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Need to Know Forex Terminology

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Forex traders need to understand certain terms to fully comprehend trading articles, other educational information, and to know exactly what is going on from a trading aspect. Below, we have outlined some of the most important terms that will undoubtedly pop up throughout one’s trading career. 

Bear Market (Bearish) – a market where prices are trending downwards. 

Broker – the company that you open an account and trade through.

Bull Market (Bullish) – a market where prices are trending upwards.

Candlestick Chart – the most common type of trading chart that represents a lot of information, including the opening price, closing price, and how much a currency pair rose or fell. 

Carry Trade – purchasing a currency with a low inflation rate and then using it to buy a currency with a high inflation rate. 

CFD – “contract for difference”. 

Copy Trading – traders can see the trades that others have made and choose to copy them. 

Day Trading – a trading style that involves daily trading, where one usually opens trades in the morning and closes them before the end of the day. 

Dealing Desk Broker – this type of brokerage sets their own prices, which makes their prices less volatile. Also known as a ‘market maker’. 

Demo Account – a type of trading account that allows traders to practice in a live environment while using pretend currency. 

ECN – ‘Electronic Communication Network’. This is a type of market access that may be provided by no dealing desk brokers. 

Economic Calendar – keeps track of important events that might affect the price of a currency pair. 

Exotic Pair – usually consist of a major traded alongside a thinly traded currency, like the Mexican Peso (MXN), Hong Kong Dollar (HKD), Chinese Yuan (CNY), Singapore Dollar (SGD), South Korean Won (KRW), South African Rand (ZAR), Russian Federation Ruble (RUB), and Indian Rupee (INR).

Fundamental Analysis – predicting what will happen in a market based on current news.

Indicator – measures different things about the market that can inform traders of whether they should make a trade. 

Inflation – the general increase in the price of products over time. 

Leverage – borrowed capital from one’s broker that allows them to make larger trades. 

Liquidity – how easy it is to buy or sell a forex pair. 

Major Pair – the most-traded forex pairs, always including the US dollar. This includes CAD/USD, GBP/USD, EUR/USD, AUD/USD, JPY/USD, NZD/USD, and CHF/USD.

Managed Account – someone trades on your behalf through this type of account. 

Margin – when you execute a trade, your broker will keep a portion of your funds off-limits in case the trade fails. This margin is kept to cover losses if the trade loses. 

Market Cycle – the four stages that the forex market seems to go through: ranging low, uptrend, ranging high, downtrend. 

Minor Pair – made from currencies that don’t include the US dollar. For example, EUR/GBP. 

Mirror Trading – traders can select a trader and have their trading activity copied automatically on their own trading account.

Naked Trading – the act of trading without using any indicators. 

No Dealing Desk Broker – these brokerages do not set their own prices and allow traders to trade in ‘real’ market conditions which are usually more volatile. 

Pip – “percentage in point”. The pip is usually the fourth digit after the decimal on most currencies. For example, in 1.3446, the 6 at the end of the number is the pip. 

Portfolio – contains all of one’s trading positions.

Price Action – a currency pair’s change in price over time. 

Ranging Market – a market where prices don’t fit into the bullish or bearish categories; prices are not trending upwards or downwards. 

Resistance – a point where a currency pair won’t go any higher.  

Risk Management – the precautions one takes to avoid losses when trading, for example, using a stop loss. 

Scalping – a trading strategy where one opens and closes multiple trades quickly. 

Slippage – when the price at the opening or closing of a trade is different than the quoted price. 

Spread – the difference between the asking and selling price. For example, 1.5 pips is an average spread.

Stop Loss – a risk-management tool that will exit a trading position if the price gets too low to avoid large losses. 

STP – ‘straight-through processing’. A type of market access that may be provided by no dealing desk brokers. 

Support – a point where a currency pair won’t go any lower. 

Swing Trading – unlike with day trading, swing traders leave positions open for days, weeks, or months before closing them. 

Take Profit Order – closes out the trade when a certain level of profit is reached. 

Technical Analysis – making predictions about what will happen in a market based on the analysis of historical charts. 

Trading Bot – automated software that executes trades on the trader’s behalf. 

Trading Journal – used to keep track of one’s trades and to get a general idea of the success of the chosen trading strategy. 

Trading Platform – the program that one uses to input their trades. MetaTrader 4 & 5 and cTrader are common examples. 

Trading Psychology – has to do with the way our mental state affects trading decisions and the way that emotions like excitement, greed, and anxiety change our choices. 

Trading Signals – this informs traders of when they should make a trade through notifications like SMS, email, or other alerts. 

Trading Strategy – refers to the strategy one will base their trades on. There are many strategies out there, like scalping or news trading.

Trend – an overarching direction in which a pair is moving. The pair can be moving upwards, downwards, or sideways. Traders should always trade with the trend, rather than against it.

Volatility – in a volatile market, prices change from extreme lows to extreme highs rapidly. 

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