Key Forex Terms for Beginner Traders
- Currency pairs – A currency pair is, as the name suggests, a pair of currencies that represent the value of one currency against In forex trading, the changing value of a currency pair provides traders with the opportunity to make a profit.
Currency pairs are expressed in a XXX/YYY format, such as EUR/USD.
- Majors/minors – Currency pairs are generally split into two different Major currency pairs all involve the US dollar and are more frequently traded. Minor currency pairs are those which don’t include the dollar.
- Base and quote currencies – In a currency pair, the first currency is known as the base currency and the second is referred to as the quote So, in the EUR/USD pair, the euro would be the base currency and the US dollar would be the quote currency.
- Bid and ask – Every currency pair has two price The bid price represents how much of the quote currency the broker is willing to pay to buy the base currency from you. The ask price represents the amount of quote currency the broker is willing to accept to sell you the base currency.
- Pip – The change in value between two currencies is expressed through a unit of measurement known as a If the EUR/USD pair was to rise from $1.1001 to $1.1002, that increase of $0.0001 is equal to one pip. In major currency pairs, pips are the fourth decimal place in a quote.
- Spread – The difference between the bid and ask price is known as the This is expressed in pips.
- Lots – Lots are the unit of measurement used to express trade There are three common lot sizes; a standard lot which is equal to $100,000 of a currency, a mini-lot which is equal to $10,000 of a currency, and a micro-lot which is equal to $1,000 of currency.
- Leverage – When you make a trade with a forex broker, the broker offers you credit to hold a much larger trading position than you could afford with your own capital. Leverage rates are usually expressed as ratios, for example, 50:1. This means you can hold a position fifty times larger than your account
- Margin – This refers to the initial deposit you need to make in a trade, in order to utilize
leverage. Margin requirements are expressed as a percentage of the whole trading position.
- Slippage – Slippage refers to situations in which you receive a different trade execution price than This can happen for a number of reasons, including slow software and large order sizes. Slippage is neither positive or negative, the same term is used whether the execution price has fallen or risen.
- QE – Quantitative Easing. This generally refers to a central bank buying its own government’s bonds and can take various forms. Bonds are basically debt and in some regions of the world central banks even bought the debt of private companies in various forms of quantitative easing programs. The United States ran no less than four QE packages, while Japan, Europe, and the United Kingdom are still involved in one way or another in various QE
- LTROs and TLTROs – Long-Term Refinancing Operations, and Targeted Long-Term Refinancing Operations. These are special conditions offered by central banks to commercial banks under their jurisdictions in order to stimulate them to lend money to the
- Easing – a central bank cutting interest
- Tightening – a central bank hiking interest
- Long and Short – When a trader buys a currency pair, it is said that he/she is taking a long position, as the expectations are that the pair will move to the If this does indeed happen, the trader makes a profit. If a trader sells a currency pair, it is said that he/she is going short, as the expectations are that the pair will move to the downside.
- Bullish/Bearish and Hawkish/Dovish – A trader who takes a long position, or is thinking of taking a long position, has a bullish view of that currency pair; or he/she is bullish about that currency. For example, one can be bullish about the Euro and, in particular, bullish on the EUR/USD pair. The opposite of bullish is bearish, either about a certain currency or on a currency pair.A central banker can be neither bullish nor bearish, as it is not possible for them to have a position on the market. Therefore, a central banker’s position can be either hawkish or dovish (this being the equivalent of bullish or bearish respectively for the regular trader).