The Most Common Terms in the Forex Market

by milton ferrara CEO

The forex market has its own terminology, just like any other financial markets. It has a number of terms that can be found in other markets as well but have a different meaning. There are also a number of words that can only be found in the forex market.

We will talk about those terms in this article for you to learn more about the forex market and to help you navigate with ease around the complex jungle we call the foreign exchange market Blockchain Technology.

Base and Counter Currencies

If you look at the stock and bond markets, entities sell their securities in exchange of money. On the other hand, in the forex market, you are already buying and selling money.

In the forex market, you buy and sell currencies at the same time. You are practically exchanging one kind of money for another. That means that the currencies you are trading always come in pairs. The price signifies the unit of the first currency that one is willing to pay to the second currency.

The first currency that appears in a currency pairs is called the based currency, while the second currency is the counter currency, or more usually, quote currency.

Long and Short Positions

Similar to the stock and bond markets, forex markets permit traders to take long and short positions. However, what long and short mean change in the market. Again, this is due to the fact that currencies are always traded in pairs. This causes new traders to get confused with what actually happens when they take long or short positions.

In the forex market, going long means you are buying units of the base currency while simultaneously selling the units of the quote currency. In a similar manner, when you go short, it means you are selling units of the base currency as you buy units of the quote currency Forex Trading and Currency Trading News.

Bid, Ask, and Spread

The forex market is run by market-makers, who provide a two way market for all currencies at all instances. Thus, they also provide buy and sell quotes. The price at which they are willing to buy is always lower than the price at which they are willing to sell. The difference is used to compensate the market makes for the risk they are incurring for holding a volatile asset for an undetermined period of time.

The price at which they are willing to buy is called the bid price, while the price at which they are willing to sell is called the ask price. The difference between these two prices is then called the bid-ask spread, or simply the spread.

Pip

This is the lowest amount by which the currency quotes can move. The usual pip refers to 1/10,000 of the quoted currency. That means that a certain currency must move or change by at least 0.000001 percent for it to affect the quote prices in the forex market.

Pips have already become a huge part of the modern forex jargon. That’s why the changes in prices and profits are expressed in pips. On the other hand, since the pip to a variable amount of money, it usually takes some experience to fully understand it.