Understanding Forex Terminology

By Author: John Martin
Total Articles: 10
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In order to succeed in any type of endeavor, one must study how that particular business works. If it's a highly technical pursuit, you'll want to understand the terminology so you can benefit from the multiple articles available; and better yet, you'll want to be able to participate in forums, in chats and understand what people are talking about. So if you're going to trade the Forex, you'll want to comprehend its lingo.

There are a few terms you may already know. First, understand the difference between the major and exotic currencies. In the currency exchange the major pairs are the most popular and most traded. These include the U.S. Dollar, Euro, Pound, Swiss Franc and, Australian, New Zealand and Canadian Dollars. The currencies unlike in a currency converter chart are quoted in pairs. The one to the left is normally referred as the base currency i.e. EUR/USD. So if you're told that the Euro traded at $1.3580 it means that it takes $1.3580 U.S. Dollars to purchase one Euro.

The units to the right side of the decimal point in the price quote are known as the pips. To illustrate, let's say your pair gains ...
... in value and moves up to $1.3590, you're then said to have earned 10 pips.
Your Forex broker is never paid a commission, but is paid a spread. The spread is the difference between the bid and the ask prices of a currency. The bid is the price at which you'd purchase the monetary unit. The ask is the rate at which you'd sell it.

Of course if you're planning on spreading your wings and benefiting from other FX trading systems, you'll want to learn the basic language used in Options or Futures. Binary Options for example, have their own particular lingo. In this system, in the money means gaging your prediction correctly. Out of the money means you sustained losses and did not predict the direction of the move accurately.

When you trade Spot Forex online you need to understand important terms like going long or short. The first, means buying the currency as you hope it will increases in price; while the latter implies selling it as you hope it will drop in price. And of course you won't want to open a Forex trade without placing a stop loss, or perhaps what many traders refer to as the safety net.

In addition to the common words used in currency trading you'll want to master the more technical terminology used in technical analysis. Knowing the difference between Fibonacci numbers and Bollinger bands will come in handy when trying to read charts. Aside from this you'll want to spend time studying economic indicators and what they can each do to foreign exchange rates. Comprehending that gross domestic product is different from consumer price index will certainly make a difference in how you make trading decisions.

Don't feel like you have to memorize each word. With time, they'll be clearer to you.

David Sumner is an esteemed currency trading author. The writer focuses on currency exchange and fx trading. Extra resources by David Sumner examining forex news can be read on line.