Beginners in the forex market need to learn and understand a lot of trading terms and jargon. Some of these are basic terms that pertain to trading activities, while others are expressions or words that both market participants and central bankers use to denote elements within the forex market. Over the years, traders and brokers have developed their own slang and trading lingo as well. In fact, nicknames for assets and strategies are common. It is important for traders to know these terms so as to accurately understand market momentum and make informed trading decisions.
Here are 25 FX trading terms that traders commonly encounter in the forex market.
Currencies are said to appreciate in value when their price increases with respect to other currencies. This increase can be due to several factors, including increased market demand, positive news on the geo-political front and central bank monetary policies.
A trading strategy where a forex trader leverages the different bid/ask spreads offered by various brokers, buying and selling forex pairs simultaneously to try and capture small gains.
The currency pair of the AUD/USD (Australian Dollar/US Dollar) is commonly referred to by its nickname, the Aussie.
4. Base Currency
The first currency in a forex pair is the base currency. For instance in the pair EUR/USD, the Euro is the base currency. If the EUR/USD pair is trading at 1.1158, it means €1 is worth $1.1158.
Firms that offer currency traders access to the forex market, through online trading platforms and other resources and tools to buy and sell currencies. These firms are regulated by financial bodies like the UK Financial Conduct Authority (FCA) or European Securities and Markets Authority (ESMA) to ensure investor protection.
6. Bull Market
This is a market characterised by an overall uptrend or rise in currency prices for a considerable period of time. Such conditions are also called “bullish” market momentum.
7. Candlestick Charts
Candlestick charts are a type of financial chart, where currency price movements are represented by bars that look like candlesticks. Each candlestick has a real body (area between opening and closing price) and wicks (highest and lowest traded currency price of the day).
8. Contract for Difference (CFD)
CFDs are financial derivatives instruments that allow traders to take advantage of both rising and falling currency prices. It is a contract between two parties, where the seller has to pay the difference between the currency’s present value and its value at the time of contract expiry. If the difference is negative, the buyer pays the difference to the seller.
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