Dictionary of Forex terms necessary for successful trading
In order to start trading on the currency exchange, you need to know the basic terms of Forex; it is the terminology that will allow you to quickly understand the essence of trading.
A brief dictionary of Forex terms is just a few dozen of the most common terms and concepts that give a general idea of some operations and help you navigate situations that arise.
A decoding of the symbols that are used when trading currencies will be given; they serve to describe basic operations and are used to characterize the state of the account, as well as in some other situations.
In this article I will not burden the reader with a lot of professional words; to decipher them there is a special section of forex terms , all attention will be paid to practical concepts necessary in everyday work on the forex market.
And the Forex dictionary is, so to speak, briefly about the main thing.
A brief dictionary of Forex terms
Many concepts included in the dictionary of Forex terms are also used when trading on other exchanges - stock, commodity.
Forex arbitrage is making a profit from trading exchange assets due to temporary or spatial differences in rates. Today you buy cheaper, tomorrow you sell more expensive, you buy cheaper from one bank, and sell more expensive from another.
The base currency is the main asset in the quote of a currency pair; it comes first when written, and it is with it that the transaction is made. For example, in the USD/JPY quote, the US dollar is the base, it is sold or bought for the Japanese Yen.
Buy – opening a buy order, profit increases as the base currency rate rises.
Sell - a transaction to sell the base currency.
A currency pair is a tool for performing transactions on the Forex exchange; it is in the form of a currency pair that a currency trading operation is recorded. The first currency is the base one, the second one is the quoted one.
This designation is adopted for the convenience of performing transactions when trading currency. For example, the euro-dollar currency pair is written as EUR/USD.
Volatility is the range of movement of the price of a currency over a certain period of time. It is measured in points, and the time period is usually a Forex session. For example, the EUR/USD currency pair moved 100 points during the European trading session, which means that the change in the euro exchange rate against the US dollar was 100 points.
A gap is the occurrence of a price gap in the price movement curve of a currency pair, usually occurs after the weekend, when the session closed at one price and opened at another, as a result of changes in the currency exchange rate over the weekend.
Deposit – funds in the trader’s account, the amount is indicated without taking into account the use of leverage. This does not take into account the funds used at this time to maintain open transactions.
A long position is an operation to buy a currency, usually in the trader’s terminal when opening an order it is designated as buy. You make a profit if the currency pair rises in price.
Correction (rollback) is a short price movement in the opposite direction from the trend; usually, after consolidation, the price moves again towards the existing trend. For example, the price of the EUR/USD pair is constantly growing throughout the day, but within 15 minutes there was a slight drop, which again gave way to growth, this is a typical example of a rollback or correction.
A short position is opening a sell transaction, such operations in the trader’s terminal are called sell, profit is made when the price of the base currency falls.
Leverage is borrowed funds provided by a broker to a trader to carry out transactions with currency. Denoted as 1:100, where 1 is the amount of the trader’s collateral, and 100 is the amount of leverage.
For example, you deposited $1,000, the leverage is 1:200, and as a result you have $200,000 at your disposal.
Lot – the volume of transactions performed on Forex, 1 lot is equal to 100,000 units of the base currency. Transactions can also be made in fractional parts of 01, 08, 05 lots.
Order – an order to complete a transaction; orders can be executed instantly or when certain conditions are met, depending on the settings.
Breakout is when the price overcomes a certain level, after which a trend reversal occurs or the price confidently continues its movement in the chosen direction. For example, the price of EUR/USD moved within an hour in the price corridor from 1.3300 – 1.3400, but now it has fallen to 1.3200, a breakdown has occurred, so it is highly likely that the rate will continue to decline.
Spread - the broker's commission that he charges when opening a position, is the difference between buying and selling a currency. Usually does not exceed a couple of points.
Swap is a fee for transferring a position to the next day, calculated as the difference in discount rates for the currencies involved in the exchange.
Stop loss is an order to close a position when a certain price level is reached; it is used to insure a position against losses.
Trend is the main movement of the price of a currency pair over a certain time period. There are three directions - upward (rate rise), downward (rate drop) or flat (price does not change).
Trailing stop – a floating stop loss, allows you to move an order to close a position following the price, thereby moving the stop loss to the break-even zone; the position is closed only if the price has moved in an unprofitable direction.
Technical analysis is an analysis that uses the market situation as initial data, analyzing both current sentiment and historical data.
Fundamental analysis - is based on external factors affecting exchange rates, these can be the values of various indices, an assessment of the economic and financial condition of the country and other events in the economic and political life of the state of issue of the currency in question.
This dictionary of Forex terms will allow you to navigate the initial stages of trading currencies or other popular assets.