Last Updated on January 4, 2021
Are you looking for a way to make money online? Then you should consider online trading. In order to make the most out of this business, you need to start with the basics and learn the common terms before you dive in headfirst. Professional traders often use terminology that is difficult and incomprehensible to beginners.
Forex trader terminology includes many acronyms and abbreviations that you need to know if you want to understand all the nuances of trading in the Forex and stock markets. Therefore, spend some time learning the common business terms before you start earning on the Web.
Basic Terminology to Know
A serious business requires a comprehensive approach! In order to navigate the stock market well, it is necessary to study and thoroughly understand the key concepts that traders constantly use to trade securities. For example, what does “futures,” “margin,” and “lot size” mean? So, let’s consider the basic terms that all traders should know before starting to make money on the stock exchange.
#1 – Currency Pair
There are 180 recognized currencies in circulation that are used in 195 countries. Traders can make assumptions about the performance of a particular currency using a range of analytical tools and research to determine how a particular currency will perform in the market. A proper approach to currency trading is based on the performance of one coin against another.
When choosing a currency for trading, you will notice that they come in pairs. Let’s use EUR/USD as an example. Buying the Euro against the US dollar means the Euro is expected to outperform the US dollar.
In this case, pairs are divided into three main groups:
- Majors – 8 common pairs, each of which contains the US dollar as the base currency or counter currency, and one of EUR, CAD, GBP, CHF, JPY, AUD, or NZD.
- Cross Pairs – Any two major currencies that do not contain the US dollar as their base or counter currency. They are considered to be more volatile than major pairs. For example, these can be GBP/AUD, EUR/CAD, and NZD/CAD to name a few.
- Exotics – Exotic and lesser-known currencies that can be extremely volatile in the market. These may include the South Africa rand, Hungarian forint, Polish zloty, etc.
#2 – Bid/Sell Price
The bid price is the price at which the trader is willing to sell a currency pair. Sell price is the rate at which a trader will buy a currency pair. The two indicators are displayed on the left side of the MT4 platform under the Market Watch section, so log in to the CFD trading account to assess the two. The difference between the buy and sell price is called the spread.
#3 – Long/Short Positions
When a trader enters a long position on a currency pair on Forextime, the first part of the pair is bought and the second part is sold. Opening a long position or buying a currency means that the price will rise in the future.
Let’s consider the example of AUD/USD. When buying the Australian dollar against the US dollar, the expectation is that the Australian dollar will grow. When a trader goes short, the first currency is sold, and the second is bought. On the other hand, a long position presupposes selling half of a currency pair in the hope that the price will fall.
#4 – Margin
Margin is the initial capital that a trader must invest in order to open a position. The margin also gives the trader the opportunity to open a larger position. When trading on margin, the trader only needs to set a full value percentage in order to open a trade. Margin can activate leveraged trading, but you need to be careful: margin increases both profits and losses.
#5 – PIP
The abbreviation stands for Percentage in Point. The term is associated with the smallest change in the exchange rate of a currency pair. It is usually the fourth decimal place in the quote of a currency pair and is used to measure cost.
#6 – Lot Size
A lot in Forex trading refers to the size of a trade/position that a trader opens. One lot in standard Forex trading of a currency pair is equivalent to 100,000 units of the base currency of the pair. If you look at the EUR/USD pair, the lot size in US dollars will be $100,000.
Dig Deeper to Earn More!
We have listed the most basic terms that a beginner trader needs to know and understand to trade on the stock market. An understanding of key business features as well as common terms will further facilitate the specifics of working with the exchanges. All this will certainly help novice traders to improve their financial position.