Wednesday, February 16, 2011

Forex Trading Jargons - Jargons used in Forex

Before you start forex trading you must know forex trading jargons, Without understanding forex trading jargons properly you cannot be a good forex trader.



Major currencies – the 8 most frequently traded currencies (SD, EUR, JPY, GBP, CHF, CAD, NZD and AUD)


Minor currencies – other currencies

Base currency – the first currency in any currency pair. For example, EUR/USD rate, EUR is the quote currency.

Quote/counter currency – the second currency in any currency pair. For example, EUR/USD, USD is the quote currency.

Long(buy), going long – buy (buy the base currency and sell the quote currency)

Short(sell), going short – sell (sell the base currency and buy the quote currency)

Bid – the price the dealer is willing to buy the base currency in exchange of the quote currency

Ask – the price the dealer is willing to sell the base currency in exchange of the quote currency

Spread - the difference between bid and ask (can be regarded as the fee charged by the broker for the transaction)

Pips – the smallest decimal place in the currency. For instance, if EUR/USD is 1.5633, 1 pip means 0.0001. All currencies are measured in pips in Forex.

Lot – it is a unit in Forex trading. The size of a lot varies from $10,000 to $100,000

leverage - regard this as multiplication. For instance, if a broker provides 100x leverage, when you invest $1000, you are actually trading in $100,000 volume. This is the wonder of Forex market, in which you can  earn a lot with little money (due to leverage), but at the same time, lose a lot because of high leverage.

Margin call – if the money in your account falls below a level, your broker will make a margin call and sell all your positions at a loss. To prevent this from happenning, you should have a loss limit or only invest 10-20% of your account balance.

Market order – place a buy/sell order at market price

Limit order – buy/sell at a particular price. Will automatically help you buy/sell when the market price reaches that price.

Stop-loss order – a function that allows you to set the limit of loss. If the market prices go against you over the limit, it will automatically cancel your positions.

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