Do you often hear trading terms you don’t know what it means? Do you sometimes feel that some forex terms are complicated to understand? Don’t worry, we are all confused when it comes to the terms!
In this list of trading terms, I will take you through most of the popular ones and commonly used. I simplify the financial definitions and provide the most straightforward easy to understand explanition. Once you learn these basic terms and concepts, it will be much easier for you to make your first strategic moves as a trader and speak the same language of traders. So let’s dive in and get those awful acronyms out of the way – once and for all!
Why you should learn the forex Trading Terms?
Although Forex traders can make earnings from the global markets, they have to spend many hours honing their skills and developing strategies first. That is why I advice anyone new to Forex trading takes some courses and gets a proper education.
Remeber, the time spent on the learning is not wasted; they are an investment.
Eventually, if you want to succeed in trading forex successfully, it is essential that you learn some of the most important terms used in this market. Here are just a few reasons why learning these terms will help you become a better trader:
- Improves your comprehension
- Helps you understand what is happening in the market at any given time
- Allows you to make faster, more informed decisions when trading
- This shows that you take your trading activities seriously and are committed to becoming a successful trader
- Increases your confidence as a trader
- Gives you access to valuable information and resources that can help you become more successful if you are serious about becoming a forex trader
So what are the most important forex terms you need to know? We’ve compiled a list of some of these terms and definitions to help you get started. Take a look:
A forex broker is a company or an individual who acts as an intermediary between traders and the currency market. They provide trading services such as access to the forex market, execution of trades on behalf of clients, and so on. Most brokers charge commission fees for their services.
This is a specific type of forex broker that quotes two-way prices for currencies. Unlike retail brokers, market makers do not necessarily charge commission fees. Instead, they earn their profits from bid/ask spreads or by trading against their clients’ orders.
STP (Straight Through Processing)
STP brokers are forex service providers who offer trading platforms to their clients. Unlike market makers, they don’t trade against their clients’ positions. They instead use third parties to execute their clients’ orders. This process is called straight-through processing (STP).
ECN (Electronic Communication Network)
With an ECN broker, your order goes directly to the relevant liquidity provider or bank once you’ve placed it on the broker’s platform. The price of a currency pair at which the order will be filled depends on the available liquidity providers at that time. So when you trade with an ECN broker, your trades go directly to those willing and able to take them at transparent prices.
PAMM (Percentage Allocation Management Module)
PAMM is a forex trading account type used by managers to manage forex investments on behalf of their clients. This account type has become very popular in recent years because it allows investors to choose experienced and successful traders as investment managers. Investors then have the ability to allocate funds across multiple PAMM accounts; thus, diversifying their risk exposure.
MAMM (Multi-Account Management Module)
MAM accounts are similar to PAMM accounts, but they allow managers to trade on multiple currency platforms at the same time. Its main advantage is that it allows investors to diversify their risk exposure across different MAM accounts.
Money managers are forex traders who manage the funds of their clients. They can be either individuals or investment firms. Money managers generally work with PAMM and MAM accounts, as well as individual accounts.
Social trading is when investors follow the trade activities of other successful traders in real-time. They do so by copying their trade positions. This makes it easier for investors to get into forex trading because they can simply mirror the trades made by experienced traders.
Copy trading is one of the key features of social trading and it works by copying every move that a successful trader makes. So once you’ve identified an experienced trader to follow, you simply need to decide on how much risk exposure you’re willing to take and then hit the “copy” button.
In forex trading, margin refers to the amount of money that you need to invest in order to make a trade. Margin trading will allow traders to open positions worth much more money than they actually have in their accounts, which is useful for making bigger profits but also carries with it a higher degree of risk.
Leverage refers to the use of borrowed capital to trade in the stock market. It’s typically expressed as a ratio such as 50:1, which means that you can place trades worth up to 50 times more than your actual deposit with the forex broker. For example, if you have $1,000 deposited with your broker and also have access to leverage at 50:1 and want to open a position for $2,000 worth of currency, then you can use $50 of your deposited money and borrow the remaining $1,950 to complete this transaction.
Another common forex trading strategy is CFD trading, which allows traders to open leveraged positions without requiring them to purchase or sell currencies directly. Instead, they simply bet on whether the price of a given currency pair will go up or down. This can be a great way for traders to take advantage of short-term market movements and make a profit without having to actually own the underlying asset.
Forex brokers are an important part of the forex trading ecosystem. These are companies or individuals who facilitate currency trades between traders and market makers by providing access to trading platforms, pricing data, and other tools that can help traders successfully execute their strategies.
Forex trading is primarily the process of exchanging one currency for another. That is why currencies in the forex market are traded in pairs. The currency pair is a quotation for one currency against the other; known as quote currency and base currency.
Currency pairs use the abbreviation of currency and country names. For example, the USD/JPY currency pair refers to the US Dollar against the Japanese Yen.
The exchange rate is the value of a currency relative to another currency. It is the price at which one currency is being exchanged for another. For instance, if the exchange rate of the EUR/USD pair is 1.1200, this means that one euro equals $1.20, or it takes $1.20 to buy one euro.
The rise in exchange rate reflects that the base currency is appreciating against the quote currency. Similarly, the fall in exchange rate reflects that the base currency is depreciating against the quote currency. Read more about Currency Appreciation and Depreciation and what affects exchange rates.
Bid and Ask Prices
Bid and Ask indicate the price at which a currency pair or another asset can be sold or bought at the current time. The bid price is the price that the trader is willing to pay for the base currency in forex trading. While the Ask price is the price that the trader is willing to receive from selling the base currency.
The Ask price is always a little higher than the bid price, the difference between both is known as the spread.
The quote is the market price for buying/selling a currency pair. It is always consisting of two figures; the bid/ buying price and the ask/selling price. For instance, the quote for the USD/GBP currency pair can be $0.7130/32. The first figure represents the bid price of $0.7130, while the second figure represents the Ask price, and the difference between the two is the spread worth of 2 pips.
What is the Lot Size?
The lot is one of the main forex trading terms. A lot is the quantity of the traded currency pair. It is basically the standardized unit of measuring the quantity of the trade.
There are four common types of lots in Forex trading; Standard, Mini, Micro, and Nano. The standard lot size is 100,000 units of the currency pair, mini is 10,000 units, micro is 1,000 units and nano is 100 units.
Determining the proper lot size plays an important role in your forex risk management. Learn more about how to determine the proper lot size and calculate profits.
Bullish and Bearish
Markets move in three directions: up, down, or sideways. In forex terms, bull and bear are used to describe a market condition. A bullish market is when prices are rising or are expected to rise. On the other hand, the Bearish market describes falling prices or a descending price trend.
The terminology is based on how the bulls and the bears attack their prey. Bears stomp their paws on the prey pushing it downwards, while bulls thrust their prey upward.
In a bull market, traders usually buy the base currency against the quote currency. Whilst in a bear market, traders look for selling the base currency to buy the quote currency.
Bullish market: This forex term refers to an upbeat or optimistic market state where the value of a currency is expected to increase. forex traders who believe that a currency’s value will rise often take bullish positions on that currency, buying it and selling it at a higher price in the future.
Bearish market: This forex term refers to a pessimistic market state where forex traders believe that a currency’s value will decrease over time. forex traders who bet on bearish markets often enter short positions by selling currencies at current prices, expecting to buy them back at a lower price in the future. Read more on Bullish and Bearish Markets: What’s the Difference?
This forex term refers to the first currency in a currency pair. For example, forex traders who are buying EUR/USD are actually buying euros and selling dollars. The base currency is the one being bought or sold, while the quote currency is being sold or bought against it.
This forex term refers to the second currency in a currency pair. In forex trading, forex traders who are buying EUR/USD are actually making a purchase of dollars and selling euros. The quote currency is being sold or bought against the base currency, which is the one being purchased or sold.
Long position (buy)
If you’re looking to get into forex trading, then it’s important that you understand the key forex terms and concepts. One of these is the Long position, which refers to the buying or forgoing of a currency pair in anticipation that its value will increase in the future. When forex traders take long positions, they buy currencies at current prices, expecting to sell them at a higher price in the future when they can reap a profit.
Short position (sell)
Another important forex term to know is Short position, which refers to the selling or forgoing of a currency pair. When forex traders take short positions, they sell currencies at current prices, expecting to buy them back at a lower price in the future. This allows forex traders to potentially profit from the declining values of currencies in forex markets.
This forex term refers to the price at which forex traders are willing to buy a currency pair. When forex traders place bids for currencies, they are expressing their interest in buying them and selling them at a higher price in the future. The Bid price is usually lower than the Ask price or offer price, which is the price forex traders are willing to sell the currency pair at.
This forex term refers to the price forex traders use when selling a currency pair. The Ask price is usually higher than the bid price, which is the forex term used for buying a currency pair. forex traders who want to take advantage of rising currencies will typically sell them at a higher Ask price, hoping to buy them back later at a lower bid price once prices have increased.
The forex term spread refers to the difference between the ask and bid prices for a currency pair. forex traders are typically interested in taking advantage of small changes in currency prices, which is why they will often look to place orders with low spreads that can yield maximum profits.
This forex term refers to the smallest possible increment of price movement for a currency pair. forex traders will often look to take advantage of pips in order to maximize their profits, which is why many forex trading strategies focus on taking small but frequent gains from rising or declining currencies.
The pip is the standard measuring unit for the change of value in a currency pair. It is represented as the last decimal point in the price quote and is equivalent to one basis point. A pip stands for percentage in point or price interest point. Pips are used to calculate the profit or loss of forex trade.
One pip is displayed as $0.0001, it is one-tenth of 1% and is equal to 1 basis point. For example, if the EUR/USD Pair moves from 1.1050 to 1.1055, then it did move 5 pips.
Pipettes or fractional pips are smaller units used to precisely define fluctuations in forex rates. Every pipette is equal to a tenth of the pip. They are additional decimals, the 5th and 3rd decimals, beyond the standard of 4 and 2 decimals.
Pip values are an important consideration for forex traders who want to calculate their profits and losses accurately. These refer to the smallest price movement of a currency pair, and they can vary depending on the specific currency pair being traded. For example, pip values for the EUR/USD currency pair are usually around $0.0001, while pip values for the GBP/USD currency pair are usually around $0.0009.
The amount of money you need to open a position in forex trading is known as the margin. It can also be referred to as “leverage”. For example, if you have $1,000 USD deposited with your forex broker but want to open a position worth up to $10,000 USD, then you’ll need to borrow the remaining $9,000 USD by using leverage or margin. Margin calls occur when your account value falls below a certain level due to unfavorable market conditions or currency fluctuations.
A margin call happens when there aren’t enough funds in your trading account to cover the current position you have open. This means that you either need to add more money to your account or close some of your trades. In forex market terminology, this means that you are “called” for margin on the exchange before you go bankrupt.
The margin level refers to the ratio of a trader’s account balance and their used margin, and it can help traders determine how much leverage they have left to take on additional positions or close existing ones. For example, a margin level of 100% means that there are no unused funds available in the account, while a margin level of 0% means that all available funds have been used.
Equity is another key concept that forex traders should know about. This refers to the total value of a trader’s account, and it can fluctuate based on the performance of their trades and market conditions. Traders use equity to track how much money they have available in their accounts, as well as determine how close they are to margin calls and other limits.
Forex traders should also be familiar with the concept of balance. This refers to the current account status for a trader, and it can fluctuate depending on how much money they have deposited or withdrawn from their account. Traders use the balance to keep track of their overall trading performance as well as assess how close they are to reaching margin calls and other limits.
What are the Trading Order Types?
Trading orders are among the top forex trading terms that every trader should know. There are two main types of trading orders provided by the Metatrader or the forex broker platform. The traders usually choose to set the forex order according to several factors which include the trading strategy, the account type, leverage, and risk management.
Market orders are defined as immediate orders to buy or sell at the next available price. Essentially, market orders are executed faster but the next available price could be different from the trader is monitoring on the chart. During volatile times the next available price can change much higher or lower than the prospected price by the forex trader. This is another forex trading term which is called slippage. While you are starting your first steps as a beginner, you’ll need always to remember that opening market orders during high volatility times can result in high slippage.
Limit Orders are limited types of orders which will be expected at a specified price or at a better price. It is different from market orders as they allow full control over execution price. Eventually, the downside of the limit orders is that they won’t be executed if the order price is not available at the time of execution. However, forex traders like to use limited orders to be able to execute their strategy targets effectively.
Pending orders are orders which take place according to a certain level. These orders are set to execute in the future when the price hits certain entry levels. The pending orders in forex can be controlled by certain rules such as setting an expiration date, or GTC. Initially, pending orders can be executed as limit orders or as market orders depending on the trading strategy.For example, you may choose to buy or sell currencies at a specific price point. Pending orders can also be triggered by market changes, such as gaps or spikes.
Stop Loss (SL)
A Stop Loss level is a preset price level at which the trade is closed automatically. It is usually placed with a market or a pending order. This order can help in minimizing the losses if the price begins moving in the opposite direction. For example, if you have bought a currency at 1.4500 and the stop loss is set at 1.4455, then when the price reaches that level, the trade will be closed automatically so that you don’t lose all your money on it.
Take Profit Order (TP)
A Take Profit order is used to automatically close a trade when the price reaches the targeted profit levels. On the contrary to Stop Loss, Take Profit is intended for keeping profits. It is placed to close a locked-in profit. For example, if you have a buy position at 1.4540 and the target is 1.4600, then you can place a TP order slightly above the desired level to lock in profit once the market reaches that set price point.
Stop loss order
This is commonly used when investing in stocks and other assets. Also called “stop order”, it’s a type of trade that closes automatically when the bid price touches a certain level. This protects traders from potential losses and is useful for managing risk.
Sometimes called “market-on-open”, this is a trade order that’s executed immediately when the price meets specific criteria. This, in contrast to an “invisible” pending order or market order, is visible on the trader’s screen and can be canceled before it gets filled by another matching order.
A sell-stop order is a type of forex order that instructs a broker to execute a sale when the price of a currency pair reaches a specified amount. This can be an effective way for traders to protect their profits and limit their losses, as it allows them to set up automatic stop-loss points for their trades. However, it’s important for traders to be aware of the risks and limitations of sell-stop orders before using them in their trading strategies.
Buy stop order
A buy-stop order is a type of forex order that instructs a broker to execute a purchase when the price of a currency pair reaches a specified amount. This is an effective way for traders to take advantage of market movements, as it allows them to enter into positions before prices reach their peak values or begin to fall again.
The Trailing Stop is a pending order which is automated to close a position at a certain number of pips away from the highest price reached. It works by using the stop price to reduce or increase the trader’s position. If the market moves up, it acts as a “trailing” stop which can be activated in a specified number of pips.
This forex term refers to the phenomenon that occurs when there is a significant difference between the forex trading prices for a currency pair. For example, if forex traders are expecting a currency to appreciate based on recent price movements, then gapping may occur as forex pairs open at widely different prices than they did prior to market closure.
Slippage is another common forex term, and it refers to the difference between forex trading prices and the expected forex price. forex traders who experience slippage may have their orders filled at a different price than what they initially anticipated, which can impact their ability to generate profits from currency trades.
One popular forex trading strategy is spread betting, which involves speculating on the price changes of a currency pair in order to generate profits. In this case, traders typically do not have to purchase or sell currencies directly, but instead, take advantage of small fluctuations in prices by placing bets with their broker on whether an asset will appreciate or depreciate in value.
Volatility refers to the level of market uncertainty and risk associated with a particular currency pair. Typically, currencies with higher volatility tend to be riskier, but they can also offer greater potential returns in some cases. Conversely, currencies with lower volatility may offer less risk and smaller profit potential, but they may also be easier to trade successfully over time.
A sideways market is one that sees relatively little price movement over time, with prices remaining generally static or oscillating in a narrow range. In this type of market, it can be difficult for traders to make profits, as there are often few opportunities for dramatic gains or losses. As such, many forex traders prefer to avoid trading in sideways markets and look for currencies with greater volatility instead.
Learn more about how to adapt to market conditions guide.
Forex carry trade
Forex Carry Trade is the process of trading currencies to take advantage of their interest rate differential. For example, if you bought a currency at a low-interest rate (like the Japanese Yen) but sold it for another one with a higher interest rate (like the Australian Dollar), then you can enjoy the price appreciation of the latter, in addition to collecting additional interest from your initial investment.
Appreciation is the forex term used to describe an increase in a currency’s value. forex traders will often look to buy currencies when they are expected to appreciate, as this can allow them to potentially earn greater profits over time.
On the other hand, depreciation is the forex term used to describe a decrease in a currency’s value. forex traders who anticipate that a particular currency will depreciate can often benefit by shorting it, or selling it at the current price and buying it back later at a lower price.
Asset management is another important forex term, and it refers to the practice of managing one’s investments in order to maximize profits. In the case of forex traders, asset management often involves diversifying their holdings across multiple currencies in order to reduce risk exposure.
Similarly, risk management is a crucial forex term for traders. This refers to the practice of using various risk management strategies in order to reduce potential losses and protect one’s capital. In the world of forex trading, this can involve using stop loss or Take Profit orders to minimize exposure to unfavorable market movements.
Forex Brokerage Terminology
Forex bonuses are a key consideration for many traders. These are essentially incentives that forex brokers provide to encourage traders to sign up with their platform and begin trading currency pairs. Some common types of forex bonuses include welcome bonuses, no-deposit bonuses, or deposit bonuses.
Forex IBs refer to individuals who work as introducing brokers and provide services to forex traders. These can include helping traders open accounts, providing trading strategies and advice, or even offering exclusive bonuses or other incentives to new customers. There are different commission levels for partners, depending on the services they offer and how many traders they bring in.
Forex affiliate program
Another popular forex term is the forex affiliate program, which traders use to connect with other businesses or individuals who can help them successfully trade currencies. This can involve offering privileges such as discounted trading fees or commissions, and it can be a great way for forex traders to create long-term partnerships with other businesses in the industry.
Forex broker review websites are another popular way for forex traders to stay up-to-date on the latest broker offerings and promotions. These can serve as a valuable resource for comparing different brokers and finding the right one that suits your particular trading needs and preferences.
The forex expo and event is an annual conference held by the Forex trading industry to bring together traders, brokers, analysts, and other key figures from the trading community. Attending the event offers traders a chance to learn about new tools and strategies for analyzing market data, as well as connect with other professionals in the field. In addition, many traders use the expo as an opportunity to find new broker partners or sign up for exclusive bonuses and promotions. Overall, the forex expo is a great way for traders and brokers to stay up-to-date on the latest market trends and developments.
By learning the main forex trading terms, the investor should be able to understand the different definitions and common trading language used by forex experts. There are major benefits from understanding all glossary words as they are going to be repeated in forex tutorials and online forex courses. Eventually, Forex trading has been evolving over the decades and it requires a long time to understand all trading terms. Consequently, it is always good to be patient with learning the basics of forex trading.
So if you’re looking to get started in forex trading, or are an experienced trader looking for a reliable broker to help you take your skills to the next level, AximTrade is the right choice for you. Visit our website to learn more about our products and services, or sign up today to start exploring the exciting world of forex trading!