Forex market is one of the active and heavily traded markets across the world. If you are a newbie trader, one thing you need to understand about the market. It does not provide any quick-rich scheme. You have to dedicate your time and money to the understanding of how the forex market runs. Those who have achieved a great triumph in this business are the results of their risk appetite and sheer hard work. They have not become successful in the blink of an eye. They spend their valuable time understanding the forex market deeply. Therefore, you have to step into the real market and understand the market tactics & strategies. Understanding the core terms of the forex trade market is the primary and essential step. It helps in unlocking the doors of the forex market.
To understand forex market terminologies and concepts, primarily start with the basic definition of the forex market.
Forex stands for foreign exchange involves the exchange and conversion of foreign currencies on the global market. The forex market is a decentralized global market for the trading of currencies. It entails the process of buying, selling, and exchanging forex currency at the stated price.
Forex trading concept
Forex trading allows quoted in pairs that involve selling one currency to buy another. The price of the forex pair, the quoted price of the exchange rate for two different currencies traded in the forex market. When an order place for the forex pair, the first listed base currency is bought while the other listed quote currency sells.
To start with the forex trade market, you will begin by selecting the currency pair. After that, analyze and research the forex market. It is the necessary foundation of trader endeavors. The next step is to acquire the knowledge of reading the currency quote pairs. The last step is to pick up the buying and selling position. If you are a business owner that focus on acquiring more customers, then you should definitely consider social media marketing.
Forex trading terms every trader should know
Understanding forex trading terms are vital to trade in the forex market. It gives the welcome sight to penetrate deep into market insights.
In the forex market, currencies allow being quoted in pairs involves the buying and selling process simultaneously. In other words, one forex currency is selling while the other is buying. That is why they always trade in pairs. The price indicates that the unit of the first currency is willing to pay for the second currency. The first currency refers to the base currency, while the second currency refers to the counter currency. For example, EUR/ USD. It indicates EUR as the base currency while USD considers as the counter currency. It also shows that the euro is going to perform better than us dollars.
Bid and ask quotes
The bid price is the price at which the forex broker is willing to buy for base currency. An ask price is the price at which a forex broker is ready to sell. The bid price always quotes first, and the ask price is above the bid price.
The bid-ask spread is defined as the difference between the bid and ask price. In another way, it is the difference between the highest price that a buyer is willing to pay and the lowest price that the P seller is willing to accept.
Pip (percentage in point)
It is a small measure of change used by the forex traders, defined as the minimum amount by which the currency quote can move. The usual pips refer to the fourth of the decimal point (1/10000) of the quoted currency. It means that the forex currency should change by at least 0.00001 % of the quoted price to show some effects on the forex market. The value of one pip in the forex market is always different between currency pairs. It is because of the difference in the exchange rates between various currencies.
Leverage gives the power to the forex investor to control something big with something small. It is the capital that you borrow from your broker for the short term to check long positions.
Let’s understand leverage with the help of the following example,
If you have Rs 20,000 amount in your forex account and your forex broker will give you 10X leverage, it means that you can take up positions up to Rs 2 lakhs.
Long and short positions
Forex traders decide whether they go for a long position or a short position to make a profit. In the forex market, a long trade position means to buys the currency units of the base currency and sells the currency units of the counter currency. In a short trade position, you do the opposite. You sell the currency units of the base currency and simultaneously buying counter currency.
When a trader is going long on the currency pairs, they expect the price to rise. When they are going short on the currency pair, indicate that they expect the price to fall.
Forex margin is the security deposit that the broker holds to open the trade and maintain the position. Forex margin is not a cost or fee, but it’s a small portion of the account balance that the broker holds to open a trade.
In forex trading, the value date defines the date for which both parties agree to settle the trading account.
Rollover is also known as financing charge or swap rate, net interest on a currency position held overnight by the trader. If traders want to rollover their account, it means they decide to settle their trading account on the next value date rather than on current value data. It involves some fees, and both parties must agree.
A forex chart is a fully interactive chart, tracks the movement of thousands of currency pairs in the global forex market. The most common types of forex charts include line, bar, and candlestick charts. A typical forex chart shows the time on the x-axis and the exchange rate on the y-axis. Most of the forex broker provides free forex charting software and helps in technical analysis of the specific forex pair.