Terminology in Forex Trading Explained by Yee Kok Siong

Currency trading basics are among the things you need to first learn if you are planning to venture on foreign exchange or forex trading. In forex, there are certain terms and words that you need to be familiar with so you will understand how buying and selling of currencies are effectively done. Knowing the terminology commonly used in the trading market by other traders will help you in the flow of things. Getting into the forex trading venture without knowing even a single word is similar to entering a battle without any weapon. Below are some of the important terms explained by Yee Kok Siong you must understand.

This refers to two types of currency or money traded with one another. You can practically any kind of currency with another one as long as they are available in the forex market you are participating in. There are seven types of currencies mainly traded: US dollars, Australian dollars, Canadian dollars, Japanese yen, Euros, British pounds and Mexican pesos. There is no independent standard on how much a particular currency is so the market is constantly unstable while currencies move up and down with each other.

It is the price for buying an exchange.

It is the price for selling an exchange.

This term refers to the disparity between bid and ask. If you are a trader, you need to use your chosen broker, who will attach a spread to the currency you are trading. This is basically how a broker earn profits. It is important that you watch out for the numbers in the pair you are trading. You are certain to make profits if the currency you have has a number that is higher than the one you are planning to trade for. If the opposite happens, then you will lose money.

This is the deposit put up by a trader, in good faith, as a form of collateral to be able to hold his position in trading. How much margin you have put up will determine your leverage. Suppose you have put up a margin that is more than the necessary amount to open a position, you are basically putting down your margin in order to receive leverage. Leverage, therefore, is the money you are controlling with relation to your margin.

This Percentage in Point or Pip is actually the last digit in the price of an exchange. Suppose Euro against US dollar is 1.3746. If selling price is 1.3749, there is 3pip increase. If selling price is 1.4746, pip increase is 100. Pip is the smallest unit in the foreign exchange market.

Suppose you have set up the stop loss accordingly, you can expect to minimize your possible losses, not considering the direction the market is heading for. There is a regular stop loss that remains at certain estimation in between two currencies. There is also the trailing stop loss that continues along with your position regardless of how high it will reach. This trailing stop loss will protect the decent amount of profits you have earned.

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