Community Forex Questions
Forex Terms
Each market has its own language. These are words to know before engaging in forex trading:
Currency pair. All forex trades involve a currency pair. In addition to the majors, there also are less common trades.
Pip. Short for percentage in points, a pip refers to the smallest possible price change within a currency pair. Because forex prices are quoted out to al least four decimal places, a pip is equal to 0.0001.
Bid-ask spread. As with other assets (like stock), exchange rates are determined by the maximum amount that buyers are willing to pay for a currency (the bid) and the minimum amount that sellers require to sell (the ask), The difference between these two amounts, and the value trades ultimately will get executed at, is the bid-ask spread.
Lot. Forex is traded by what's known as a lot, or a standardizes unit of currency. The typical lot size is 100,000 units of currency, though there are micro (1,000) and mini (10,000) lots available for trading, too.
Leverage. Because of those large lot sizes, some traders may not be willing to put up so much money to execute a trade. Leverage, another term for borrowing money, allows traders to participate in the forex market without the amount of money otherwise required.
Margin. Trading with leverage isn't free, however. Traders must put down some money upfront as a deposit -or what's known as margin.
Currency pair. All forex trades involve a currency pair. In addition to the majors, there also are less common trades.
Pip. Short for percentage in points, a pip refers to the smallest possible price change within a currency pair. Because forex prices are quoted out to al least four decimal places, a pip is equal to 0.0001.
Bid-ask spread. As with other assets (like stock), exchange rates are determined by the maximum amount that buyers are willing to pay for a currency (the bid) and the minimum amount that sellers require to sell (the ask), The difference between these two amounts, and the value trades ultimately will get executed at, is the bid-ask spread.
Lot. Forex is traded by what's known as a lot, or a standardizes unit of currency. The typical lot size is 100,000 units of currency, though there are micro (1,000) and mini (10,000) lots available for trading, too.
Leverage. Because of those large lot sizes, some traders may not be willing to put up so much money to execute a trade. Leverage, another term for borrowing money, allows traders to participate in the forex market without the amount of money otherwise required.
Margin. Trading with leverage isn't free, however. Traders must put down some money upfront as a deposit -or what's known as margin.
Yes those terms are the most common ones in forex. As you get used to what these terms mean or entail you will be better able to understand what happens in the forex market. The lot is the standardised unit of currency, and there are different ones, such as standard, micro and macro. Then there are the pips, that is the smaller numbers behind the decimal point. As a trader you will need to set a margin, that is the initial deposit, and since lot sizes are large there will be leverage.
Jul 22, 2021 21:22