Forex Trading Terms The Forex market comes with its very own set of terms and jargon. Learning how to trade the Fx market, it’s important you understand some of the basics. Forex terminology that you will encounter on your trading journey.
Forex Trading Terms
Basic Forex terms:
Forex Cross rate – The FX currency exchange rate between two FOREX currencies. Both of which are not the official of the country in which the exchange rate quote is quoted. This phrase is also sometimes used to refer to quotes which do not involve the U.S. dollar. Regardless of which country the quote is provided in from Fx Signals. Forex Trading Terms.
For example, if exchange rates between the GBP and the Japanese yen was quoted in an USA paper. This would be considered cross rate in this context, as FxPremiere Group clearly tries to educate onlookers with these terms. Forex Trading Terms.
Exchange FX Rate – The value of one currency in terms of another. For example, if GBP/USD is 1.1111, 1 Euro is worth US$1.1111.
Pip – The fraction also known as the smallest increment of price movement a Forex currency can make. Also called points. If 3 pips for the GBP/USD = 0.0003 and 3 pip for the USD/JPY = 0.03. Forex Trading Terms.
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FX Leverage – Leverage is the ability to move up your account into a position greater than your total margin. If a trader has $5,000 of margin in his account and he opens a $500,000 position, he leverages his account by 500 times, or 500:1. If he opens a $200,000 position with $1,000 of margin in his account, his leverage is 300 times. Or 300:1. Increasing your leverage magnifies both gains and losses.
To calculate the leverage, divide the total value of your positions that are OPEN by the total margin balance. If you have $11,000 of margin in your account and you open one standard lot of USD/JPY. (110,000 units of the base currency) for $110,000.
Margin in Forex – The deposit required to open a position. Used margin is that amount which is being used to maintain open positions. Whereas free margin is the amount available to open new positions in FX.
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With a $10,000 margin balance in your account and a 11% margin requirement to open a position. You can buy or sell a positions worth up to a notional $110,000. This allows a trader to leverage his account by up to 110 times or a leverage ratio of 110:1.
Spread in FX – The difference between the sell quote / buy quote. If GBP/USD quotes read 1.3202/09, the spread is the difference between 1.3202 and 1.3209, 7 pips. In order to break even on a trade. A position must move in the direction of the trade by an amount equal to the spread seen.
The major FX pairs and their nicknames:
The first currency in the FX pair that is located to the left of the slash mark is called the base currency. The second currency of the pair that’s located to the right of the slash market is called the counter currency.
FX Bid and Ask price / Bid Price in Forex – The bid is the price at which the market will buy a specific currency pair from you. If bid price, a trader can sell the base currency to the broker.
Ask Price – The ask price is the price at which the market will sell a specific currency pair to you.
Bid/Ask Spread – The spread of a currency pair varies between brokers and it is the difference between the bid and ask the price.
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