Trader Must Know These Forex Trading Terms

Check out some forex trading terms that you need to remember and understand:

Exchange Rate

The value of a certain currency against other currencies. For example, if there is EUR / USD currency pair = 1.3200, then 1 Euro is worth 1.3200 dollars.

Pip (Point in Percentage)

According to Investopedia, pip is a very small measure of change in a currency pair in the forex market. The smallest change in value that can occur in a currency pair. For example, 1 pip for the EUR / USD pair is 0.0001 and 1 pip for the USD / JPY pair is 0.01.

Leverage

Leverage is a trading feature that allows you to control trading with a greater amount of capital than you have. For example, with a leverage of 1: 100, you can open trading positions of up to USD100,000 with only an initial capital of USD1,000.

With leverage, you can increase the profit you get. However, it can also increase the potential loss if the position you open moves against the estimated price. Thus, you should use the leverage that is not too large to minimize losses.

Margin

Margin is the amount of deposit required to open or maintain a trading position. There are two types of margin, that is used and free. The used margin is the number of funds that you use to maintain a trading position. While free margin means the number of funds available in your account and you can use it to open other trading positions.

Spreads

The spread is the difference between the selling price and the buying price or bid and asks of a currency pair. For example, if the EUR / USD pair is at 1.3200 / 03, the spread is 3 pips, between 1.3200 and 1.3203.

Long/short

To get profit when the market goes up, you have to buy at a cheap price, and sell it at a high price. This is known as a long position.

Meanwhile, if the market is moving down, then you must first sell at a high price, then buy it at a cheap price. This position is called a short position.

Stop / Cut Loss

Stop-loss or cut loss is a term that means stop your trading loss. In many trading applications, this feature can be run automatically. You only need to enter the amount of loss you anticipate as the maximum loss limit, and the application will close the position automatically if the loss occurs.