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Common terms Associated with the Forex market

Brief breakdown of some of the terms associated with Forex trading

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Before we kick off with the terminologies associated with Forex trading, what is Forex trading in a nutshell? Forex trading is the exchange(buying/selling) of virtual currencies and commodities over a decentralized online marketplace. The Forex market (foreign exchange market ) is the most traded marketplace that churns out over $6 trillion on a daily basis. Now to the terms;

Long

To go long in the Forex market means to buy a base currency while selling a quote currency simultaneously

Short

To go short in the Forex market means to sell a base currency while buying a quote currency simultaneously

Currency pair

This is used to show the exchange rate between two different currencies traded simultaneously in the forex market. This is because currencies are not traded alone but in pairs

currency pair

Brokers

Brokers provide the platform through which traders are able to have assessed to the Forex market. i.e., help traders execute their long or short orders

Candlesticks

also known as the Japanese candlesticks, represents market movement. (either; up, down, or sideways )in the forex market within a given period. it is made up of a body and a wick, but in some cases, it can be made up of just either a body or a wick

candle stick

Bears

the term bears is used to describe sellers in the forex market( traders that go short in the forex market )

Bulls

the term bulls is used to describe buyers in the forex market( traders that go long in the forex market )

Pip

A pip(percentage in point movement )is a unit of measurement used in forex, just like ”meters or pounds,” it is used to measure the rate of movement/change in price in the forex market for currency pairs and other commodities. A pip is represented as the fourth decimal position for most currency pairs except Japanese yen pairs i.e., 0.0001

pipette

This is a fraction of a pip movement usually represented as the fifth decimal position for most currency pairs except Japanese yen pairs i.e 0.00001

spread

A spread in forex represents the difference between the ask and Bid price of a currency pair or any other commodity i.e the trading cost charged by the broker

Bid

This is the price at which the sellers in the market are willing to sell a particular asset ( currency pair or commodities )

Ask

Ask price is the price at which buyers in the market are willing to buy a particular asset ( currency pair or commodities )

lot-size

This represents the percentage of the trader’s money(equity ), the trader is willing to risk per pip movement in the forex market. For example, 0.01 lot-size means that the trader is risking 10 cents per pip movement in the forex market. while 0.1 lot-size means that the trader is risking $1 per pip movement in the forex market. 1 lot = 100000 units

equity

This is the available capital a trader has after the losses or gains of open trade positions are subtracted or added from/to the Initial Balance

Leverage

This is a term used to describe the percentage of a trader’s capital granted to the trader as Loan by the broker. leverage enables traders to take on larger market positions that their capital/equity alone wouldn’t be capable of ,leverages are expressed like this : 100 : 1, 500 : 1. and this means for every 1 dollar deposited he has access to 100 dollar trading leverage and so on

Margin

This is the minimum amount a Forex trader has to maintain/deposit into his trading account, in order to place trade order in the forex market via a brokerage. this can be determined mathematically : Total lot-size / leverage

Conclusion

There are lots of terminologies associated with Forex but these are some of the Basic terms you must know. we will be exploring more terms in the future.

Thanks for reading!

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Common terms Associated with the Forex market was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.



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