Trading is often seen as a mirage of an oasis in a desert for beginner forex traders. You thought of making some extra bucks and you saw forex trading as an option. But as you started your journey towards it, it started going further from you.
Confused? Let me clear myself.
So when I started my journey to become a forex trader I was getting tons of free to paid tutorials everywhere. Some YouTube channels made it look like a piece of cake. But believe me, if you don’t have a bit of knowledge of this financial market, it’s way harder than expected.
There is a burden you carry as a beginner forex trader. But with consistency and persistence, you’d be counted among the best.
So in this blog, I’m going to share some common terminologies with you. These are going to help you understand the foreign exchange trading better and enlighten your burden.
Terminologies for Beginner Forex Traders
As the name defines ‘foreign exchange trading’, you usually buy a foreign currency against your local currency. For example, you buy GBP for USD. This makes a pair and this is the deal of this financial market; they come in pairs.
We can categorize these pairs in 3 groups:
There are 8 common pairs that FX traders normally trade; USD, AUD, GBP, EUR, CAD, CHF, NZD, and JPY. The base currency in this category is always USD.
Here the trader trades in all the major currencies other than USD. For example AUD/GBP, CHF/EUR, and JPY/NZD. Here you trade in all major currencies other than USD.
This is the pair with a lesser-known currency to a major currency. For example, TRY/USD, HUF/AUD, etc. These are very volatile and trade in less volume.
There are 180 currencies traded in 195 countries. Forex traders buy and sell different currencies to make profits.
The speculation if a currency would make a profit is based on trends, analysis, and other factors. Which you can learn using some forex trading apps.
This is indeed an exotic term in FX market.
Leverage is your investment size as compared to the credit allowed by the broker. For example, a 1:500 leverage means that you can trade up to $500 for just $1.
Bid / Ask Price
So these are a bit confusing terms. But I’ve tried to find a simple definition. Both are from a seller’s (broker) perspective.
The bid price is the offered price by a seller to buy for a currency pair. Whereas, ask price is the price a seller is willing to accept for a currency pair. The ‘ask price’ is always higher than the bid price.
Spread is the difference between the ‘bid price’ and ‘ask price’. The higher the spread the lower the liquidity. So to win the market, the spread should be kept smaller.
Going Long / Short
Going long is the buying of foreign currency for your local currency the FX market. For example, if you buy GBP for USD hoping GBP would rise is going long.
Whereas, when an FX trader sells the foreign currency and buys back the local currency hoping that the foreign currency will go down is called going short.
This is the money a trader borrows from a broker to invest.
Do not confuse margin with leverage. In simple words, margin creates leverage.
Percentage In Point or PIP
This is the change in the exchange rate of a currency pair. It is also referred to as a price interest point.
Lot is basically the volume of trade. It’s generally equivalent to 100,000 units. But now comes in lesser units as well.
Bullish / Bearish
These terms are referred to as market’s sentiments.
When the price of the forex market is going down, it’s referred to as bearish. While if it’s going up, it’s called bullish.
Motivation for Beginner Forex Traders
As I said earlier, forex trading is not as easy as one might think. There are a number of difficult terms to learn, brokers to sign up with, amount to invest, and above all your willingness to accept the risk associated.
So, it’s not going to be easy for beginner forex traders to start their new path. There are tons of hindrances. But, if you take proper baby steps now, you will not regret it in the future. And would be thanking me and those helping you stand on the ground.