Forex Trading For Beginners – Common Used Forex Terms #3

Forex Trading For Beginners – Common Used Forex Terms #3

In the world of Forex, there are plenty of jargon that you will likely to encounter. It is important that you should be able to familiarize first with the common used Forex terms before delving into deeper level to learn to trade Forex in general and use the many major Forex trading strategy / strategies available.

Read more about Forex Trading Strategy Made Very Simple – Price Action

Common Used Terms:

  • Cross Rate – The currency exchange rate between two currencies, both of which are not the official currencies of the country in which the exchange rate quote is given in. This phrase is also sometimes used to refer to currency quotes which do not involve the U.S. dollar, regardless of which country the quote is provided in.

For example, if an exchange rate between the Australian Dollar and the Korean Won was quoted in an American newspaper, this would be considered a cross rate in this context, because neither the Australian Dollar or the Korean Won is the standard currency of the U.S. However, if the exchange rate between the Australian Dollar and the U.S. dollar were quoted in that same newspaper, it would not be considered a cross rate because the quote involves the U.S. official currency.

  • Leverage – The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.

For example, if a trader opens an account with a $200,000 position from a $2,000 margin, his leverage accounts for a 1:100 ratio.

  • Margin – The capital required to hold on a certain position in the market. It is either “free” or “used” margin, where in the “free” margin is the available money to be allocated for future positions, while “used” margin is the money already invested in a certain position.
  • Exchange Rate – It is the price of one country’s currency expressed in another country’s currency.
  • Pip – The movement of price that a given currency can make.
  • Spread – The difference between the bid and ask price.
  • Bid Price – The bid is the price that you will quote a broker.
  • Ask Price – The ask price is the price that your broker will quote you.
  • Currency Pair – The quotation and pricing structure of the currencies traded in the forex market: the value of a currency is determined by its comparison to another currency. The first currency of a currency pair is called the “base currency”, and the second currency is called the “quote currency”. The currency pair shows how much of the quote currency is needed to purchase one unit of the base currency.

Read more about Forex Trading Strategy: Price Action Trading Patterns

The ones mentioned are the most common terms being used but there are more terms that you need to learn as we go along with our journey to learn to trade Forex. I would recommend the site Investopedia for more Forex terminology for a good reference and also Learn What Is the Forex Exchange and Learn How to Trade Currencies. I understand that it is difficult Learning Forex but with great perseverance and determination, nothing is impossible. With this being said, Understanding Forex Trading should be an everyday goal! Don’t worry there are many resources available online to Learn to Trade Forex Free of charge. What are you waiting for? Learn and invest!

Source:

  • Forex Trading Terminology by Nial Fuller. Retrieved April 08, 2013. http://www.learntotradethemarket.com/forex-university/forex-trading-terminology
  • Forex Trading Terms. Retrieved April 08, 2013. http://www.investopedia.com/categories/forex.asp

FOREX TRADING FOR BEGINNERS:

  1. Introduction to Forex Market
  2. History of Forex Market
  3. Common Used Forex Terms

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