Essential Terms in forex basics every Beginner should know 

What is forex trade in the foreign exchange market?

To put this into perspective, the US stock market trades around $553 billion a day; quite a large sum, but only a fraction of what forex trades.** Let us help you with Terms in forex.

Banks, institutions, and individual traders worldwide trade forex 24 hours a day, 5 days a week. Traders trade currencies over the counter in whatever market is open at that time because Forex does not have a centralized marketplace like other financial markets. We have discussed the basic Terms in forex to guide you completely.

Dive into Forex: Forex Terms basics every Beginners should know about them

If you are just starting out in the foreign exchange market, Or in the phase in which you are learning about the forex exchange,  there is a probability that you have already come across an article or a forum post that contains phrases such as “pips,” “cross-pairs,” “margin,” and many more. All traders should be familiar with these fundamental phrases of the foreign exchange market.

We have compiled a list of the most relevant Terms in forex to assist you in getting started in the currency market. Forex traders consistently make use of all the most important terms covered in this list, even though it does not contain every possible term.

General Terms Used in Forex Trading Platform

Basics Forex Terms in trading

Currency pair;

Traders transact forex in currency pairs, where they purchase one currency and sell the other. Collectively, they comprise the exchange rate. It is a very important Term in forex to cover.

Exchange rate;

‘The exchange rate is the rate at which one currency can exchange for another.’ You must the Terms in forex like exchange rate.

Base currency;

Base currency is the currency that appears first in a currency pair (for example, the GBP in GBPUSD).

Quote Currency

Quote currency the second currency quoted in a currency pair (for example, the USD in GBPUSD).

Long Position (Buy);

Long position (buy) A long position is the acquisition of an asset with the expectation that its market price will rise.

Short Position( Sell);

Short position (sell) A short position is the transfer of an asset in anticipation that its market movement value will decline. Buy or sell both are opposite to each other in price movements.

Bid Price;

the market price for the sale of an asset.

Ask Price;

 The current market price for an asset

Spread

Spread the difference between the “bid” and “ask” (selling and buying) prices.

Appreciation;

An increase in the value of a currency’s exchange rate.

Depreciation;

Depreciation/devaluation is the decline in exchange rate value

Gapping;

An opening price that is significantly higher or lower than the preceding day’s close, with no trading activity in between. A limit or stop order may be executed at a price other than the intended price.

Pips

A pip stands for “percentage in point” and represents the smallest price change that can occur in any exchange rate. The forex market measures the quantity of change in the exchange rate of a currency pair. The fourth and final digit following the decimal point defines a pip, except for Japanese yen-based currency pairings, which display only two decimal places. Traders measure market gains and losses in pips. It is also considered as important Term in forex.

Lot;

Traders transact foreign exchange in lots. A standard lot is equal to one hundred thousand units of the basic currency. This is equivalent to $100,000 in US dollars. A mini lot contains 10,000 units, while a micro lot contains 1,000.

Leverage;

Leverage enables an investor to increase their trading power and manage a larger market position with a minimal initial investment. An online broker may offer leveraged trading up to 30 times the initial investment of a trader.

Margin;

Margin = the minimum deposit required to maintain an open position (e.g., the required margin for a $150,000 open position with a leverage of 30 is $5,000).

Risk Management;

Risk management entails the utilization of strategies to control or reduce financial risk. A stop-loss order, for instance, is used to potentially limit trade losses.

Stop Loss;

A stop-loss order is a risk management instrument that allows a position to be closed when it reaches a predetermined price. This can prevent the investor from further losses on an open position if prices continue to move in an unfavorable direction. Due to slippage, posting a normal stop-loss order does not guarantee that you will be filled at the specified market price.

Take Profit;

Take profit a take profit order is a risk management instrument that closes a position automatically when it reaches a predetermined profit target. This can protect against the loss of profits in the event of an unanticipated price reversal before the investor can terminate the position.

Profit Loss;

Profit/Loss a trade’s realized (closed) trade positions’ proceeds.

Pipette;

A pip represents the fourth decimal place of most currency pairings, but prices can fluctuate by an even smaller amount. It is known as a pipette and represents 1/10 of a pip, or 10 pipettes equal to one pip. In most pairs, a pipette is located at the fifth decimal place; in yen pairs, it is at the third decimal place.

Although some brokers use pipettes on their trading platforms, the majority of merchants do not track pipette movements. Currently, pipettes are primarily used to measure the bid/ask spread, which requires a tenth of a pip. For instance, the EUR/USD spread could be 1.4 pips, or one pip and four pipettes.

Resistance;

Similarly to support levels, resistance levels are an essential instrument for technical traders. While support levels are determined by previous lows, resistance levels are based on previous highs that were difficult to surpass.

Traders remember these levels and place sell orders near them because they anticipate that these levels will once again exert selling pressure and drive the price lower. Recent support and resistance levels typically have greater significance than older support and resistance levels, as recent memory is more essential than old memory.

Forex Terminology Which is used in the Foreign exchange Market 

Bear Market 

A declining market in which traders anticipate falling prices, indicating an increase in short selling (or “going short”).

Bull Market 

A market that is appreciating, where traders are anxious to increase their long trading activity (also known as ‘going long’). In 2022, for instance, NVIDIA entered an optimistic market and its value increased, prompting many investors to purchase its shares.

Broker 

An intermediary through which merchants and financial institutions execute transactions.

Federal Reserve 

The central bank is responsible for regulating economic activity in the United States. Frequently abbreviated as ‘Fed’. The Federal Reserve manipulates interest rates to control inflation. Typically, when inflation is excessively high, the Federal Reserve raises interest rates to stall the economy and reduce inflation.

Foreign Currency Volatility 

Refers to a market’s price fluctuations. The greater the price fluctuations, the more volatile a market is deemed to be. In other terms, it measures how extreme/unpredictable its price fluctuations (Profit and losses) can be. This is an indicator of the trading risk associated with a currency pair.

Interest Rates 

The rates of interest levied by a bank or credit provider for lending money. The level of interest rates, which is crucial to the strength or frailty of a currency, is typically governed by central banks. Interest rates can affect the value of currencies; for instance, the US dollar tends to appreciate when interest rates rise and the Fed reduces its supply. Forex brokers should be aware of how each country sets its interest rates when trading a particular currency pair, as each currency has various interest rates set by different central banks.

GDP (Gross Domestic Product);

The total amount of a country’s economic activity and a measure of its overall economic health.

Inflation;

The Inflation is the rate of increase in prices of products and services in a national or state economy. Inflation rates can either decrease or increase the value of Forex pairs and other traded assets.