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Forex Trading Terminologies: Beginners Guide

Forex Trading Terminologies: Beginners Guide

There are some essential forex trading terminologies one should know before starting trading in the currency pair market. 

1) A pair of currencies

Despite the fact that the foreign exchange market is known for currency trading, no one currency can be bought or sold. Every time an order is placed in the financial market, it must be for the entire currency pair. The currency pairs are made up of two different currencies: the base currency is on the left, and the counter currency is on the right.
Let’s use the EUR/USD currency pair as an example. When you buy the EUR/USD pair, you aren’t selling your US dollar and buying the euro. Similarly, selling the EUR/USD pair is not the same as purchasing the dollar and selling the euro.

2) Major pairs 

The currency pairs are categorised into three pairs:

1) Major pairs

2) Exotic pairs

3) Cross pair

Main pairs are those that have the US dollar as the counter-currency or base currency and one of the other major seven currencies as the counter-currency or base currency, such as the CAD, EUR, CHF, GBP, AUD, NZD, and JPY.

If you’re a beginner and want to start trading, stick to the big pairs because they usually have enough liquidity to avoid slippage and cheap transaction fees. USD/CHF, EUR/USD, and GBP/USD are examples of prominent currency pairs.

3) Cross pairs and exotics

Except for the US dollar, cross pairs are any two currencies from the major pairs. They have greater transaction costs than the other major pairs, and investors may experience slippage in times of low liquidity. In comparison to the main ones, they have a higher level of volatility. EUR/CHF, AUD/NZD, and EUR/GBP are examples of these pairs.

Despite the fact that the foreign exchange market is known for currency trading, no one currency can be bought or sold. Every time an order is placed in the financial market, it must be for the entire currency pair. The currency pairs are made up of two different currencies: the base currency is on the left, and the counter currency is on the right.
Let’s use the EUR/USD currency pair as an example. When you buy the EUR/USD pair, you aren’t selling your US dollar and buying the euro. Similarly, selling the EUR/USD pair is not the same as purchasing the dollar and selling the euro.

4) Exchange rate 

Because it represents the price of the base currency versus the counter or quote currency, the exchange rate is also known as the price. Consider the following example: if the USD/EUR exchange rate is 2.15, one USD costs $2.15, or it costs $2.15 to buy one USD.
The rise in the pair’s exchange rate indicates that the base currency is strengthening against the quote currency, while the counter currency is weakening against it.
A fall in the exchange rate, on the other hand, indicated that the base currency was losing ground against the counter currency or that the counter currency was gaining ground against the base currency.

5) Bid/Ask price 

Every currency pair has two prices or exchange rates at any one time: one is the bid price, and the other is the ask price. The distinction between the two is that the bid price is the price at which the buyer is willing to buy, while the ask price is the price at which the seller is willing to sell.

For its calculation, one needs two figure closing prices and the number of time intervals. Divide these added closing prices with the number of time intervals given to obtain the result. 

Cryptocurrency investors give attention to this tool because it can trace the development of new opportunities and trends. 

For example, suppose the value of a short-term average surpasses above a long-term average (also called golden cross). In that case, it may indicate the development of an uptrend. An SMA is also beneficial because it is highly customisable, as it can be customised to fit short-term or long-term time horizons. Another variation to this tool, the MACD (moving average convergence divergence), brings out the relationship between two moving averages of a security’s price. It is another instrument which signifies sell and buy signals. 

6) Spread 

When investors buy at the ask price (the price at which the seller is willing to sell), they are immediately losing money equivalent to the bid/ask spread.

Technical indicators are not a necessity for trading success, but offer investors another valuable tool to use when estimating markets and assets. Many platforms for trading offer access to famous technical indicators which traders can use for building a basis for trading, and along with this, they help to identify sell and purchase signals. 

There are a wide variety of these indicators available in the market, but a cryptocurrency investor should be aware that no single solution can fix things. The choice of right tool largely depends on the trader’s situation, analysis and trading strategies adopted. Along with this remember, successful and profitable trading can also result without using these indicators. 

Some of the best technical indicators for trading in the cryptocurrency market include the following: 

7) PIP 

When discussing losses or profits, we’ve heard many forex trading use the phrase “pips.” A pip is a small fractional or percentage point that represents the tiniest fluctuation in a price or exchange rate. In most pairs, one pip is equal to the fourth decimal point.
For example, if the USD/EUR pair is now trading at 1.6225 and rises to 1.6230, the difference is 5 pip.
Some currency pairs, however, have their pips set in the second decimal place (for yen pairs). Consider the case where the USD/JPY is currently trading at 210.25 and drops to 210.15, a shift of 10 pips.

 Still, they can increase the perspective of the trader to a broader level on developing conditions and trends. It is the main reason behind cryptocurrency indicators gaining widespread popularity and becoming a central part of the trading environment

8) Going long/short 

It’s a common piece of forex trading jargon that most of you are familiar with. Going short means selling, and going long involves buying. exness review is a good choice
The majority of stock market investors are long in anticipation of rising prices. There are always an equal number of shorts and longs in derivative markets that include futures and options.
Investors can bet on both rising and falling prices because forex is commonly traded using complicated financial derivatives. They take long positions when buying and short positions when selling. 

Other than fundamental research, the second method is technical analysis. The technical examiner looks at the chart formations, cost patterns and different primary indicators for spotting the various trading opportunities. 

9) Leverage 

The forex market is accessible to all types of investors and allows them to earn not only from falling but also from rising prices. The leverage, on the other hand, is the most appealing feature that makes it stick out on the list.
Trading using leverage allows investors to open a trade with a higher volume than their initial trading account volume would permit. 

This technical indicator helps cryptocurrency investors to measure the intensity of price variations by comparing closing cost over an interval of time. A single line represents the momentum indicator on a chart, and an investor can examine how fast the price (in the market) is moving by studying this momentum indicator. 

10) Margin 

When investors trade on margin, the broker sets aside a portion of his trading account activity as the leveraged deal’s collateral. Margin is the term for this type of collateral. If the leverage ratio is 100:1, the margin is equivalent to 1% of the trader’s total position volume.
For example, if an investor opens a $100,000 trading position with a leverage ratio of 100:1, the margin will be $1000, or one percent of the position volume.

If you’re a novice in cryptocurrency trading, it’s normal to feel a little bit frightened by the notion of using tools for technical analysis. In a simple language, technical trading is a method or system that features some reasonably advanced-sounding theories and a lot of unfamiliar jargon.  

But, the fact is that any trader can become an efficient technical investor.  Once this foundation is ready, the more complicated analytical tools or indicators will become relatively simple for you to perceive, allowing you to start trading with a robust new set of instruments at your disposal. 

11) Lot size 

The “lot size” is the next crucial term in the list of basic forex trading terms. The size of a position volume trader’s losses and profits in greenback value (dollar) affects the quantity of a single pip. One standard lot in the foreign exchange market is equal to 100,000 units of the base currency. Aside from the regular lot, some brokers like Capitalix Review now offer Mini, Micro, and Nano lot sizes of 10,000, 1,000, and 100, respectively.

The Bottom line

Because the broker is the most important aspect of trading in the forex market, you’ve probably read the words broker and brokerage business several times in this essay. As previously said, it provides basic services like leverage and margin. So, if you’re looking for the ideal broker for you, exness review is a good choice. This broker’s minimum deposit is $100, and there are no commission fees.

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