free,” depending on how or where you’re trading.

For example, used margin refers to “that” amount of money, which you’re using to maintain an open position in the market. The free one is all about the cash available to open a new a/c.

Terms To Know – 3: Bear And Bull Market

A bear market, in essence, is a part of the forex trading environment that’s been declining for quite some time. It indicates that the market will have more short-selling than usual.

Conversely, the bull market is a trading segment where most people are considering opening a new account. It has a higher value proposition than a bull market.

Terms To Know – 4: Inflation

Inflation is all about indicating a sudden rise in price in a market. And, in forex trading, it refers to the cost of currency pairs in a specific economy or nation.

The inflation rate of a currency pair can affect almost any trading asset by either increasing or lowering its value. So, if you feel like your trading market is being inflated all of a sudden, it’s always better to pull out from there.

Terms To Know – 5: Broker

Just like the stock market, the job of a broker is to work as an intermediary for a trader and a financial institution. They’re primarily hired to execute a payment procedure.

However, if you want, you can also take their help to create a proper forex trading plan. They can also offer their assistance in learning more about the market first-hand.

The Bottom Line!

I could only offer a few terms through this blog, which, I know, isn’t enough to master the forex trading market. However, it’ll start you off well in your journey and get accustomed to the market in a better way.

In any case, if you still have something to ask or suggest, I’ll ask you to use the comment section to let me know. I’ll definitely go through the same and let you know about my verdict shortly. Anyways, that’ll be all for now. Have a good day ahead!