One of the reasons why people are reluctant to learn Forex trading is the fact that it’s an entirely new concept. Although the process is basically the same with stock market trading, Forex utilizes terms and situations that are far from what is common in stock exchange. Hence, some people would rather invest in the latter instead of the former.
What most don’t realize is that Forex is a billion-dollar market. It’s one of the most profitable today and regardless of how hard it is, learning the industry is definitely worth it. For those who want to learn Forex trading, why not start off with the most basic terminologies first?
Pip
The most thrown around word in Forex, pip stands for Percentage in Point. It is the smallest unit price for currencies and is usually the determinant used if a trader experiences a loss or gain in the market. F0r example, 1 pip is usually equal to 0.0001 for any USD pair. This refers to changes in the decimal point in currency pairs at the fourth decimal place.
Currency Pairs
This refers to the two currencies making up the exchange rate. It can be USD/EUR, JPY/USD and many more.
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Base Currency
This is the first currency stated in the pair. It’s called base because this is the denomination of the trader’s money.
Sell Quote
This refers to the amount traders can sell their base currency. It’s typically shown at the left side of the data. For example, if the USD/EUR has a sell quote of 1.3200 then you can sell one US dollar for 1.3200 EUR. In some cases, this is also known as a Bid Price.
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Buy Quote
The opposite of Sell Quote, this is usually shown at the right side of the data. The Buy Quote refers to how much the base currency can be bought. It also goes by the name of Offer Price.
Leverage
This is the ability of the trader to adjust their account, showing a total value that is greater than their actual one. For example, a $10,000 margin can be geared to $50,000, increasing the leverage by up to five times. The purpose of this is to increase the profitability of the trader. Note however that this can also increase the losses. Typically, brokers set a leverage limit for their clients.
Margin
This is basically the “maintaining balance” for Forex accounts. It’s the minimum deposit amount traders should have to maintain their position or leverage. Once the margin falls below the requirement, they will be asked to leave the position or add more funds.
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Exchange Rate
This is how much one currency is worth in reference to another. For example, one US dollar could be worth 1.32 European dollars.
Those aren’t the terminologies present in the currency market. In order to learn Forex trading and efficiently operate within the system, starting traders are advised to learn these terminologies, regardless of whether they’re using a robot or not. Remember that Forex has a GREAT deal of capacity for profit so it only makes sense to go the extra mile and learn Forex trading.
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