10 terms you need to know before trading the Forex

10 key terms to know Forex
10 terms you need to know before trading the Forex
November 1, 2018 Kiyoko Hill
10 key terms to know Forex

Before you invest a single cent, get familiar with the lingo. Check out our list of terms every Forex trader should know.

Base currency: The currency where investors keeps their accounts, and the currency against other currencies are quoted. In the Forex market, the U.S. dollar is normally considered the “base” currency for quotes, meaning that quotes are expressed as a unit of one USD per the other currency quoted in the pair. Base currency can also refer to the first currency quoted in a pair.

Position: A trading viewpoint expressed by buying or selling. Position also refers to the amount of a currency owed (or owned) by an investor.

Broker: A broker is an individual, or a brokerage firm, that acts as an intermediary between buyers and sellers —  for a fee or commission. A dealer, by contrast, performs the same service but directly commits capital. They take one side of a trading position in hopes of earning a “spread” (profit) by closing out the position in a subsequent trade with another party.

Bear/Bearish/Bear Market: Trends favoring a declining market, or bearish traders who take positions expecting prices to decline. For example, “A bearish USD/GBP” estimates that the USD will weaken against the Great British Pound. The Japanese yen (JPY) and U.S. dollar (USD) are known as “safe haven” currencies, and both of these currencies tend to strengthen in a bear market.

Bull/Bullish/Bull Market: Trends favoring a rising market, or bullish traders that take positions expecting prices to increase. For example, “A bullish USD/GBP” estimates that the U.S. dollar will strengthen against the Great British pound. The New Zealand dollar (NZD) and Canadian dollar (CAD) are two currencies that tend to strengthen in bull markets. Conversely, bull markets usually lead to a weakening of “safe haven” currencies such as the JPY, the Swiss franc (CHF) and the USD.

Economic Indicator: A statistic that measures economic growth and stability, such as the Gross Domestic Product (GDP), employment rates, trade deficits, industrial production and business inventories. Fundamental announcements (such as the jobs report, which includes employment rates) are often used to release these important sets of data.

Pip (Point in Percentage):  A pip is the tool of measurement used to calculate price movements in exchange rates for two currencies, and is found by using the last decimal point. It’s what Forex traders consider a point while trading, and is used to help calculate gains and losses.

Micro lot: There are four “lot sizes” Forex traders typically use. Micro lots are the smallest. A micro lot is one-tenth the size of a mini lot. So, one pip of a pair of currencies in U.S. dollars (USD) is equal to $0.10 when trading a micro lot. A micro lot is equal to approximately 1,000 units of a currency.

Mini lot: One pip of a pair based in USD is equal to a single dollar if trading a mini lot. A mini lot represents 10,000 currency units. Novice traders often choose to trade in micro or mini lots to get comfortable with Forex. However, it’s important to know that traders can act differently depending on how much capital is at risk, and to keep an eye on slippage to make sure you’re getting the full value from your trades.

Standard lot: If trading a standard lot instead of a mini or micro lot, one pip of a currency pair in USD is $10.00. A standard lot is representative of about 100,000 units of a currency.

Volatility: A measure of statistical changes in a market’s price movements over time, using standard deviation. High volatility can mean more opportunities for traders, but it can also mean a higher degree of risk.

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