free invisible hit counter
Basic concepts of the Forex market - Dictionary for novice traders!

 

 

We will consider in this article the basic concepts and terms (also basic jargons) that are used on the Forex exchange. I want to say right away that the article is aimed at beginners who are just starting to take their first steps in trading in the foreign exchange market.

Also, the article will describe the basic concepts that are primarily needed to understand trading on Forex (all that is important for a beginner trader), all the rest are already secondary, and a beginner will master them in the process of trading without much difficulty.

So, we will analyze the basic concepts in order.

 

  1. Currency quotes

It is an expression of a unit of one foreign currency in terms of another. All quotes in the Forex market are calculated against the dollar.

 

  1. Currency pairs

These are the very financial instruments with which traders try to make a profit in the Forex market. The main currency pairs on which the largest number of traders' trading orders is concentrated are:

GBP \ USD, EUR \ USD, USD \ CHF and USD \ JPY

Bid and Ask prices, in other words, bid and ask prices in the market. At the Ask price, a trader can buy a currency, and at Bid, accordingly, sell.

And also, when we open a new order, where we see at what current price we can buy or sell this or that currency.

Please note that the Bid price is displayed on the price chart, and the Ask price is the price at which a trader can buy a currency at the current moment in the market, and it is slightly higher than Bid.

The difference between the Bid and Ask prices is called the spread.

 

  1. Currency pair volatility

Volatility is the range of fluctuations of a currency instrument in the market, that is, how many sharp and strong movements it makes during a certain period of time. If they say that there is high volatility in the market, it means that the market is trading very actively.

 

  1. Broker

This is the company through which trading in the Forex market is carried out, it helps the trader to open transactions and takes its commission (spread) for this.

 

  1. Intraday trading (or Intraday)

Quite a popular type of trading, in which all transactions by a trader are carried out within a day and do not last more than a day. For such trading, timeframes of no more than 1 hour are used (H1, M30, M15, etc.). The advantage of Intraday is that there is a lot of profit potential for earning. The disadvantages are a lot of psychological pressure on the trader and an increased amount of commission that the trader gives to the broker.

 

  1. Long and short positions

These concepts came to Forex from the stock market. There was a rule that the price rises more slowly in the long run, and falls - quickly, i.e. in a short amount of time. Similar concepts in Forex are buy and sell operations, namely:

 

  1. Trend

This is the movement of the quote rate. It can be of 3 types: ascending, descending and flat (or sideways). If the price of a currency is growing for a long time, then there is an uptrend in the market, if on the contrary, it is falling, then it is downward.

 

  1. Bull market

This is the period in the market when the price goes up and the base currency rises accordingly. And a bear market is a period when the price falls and the base currency depreciates. Those who take the side of buyers on Forex (open deals to buy) are called bulls, and those who sell are called bears.

 

  1. Sideways movement or flat on Forex

They call the period when a currency pair is in a certain price corridor and practically does not move anywhere. Such moments occur, as a rule, after large trend movements, after which the price takes a short "respite", treads for some time and then continues its movement up or down.

 

  1. Market gap

These are gaps in quotes, and most often occur after the weekend. As a rule, all gaps tend to close, when it is formed the price will move towards the closing of this gap.

 

  1. Point or pip (pips)

As one of the basic concepts in Forex, it shows the minimum change in the price level on the chart. For example, let's take the EUR / USD = 1.3900 currency pair. If the price has changed by 1.3902, we can say that the price for this currency instrument has changed by 2 points. The following formulas are used to calculate the pip value:

 

  1. Leverage

The ratio between the amount of the collateral provided and the amount provided against the loan funds. It is leverage that allows a trader to open deals in large volumes, without which he would not be able to open them. And it is leverage that provides the opportunity to make big profits when trading with a small deposit.

 

  1. Trading lot

The volume unit for the currency being sold or bought. Forex positions are measured in lots.

1 lot = 100,000 units of the base currency

What does this mean? If a trader buys 1 lot of the base currency (EUR) with the EUR / USD pair, it means he buys 100,000 euros (leverage helps to buy such volumes).

 

  1. Locked position

This is a position that consists of several orders of the same size in the opposite direction. That is, when a trader makes one buy deal (lot 0.1) for one currency pair and then immediately opens a sell deal (lot 0.1). Thus, we will receive a locked trade. Locked positions are opened when the trader wants to wait out some movement that is unfavorable for him, after that, when one deal goes into plus, close it, and wait for the second to go into plus and also close it.

 

 

 

 

Published on: 9/19/20, 4:00 AM