Forex or foreign
exchange market is a worldwide trading place for exchanging national
currencies, which are being traded against each other as exchange rate pairs.
It also exists as a spot or cash markets as well as currency swaps, derivatives
markets, options, offering forwards, and futures.
The following are the
most common terminologies used in forex
trading.
Forex Account
Forex accounts are used
to trade currencies in trading platforms. It has three types depending on the
lot size. It includes micro, mini, and standard which allows investors to trade
up to $1,000, $10,000, and $100,000 worth of currencies in one lot, respectively.
Bear Market
It is one in which
prices plummet among currencies and signifies a market downturn. It is the
result of depressing economic fundamentals or catastrophic events, including a
financial crisis or a natural disaster.
Bull Market
It is one in which
prices rise for all currencies, signifying a market uptrend. It is the result
of optimistic news regarding the worldwide economy.
Ask/Offer
It is the lowest price
at which a trader is willing to buy a currency. For instance, if an investor
placed an ask price of $1.38910 for GBP, then numbers mentioned are the lowest
he is willing to pay for a British pound in USD.
Bid
It is the price at
which a trader is willing to sell a currency. For example, if an investor
placed a bid price of $144.540 for JPY, then these figures are the highest he
is willing to pay for a Japanese yen in USD.
Contract for Difference
(CFD)
It is a derivative that
authorizes traders to speculate on currencies’ price movements without owning
the underlying asset. Investors who are betting for the price of a currency
pair to rise would buy CFDs for the pair, while those who believe that the
price would fall will sell CFDs relative to that currency pair.
Leverage
It is the use of
borrowed money to accumulate returns. The foreign exchange market is
characterized by high leverages, and traders are using these leverages in
boosting their positions.
Margin
It is the money set
aside in a forex account when trading currency, ensuring the broker that the
trader would remain debt-free and be able to meet monetary obligations. The
amount of margin an investor has depends on the balance over a period of time.
Pip
Also known as
percentage in points or price interest points, it is the minimum price move,
equivalent to four decimal points, made in the currency market.
1 pip = 0.0001
100 pips = 0.0100
10,000 pips = 1.0000
100,000 pips = 10.0000
Spread
It is the difference
between the bid or sell price and ask or buy price for a currency. Forex
traders make money through spreads since they don’t change commissions. The
spread size is influenced by a lot of factors such as trade size, currency
demand, and volatility.
Sniping and Hunting
It is the process of
buying and selling of currencies near predetermined points to maximize profits.
Brokers are indulged in this practice, and the only way to seize them is to network with fellow traders and
discern patterns of such activity.
