25 Must Know Forex Trading Terms
If you’re an experienced forex trader, you can attest that there are many forex terms that newbies don’t know about. Therefore, this article lists 25 must-know trading terms to help you understand what goes on in this fascinating and fast-moving marketplace.
1. Appreciation
The term “appreciation” refers to the increase or decrease in the value of one currency against another. For example: If EUR/USD rises from 1.3050 to 1.3150, then it has appreciated. The opposite would be when USD/EUR falls from 1.2900 to 1.2890, where it has depreciated.
2. Arbitrage
This occurs when two different markets have similar prices but different exchange rates. This means that if someone buys something at a lower price than they sell it, they make money by selling their product at its higher market rate. It’s like buying low and selling high!
3. Aussie
Aussie stands for Australian Dollar, which is also known as AUD. When we talk about currencies here, we mean all major world currencies such as US Dollars, British Pounds Sterling, Japanese Yen, etc. However, most people only refer to the AUD because it is traded more often than other currencies.
4. Base currency
This is the first currency used to calculate any foreign exchange transaction. In simple words, the base currency is the main unit of measurement for every trade. An example, a pair like EUR/USD has a base currency as EUR.
5. Brokerage
Companies that allow traders access to the financial markets via online platforms to sell or buy currencies are called brokers. There are many types of brokerage firms, including full-service brokerages, discount brokerages, and no-frills brokerages. Full-service brokerages offer services such as account management, order execution, portfolio tracking, margin funding, news feeds, and social media tools. Discount brokerages usually charge less fees than full-service brokerages while offering fewer features. No frills brokerages do not provide these extra services and may even lack some basic functions.
6. Bull market
The bull market happens when investors believe that the overall economy will improve over time. They expect economic growth to continue and therefore invest in stocks, bonds, commodities, and real estate. On the contrary, a bear market happens when investors think that the overall economy will decline over time. Investors start selling off assets and move into cash until things turn around again.
7. Candlesticks charts
These are financial charts with lines drawn across them to show how much each asset moved up or down during a specific period of time. These candlesticks charts are very useful for identifying trends and patterns within the market.
8. CFDs
These refer to financial derivatives instruments based on stock indices, interest rates, futures contracts, options, ETFs, commodity indexes, and cryptocurrencies. CFDs allow investors to speculate on the direction of certain markets without actually owning those securities.
9. Choppy market
When there is too little liquidity in an individual security, this can cause choppiness in the trading volume. This makes it difficult to predict future movements in the price of the underlying instrument.
10. Depth of market
Depth of market refers to the number of shares available for purchase or sale at any given moment. More depth indicates greater availability and vice versa.
11. Day trading
Day trading involves buying and selling multiple times per day. It’s considered high risk due to its short-term nature but can be highly profitable if done correctly.
12. Demo accounts
Demo accounts are virtual versions of real trading accounts where you don’t have to pay anything upfront. You just need to put money into your demo account and then use it to practice various strategies before using it in live trades.
13. Momentum indicator
Momentum indicators measure speed and direction over time. They’re used to identify trends and determine entry points.
14. Economic calendar
The economic calendar shows important dates relating to the global economy. Other examples include the release of government bond yields, inflation data releases from central banks, and corporate earnings reports.
15. Exponential moving average
This is a kind of moving average that stresses more on recent prices rather than past ones. EMAs smooth out volatility and make trend identification easier.
16. Fill-or-kill
This is a kind of order to be canceled entirely or executed completely depending on whether enough limit was placed.
17. ECB (European Central Bank)
The European Central Bank sets monetary policy for all countries that use the Euro currency. If the ECB increases interest rates, it helps support economies whose currencies are pegged to the euro. In contrast, lowering interest rates would hurt these same economies.
18. FCA (Financial Conduct Authority)
The Financial Conduct Authority regulates brokers and exchanges operating in the UK. Their goal is to ensure fair treatment for consumers when investing in forex products.
19. Federal open market committee
The federal open market committee decides what interest rate will be set by major US Banks.
20. Leverage
Leverage refers to how much capital one has invested compared to the amount borrowed.
21. Lot size
Lot sizes refer to how many units of an asset one wants to buy or sell. Small lot sizes increase transaction fees since each trade requires an additional margin. Bigger lots decrease transaction fees but also lower profits.
22. Long position
A long position means that you believe the value of an asset will go up. For example, if you think gold will rise in value, you might want to take a long position in gold.
23. Liquidity
A financial market is pondered liquid if large amounts of buyers and sellers exist simultaneously. The larger the pool of potential investors, the less likely they’ll be able to move the price without affecting other markets.
24. Upticks
Upticks occur when the price rises quickly after being traded. These events often indicate strong demand for a particular product.
25. Slippage
Slippage occurs whenever the broker executes orders faster than expected. This can cause losses due to unexpected movements in the price.
Conclusion
As you can see, there’s no shortage of terms related to forex trading! By learning about them now, you can better understand why certain things happen during a day’s trading session.