Mastering those techniques is impossible without the learning curve like in any other science. Knowing the basic terms of Forex trading will prevent you from feeling stranded once you have entered the trading platform. It is actually the first terminology you will be introduced to when trading for the first time. The term refers to the process of trading currencies. It means that a trader buys and sells one currency about another. Example: let's say you have a certain amount of USD.

You want to buy EUR with a certain amount of dollars you have. The first one EUR refers to the currency you want to buy. It is also known as the base currency. The second one USD refers to the one you have. It is called the quote currency.

When buying an asset, you will need to spend the amount of quote currency needed to cover the value of 1 base currency. The key goal is to "catch" the best possible price to buy or sell an asset. When it comes to buying, bid refers to that ultimate price tag every trader is waiting for. When we say "the best", we mean the highest price a trader is ready to pay. Unlike the bid, Ask is the best possible price tag to sell an asset. As a result, when we say "the ask price", we mean the lowest cost of the asset a broker is aimed to sell.

The term used to describe the lowest price movement. When we use this term in reference to a particular currency pair or asset cost, we mean the 4th decimal place. That it goes up and reaches the level of 5. The spread is the difference between the bid and ask price. The higher that difference is the higher revenue a broker gets. Now, we have learned enough to get involved in the trading process. The following terms used in Forex trading are generally used under real-life trading conditions.

You will need them to launch the process and start trading. In this particular section, we will explain Forex terminology that refers to opening and closing positions. Once a trader has entered the market with the aim of buying or selling an asset, the position has been opened. Correlation Correlation in trading refers to the relationship that is there between assets. When comparing two assets, if there is a positive correlation, then the other security will move in a similar direction as the first security.

On the other hand, negative correlation means that the Securities will move in a different direction. Usually, in Forex trading, they are mostly referred to bonds or sovereign debt that a government issues in financing public services and projects. Credit ratings can affect currency pairs because most investors are listening for development and announcements from rating agencies. Currency Futures A currency future is also known as foreign exchange future, or FX future is a contract specifying the price at which a currency can be sold or bought or on a specific future date for an exchange.

This contract fixes a price at which a currency will be exchanged with another at a preset future date. It helps investors in hedging against risks. Currency Pair Currency pairs are formed when two currencies are compared against one another. Day Trader An investor who make four or more trades within five days and usually close those trades in the same session. It requires capital minimums and involves high risks.

Day Trading Day trading is one of the short-term trading styles that are quite popular amongst traders. In day trading, one takes only one trade in a day and closes out as the day gets over. Most traders, at the start of the day, pick a side, act on their skills and biases, and either make a gain or a loss. Directional Movement Index DMI is a market analysis indicator that guides traders in spotting the course of a particular trading instrument.

Crafted in by J. Welles Wilder, this index works by associating the lows and highs that occurred previously. Divergence It is a market condition in technical analysis. The situation talks about price and momentum that are moving in opposite directions. For example, when the price is rising while momentum is falling.

Both positive or negative divergencies signal significant shifts in price direction. Positive divergence happens when the price reaches a new low, but the momentum indicator is starting to go upward. A negative divergence occurs when the price of a pair jumps to a new high, but momentum fails to follow the price and start falling.

Friday is a good day for divergences. Dovish Dovish is a policy or data view suggesting an easing of monetary policy or lowering of interest rates. Dovish policies aim to enhance economic growth by increasing employment and spending, thus helping the economy.

However, it increases inflation risks, and lower rates discourage saving, and investors tend to move the capital to high-risk assets. Downtrend A price involved in an extended move to the downside. Technically, it is a price action that makes consisting lower lows and lower highs. Drawdown Drawdown refers to the difference between the peak of a currency and the new low once the currency price dips.

It is a peak to trough decline over a given period for a currency, asset, trading account, investment, or fund. It is essential when one is determining the historical risks in various investments or monitoring trading performance. ECB ECB European Central Bank is the central bank for European Union countries that use the Euro.

The ECB oversees the monetary policy in the Eurozone, which is an economic and geographic region of 19 nations. Economic Calendar Economic calendar refers to scheduled dates of releasing important news or events which could affect the currency exchange rates movement as well as the whole financial market. These events or news releases have a significant impact on the volatility of currencies and the financial market.

Usually, fiscal and monetary policy announcements will affect forex markets, and for traders, the economic calendar helps them know when something will happen. Economic Indicator Reports are the most important catalysts in the Forex market according to fundamental analysts. An economic indicator is a government inform which shows the performance of a specific economic field.

Gross Domestic Product, Consumer Price Index, or Retail Sales are critical samples of that. Economic indicators usually affect the price of the currency of the given country.

Entry Order An entry order represents an order to sell or buy at a time when the prevailing market price meets the specified price in your order. European Session The trading hours in the old continent are from GMT to GMT and includes countries such as England, Spain, Germany, France, and Russia. Europeans love trading euros and pounds.

Exotic Pairs Exotic pairs include currency pairs that are not among the Top 10 most traded currencies. The currencies are extremely volatile and thus are a reserve for seasoned forex traders. They include Turkish lira, Czech Koruna, and Mexican peso.

Exposure Whenever a trader or a company undertakes a financial transaction that is denominated in a foreign currency, the fluctuating forex rates pose a risk.

This risk is termed exposure to the market. False Breakout False breakout refers to a situation when there is a temporary movement in price below or above the resistance or critical support levels and then later retreating to the side where it started.

For a breakout trader entering a trade after the price breaks, they can easily be trapped after reversal of the price leading to triggering odd stop-loss orders. Federal Reserve Federal Reserve refers to the US central bank established in to offer the nation a flexible, safer, and a stable financial and monetary system.

It is responsible for monetary policy, financial system stability, regulation of financial institutions, and bank regulation. It also provides financial services to US financial institutions, the government, and official foreign institutions. Forex Prime Time The busiest hours to trade are known as the Forex prime time. It is the time with the highest volume in trading and the smallest spreads in the market.

Prime time happens as it is when most traders are connected to buy or sell currencies. It goes from London, and New York are opened at the same time, which is from the American opening at GMT until the London close at GMT. FED FED is the Federal Reserve Bank, which is the US central bank. The FED is a group of entities comprising 12 regional central banks in various cities in the US. It promotes moderate long-term rates, high rates of employment, sustainable economic growth and preserving the purchasing power of the US dollar.

Fisher Effect The Fisher Effect is a theory of economics that delineates the relationship between inflation and two different interest rate types, nominal and real. It is attributable to Irving Fisher and has been used by economists and traders for a better understanding of economic factors.

Fundamental Analysis Fundamental analysis is a form of analysis that looks at the market through the lens of socio-economic and political factors that affect the rates of currencies. The value of currencies, like any other instrument, is determined by simple demand and supply for it. Hammer Hammer is a price pattern belonging to candlestick charting occurring when an asset trades at a lower value compared to its opening worth but manages to regain its price within the span and closes nearer to the opening value.

Hawkish It is a nickname for somebody who is optimistic regarding an economic topic such as jobs report, the economy of a country, or a favorable resolution in a discussion. Also, Hawkish is a person who believes that higher interest rates are needed to control rapid inflation or unsustainable economic growth. It is a trading strategy that an investor employs to reduce risks associated with market volatility. An investor will take two independent positions that counterbalance each other, thus reducing the chances of losses if there are price fluctuations.

Heikin Ashi Heikin-Ashi method is an easy and seamless way to read candlestick patterns. It removes all unwanted data hindrances and focuses on the reversals and core trends. High-Frequency Trading HFT HFT refers to the process of employing computer-based programs that run complex algorithms to enhance trade speed. Regularly high-frequency trading will use arbitrage, market making, and momentum trading strategies through prediction or detection of changes in direction and depth of order flow.

Indicative Quote Indicative quote is the price offered by dealers or brokers on a particular debt instrument, which is not backed by a guarantee that a trader is ready to accept the said rate for selling or buying. Inflation Inflation refers to the increase in the general prices of goods and services in a given period in time, which reduces the buying power of money.

As the prices of goods increase, the purchasing power of every unit of the currency tends to decline. For instance, if five US dollars could buy three bars of chocolate in and now can only buy one, then it means there has been inflation. Usually, inflation results from the imbalance between the growth of the cash supply and the economic expansion rate.

Initial Margin IM The purchase price percentage in the derivatives market that a trader should cover using collateral or cash for a margin account is termed as an initial margin. Intervention In the Forex market, an intervention is an action taken by central banks to affect the value of currencies directly. It happens when the bank enters the market and sell or buy vast amounts of the given money.

It can also happen as a coordinated central bank action, and it is when several banks act at the same time. Like the move that six banks did in A pip is short from Percentage in Point and represents the smallest increment that an exchange rate can move up or down. Usually, one pip equals to the fourth decimal of most currency pairs. However, some currency pairs have their pips located at the second decimal place, mostly yen-pairs.

A pip represents the fourth decimal place of most currency pairs, but there is an even smaller increment that prices can change.

Going long simply means to buy, while going short means to sell. In equity markets, most traders are long in anticipation of rising prices. However, in derivative markets, such as options and futures, there is always an equal number of longs and shorts in the market, because each new contract that is bought needs a corresponding seller who needs to go short, and vice-versa. Since retail Forex is mostly traded with CFDs , traders are able to bet both on rising prices and falling prices.

Support and resistance are one of the most important concepts in technical analysis. Technical traders analyse only price-moves as they believe that the price reflects are available fundamental information, and support and resistance trading plays an important role in that analysis.

The markets are made of crowds of people that speculate, hedge, trade, invest or gamble in the markets. Since people have memory, they remember certain price-levels where the price had difficulties to break below in the past.

They place their buy orders around those levels, as they believe that the price will again fail to break below. This is how support levels are formed. In other words, a support level is a previous low at which the price has a large chance to retrace and move up.

While support levels are based on previous lows, resistance levels track previous highs at which the price had difficulties to break above. Traders remember those levels and place their sell orders around them, as they believe that those levels will again provide selling pressure and move the price down.

Since fresh memory is more important than old memory, recent support and resistance levels usually have a higher importance than old support and resistance levels. The Forex market is open around the clock and offers traders to profit not only on rising prices, but also on falling ones. However, there is another reason why a large number of traders feel attracted to the Forex market — leverage. Trading on leverage allows traders to open a much larger position size than their initial trading account size would otherwise allow, and the Forex market is known for extremely high leverage ratios offered by retail brokers.

However, bear in mind that trading on extremely high leverage is very risky, as it boosts not only your profits, but also your losses. Beginners should consider trading on a lower leverage until they gain enough experience and screen time. This will reduce losses and make sure that you stay in the game in the long run.

Learn more, take our Trading for Beginners course 14 Margin When trading on leverage, your broker will allocate a portion of your trading account size as the collateral for the leveraged trade.

The position size you take on the market determines the size of your profits and losses in dollar value by affecting the value of a single pip. In the Forex market, one standard lot standard position size equals to Fortunately, traders with smaller account sizes can take smaller trades with mini-lots Some brokers even allow you to trade on nano-lots units of the base currency.

In any case, calculate your lot size in dependence of the size of your stop-loss so that you remain inside your risk-management boundaries.

So, you want to become a day trader and join the hundreds of thousands of day traders who are living in the UK? Then this…. Day trading is one of the most popular trading styles in the Forex market.

Being familiarized with major terms used in Forex trading will form feedback you may constantly refer back to. To prevent you from browsing dozens of websites and glossaries, we have put all the baseline Forex trading terms in a single article. The explanations are provided in the most newbies-friendly manner. All you need is to learn everything you can and get going. Most beginners think that the financial market is nothing but a wonderland where everyone gets a chance to grab a piece of a pie.

Well, that is not the way it works. Forex is a marketplace that strict financial and economic paradigms. It is a kind of science featuring its unique rules, terms, and techniques used to generate revenues. Mastering those techniques is impossible without the learning curve like in any other science. Knowing the basic terms of Forex trading will prevent you from feeling stranded once you have entered the trading platform. It is actually the first terminology you will be introduced to when trading for the first time.

The term refers to the process of trading currencies. It means that a trader buys and sells one currency about another. Example: let's say you have a certain amount of USD. You want to buy EUR with a certain amount of dollars you have.

The first one EUR refers to the currency you want to buy. It is also known as the base currency. The second one USD refers to the one you have. It is called the quote currency. When buying an asset, you will need to spend the amount of quote currency needed to cover the value of 1 base currency. The key goal is to "catch" the best possible price to buy or sell an asset. When it comes to buying, bid refers to that ultimate price tag every trader is waiting for.

When we say "the best", we mean the highest price a trader is ready to pay. Unlike the bid, Ask is the best possible price tag to sell an asset. As a result, when we say "the ask price", we mean the lowest cost of the asset a broker is aimed to sell. The term used to describe the lowest price movement. When we use this term in reference to a particular currency pair or asset cost, we mean the 4th decimal place.

That it goes up and reaches the level of 5. The spread is the difference between the bid and ask price. The higher that difference is the higher revenue a broker gets. Now, we have learned enough to get involved in the trading process. The following terms used in Forex trading are generally used under real-life trading conditions.

You will need them to launch the process and start trading. In this particular section, we will explain Forex terminology that refers to opening and closing positions. Once a trader has entered the market with the aim of buying or selling an asset, the position has been opened. If you want to leave the market, you close the position. The key trading terms here are:. Sounds pretty easy, doesn't it? Well, the situation might get out of hand every second. Especially when considering today's market uncertainty.

Under such circumstances, the only tools that may help a beginner trader include:. A trading technique lets a trader define the position that is considered as a loss.

Once you have reached that position, the order is closed automatically. The tool may come in handy in case of an unpredictable price movement. The situations when it goes in the opposite direction to the trade are common. Another efficient tool to prevent beginners from huge losses right at once. It is used to set a fixed price upon your decision to take the profit instantly. The good thing about the features is that the target price can be set in advance before you enter the market.

Picking up the right trading strategy is vital. But defining your particular trading style is even more important. It will depend on your ability to predict the price and market movement. So, you need to decide whether you are "a bull" or "a bear". If you believe that the market is about to rise in the short or long run, you are definitely a bull. Being a "bullish" trader means expecting the rapid price increase in the nearest future.

Bulls usually fight with their horns thrown upwards the tactics are associated with the market rise. If you believe that the market and price will drop down, you are a bear.

The term refers to the way wild bears fight. They traditionally move their claws downwards when trying to beat the opponent. The movement describes the potential market fall. This is where a short-selling strategy might work out. Read more about the short selling. We have learned some basic Forex terms for beginners. At least, you won't stare like a stuck pig at new terminology. You just keep on learning and good luck! Stay tuned to our comprehensive knowledge base.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks. Baseline Terms Used in Forex Trading Most beginners think that the financial market is nothing but a wonderland where everyone gets a chance to grab a piece of a pie.

Beginner Forex Trading Terms To make a good and hassle-free start, you need to learn at last the following: Currency Pair — a term used when buying and selling one currency concerning another; Bid — the price trader is eager to BUY a certain instrument; Ask - the price trader is eager to SELL a certain instrument; Pip — the smallest price movement in percentage; Spread — the difference between the Bid and Ask.

Now, let's have a closer look at all of the above-mentioned terminologies in forex trading. Currency Pair It is actually the first terminology you will be introduced to when trading for the first time.

Bid The key goal is to "catch" the best possible price to buy or sell an asset. Ask Unlike the bid, Ask is the best possible price tag to sell an asset. Pip The term used to describe the lowest price movement. Spread The spread is the difference between the bid and ask price. Important Terms in Forex Trading Process Now, we have learned enough to get involved in the trading process. The key trading terms here are: Entry — the process of engaging with the broker when selling or buying assets; Exit — the process of closing the position no matter if a trader made a profit or loss.

Under such circumstances, the only tools that may help a beginner trader include: Stop Loss A trading technique lets a trader define the position that is considered as a loss. Take Profit Another efficient tool to prevent beginners from huge losses right at once.

Are you a Bull or a Bear? A Bull If you believe that the market is about to rise in the short or long run, you are definitely a bull. A Bear If you believe that the market and price will drop down, you are a bear. Also read about: Best Forex Books for beginners; 7 Best Trading Movies; This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

A negative divergence occurs when the price of a pair jumps to a new high, but momentum fails to follow the price and start falling. MetaTrader 4 Tutorial. It usually happens in an intra-day trend, but actually can happen in any timeframe, just the size of the move varies. Chart Pattern Chart patterns are repeating visual representations on charts of how the price moves in the financial market. Despite stopping more profit advances, a take profit order guarantees specific profits as set by the trader. Read: How Do Forex Brokers Make Their Money Naughty Broker Practices you Should Take Note Of Some Cool Forex Trading Examples 7 Spread Each time you enter into a trade, you have the pay transaction costs for that trade.

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