Forex stands for foreign exchange currency, which indicates that a trader can exchange one currency for another to make profit, which depends on the price movement. The FX market has become very popular among the general people because most of them want to be free from their working pressure and become independent. However, the situation is not so easy, and anyone may end up losing all of his investment. This FX platform is the largest and the busiest one, and to kick off their trading career from here, a trader must know the basic terms of Forex market.
Basic terms in the Forex market
The followings are the most basic terms of Forex that every trader should know before starting a business in the FX market.
What is CFD?
CFD stands for contract for difference, and it is a better way for the FX brokers to propose commodities and shares as well as indices to start trading with the clients. It is only a contract, and according to this CFD, your broker will pay you when the trade closes based on your demand and requirements. However, if the value moves in the opposite direction, you have to pay the broker.
The price chart is the graphical portrayal of the price’s movement, and it plays the most vital role in detecting the bullish and bearish trend. The chart has two axis – horizontal and vertical. The horizontal axis indicates the timeframe, and the retailer will see the unit of time on the axis. On the other hand, the vertical axis represents the movement of the price. A technical analyst uses this chart to predict the next move of the market. To understand more, sign up for a free trial with pro demo account in the United Kingdom and try out the different features.
What are Asked and Bid price?
In every FX broker’s screen, there are two prices that are set for the currency pairs. One of them is a bit higher, while another is a bit lower. A higher price is called the bid, and the lower one is called ask. You can buy the higher price (bid or go long) and sell the lower one (ask or go short). The difference between these two limits is called the bid/ask spread. It is a commission that you need to pay that online broker whenever you enter and exit a trade.
In other words, while beginning, you are starting your business with a small loss and have to pay when you exit the business. So, if you trade too frequently, you will lose more.
What is the Lot?
Lot is like the defined “amount” that you are buying or selling in the market. In some currency pairs, 1 Lot indicates that there are 100,000 units of currencies. Such as, 1 lot EUR/USD means $100,000. The good thing is that brokers allow their clients to run their trade for as little as they can, which can be 0.01.
What is the Pip?
Pip is a common term that the dealers often come across. It is only a unit to measure a price’s exchange rate. The farthest right decimal is regarded as the pip. Such as, if the USD/JPY rises from 100.11 to 100.12, then we can say that the price has increased by 1 pip. If the EUR/USD falls from 2.2256 to 2.2255, then we can say that the price has decreased by 1 pip.
What is Trade?
When a dealer starts his business in the market, he will exchange the currencies (from one currency to another one). In this point, he has just entered the trade, and after a specific time, when the trader finds that the situation is favorable, he changes the currencies and closes the business. A trader may lose money or gain profit. However, it doesn’t matter whether a trade is lost or won, the retailer should always accept the loss.
These are the most common basic terms of Forex market. To become a successful retailer, you should acquire sufficient knowledge about these terms. If you find it hard, spend more time reading articles and you will slowly get better at trading.