Image via Wikipedia
The Forex trading industry is a difficult and challenging world. There are many aspects of trading currencies on the Forex that can be confusing and it is best to prepare yourself as much as possible before entering the Forex. One of the most difficult aspects can be the sheer number of specialist terms that are used.
Forex
Forex is the name for a collection of brokers and traders buying and selling world currencies to make a profit. A Forex can be opened anywhere in the world and will have its own opening and closing times. It is a highly skilled arena where the traders there know absolutely everything about their business.
Currency Pair
Put simply, this is the term given to any two types of currency that are being traded for one another. For example, if you are trading Australian dollars against Mexican pesos, you have a currency pair. The difference in exchange rates between the two currencies is where traders make their money.
Pip
A pip is a tiny amount of currency, usually the equivalent of a decimal point’s worth of currency. It may not seem like much on its own, but when brokers trade it and make full use of their leverage, they can soon make a tidy profit.
Spread
Another of the top 8 trading terms for Forex traders that you simply must learn if you are to get anywhere is spread. This is the difference between the buying and selling price of a particular currency. Each broker may have their own set prices and can play them off against other brokers, although they must be careful not to go too low or they won’t make any profit for themselves.
Margin
When a broker is trading with larger amounts of money than he actually owns, this is called his margin. Trading on margins allow brokers to make huge profits without having a great deal of money themselves.
Leverage
This is the term given to reflect a broker’s margin, i.e. whether or not they have a large or small margin.
Stop Loss
When all else fails, use a stop loss! This is a safety measure brokers put in place to ensure that if they make a mistake, they don’t lose all their money, just a portion of it.
Long Versus Short
The key to making a profit on the Forex is to know how long to keep hold of certain currencies. If you hold long, you typically keep them for longer than a week, whereas holding short means you sell them much quicker.