Investor’s Dictionary. Currency market

Forex terms for beginners and their study constitute the initial stage of comprehension of the trader’s profession. Any theoretical course begins with the simplest and at the same time the most basic – with terminology. Without knowledge of basic concepts, a trader will not be able to work on the international currency market, and thematic articles and books will seem like manuals in a foreign language, where almost every word in a sentence is a neologism of the author.

Basic Forex terms for beginners

Forex terminology and definitions are easier to learn alphabetically.

Ask is the value at which a purchase is made on forex. In any currency pair, the base currency is worth first, followed by the quoted currency. Ask determines how much the first currency is worth in the equivalent of the quoted currency.

Bid is the value at which a forex sale is made.

In other words, we can call Ask and Bid the bid and ask prices respectively. At Ask price, the seller offers to buy your currency at a given time. At the Bid price, you sell the currency at a given moment in time.

Currency is a monetary unit that is a part of a currency pair. It can be the monetary unit of any country. As a rule, the most traded currencies in Forex are the euro, the American dollar and the Japanese yen.

A currency pair is a trading instrument that traders work with. It consists of a base currency, which comes first, and a quoted currency, which comes second. When you make transactions with currency pairs, you sell or buy the base currency for the quoted currency. The most popular currency pair is the euro to the U.S. dollar.

Volatility – the degree and possibilities of change in the exchange rate of a currency or currency pair over a certain time period. The higher the volatility of a trading instrument, the better it is traded.

Long position – a transaction in which a trading instrument is bought with the expectation of an increase in price. In the same context, a short position is a deal in which a trading instrument is bought with the expectation of falling in value.

Indicator – a special program that is installed in a trading terminal and performs a number of prescribed functions, in particular mathematical calculations. It is used for technical analysis of the market.

Quote – expression of the price of an asset in the form of Ask or Bid.

Leverage is the degree of increase of own funds by the broker for trading. It is expressed as a ratio of own funds to borrowed funds. For example, leverage 1:150 means that you can work with an amount 150 times higher than your real deposit.

Lot is a unit of measurement of transaction volumes. A standard lot is one hundred thousand units of the base currency. In other words, buying a contract in one lot, you buy one hundred thousand units of base currency.

Liquidity – the degree of activity of a trading instrument in the market. It determines the possibility to sell and buy an asset in a short time. The higher the liquidity, the higher the probability of earning.

Margin is the amount that is provided by a trader to a broker as a collateral when using leverage.

Margin Call – a broker’s warning that you are approaching or have crossed a line equal to or close to the margin level.

Order – a trader’s open position in the market. A pending order is a position set to open at a certain time in the future.

Spread – the difference between Ask and Bid.

Stop Loss – the level of the asset value, when breaking through which the deal should be closed.

Trend – confident movement of quotes in a certain direction.

Head and Shoulders Model – This model often appears on the market, and you should learn to identify it. This model is really similar to a head and shoulders. If the right shoulder is lower than the left shoulder, a downward movement may be starting. The head and shoulders pattern can also be inverted. If the “head and shoulders” appears in an inverted form – the chart will start moving up.

Technical and fundamental analysis – These are two types of effective analysis. Which of them is better? It is difficult to say, it is necessary to use both of them. Technical – it is also graphical. With its help you can analyze the market and predict its further behavior. Fundamental is analytics on news.

Averaging – What is it? It is another purchase with the same lot, provided the market moves in one or the other direction. If the market moves in the desired direction, averaging is considered normal. When the market moves against the trader’s wishes, averaging is more dangerous.

Trust management – It is carried out on PAMM accounts. A person can entrust his money to a professional for management.

Black-Scholes formula – This formula is simple. It says: the market can go both to one side and to the other side for the same time. It is not complicated, but it is the only one that can be effective. To understand the meaning of this formula is very important for a beginner trader.

Pending orders – This is a type of order that triggers when the chart reaches a certain price. Pending orders are loved by beginners while professionals give market orders.

Take Profit and Stop Loss – The former is triggered when a profit is made and the latter when a loss is made. Take Profits may not be set, at least this is what most speculators recommend. But stop-losses should always be set. This recommendation is given by many successful traders. Although there are very successful traders who do not use stop losses. They tend to use grid trading.

Business Plan for Trading – Coming to the market, a trader needs to know: what will he/she do? It is not wise to start trading without a plan. Even before entering the market, one should decide what the trader will do if the chart goes up or down. What losses are acceptable on the stock exchange? What loss is acceptable on one deal? What kind of income does the trader want to get? All this is decided according to the business plan.

Bear and bull market – The first is the chart that goes down. The second one is the one that goes up. Although in the foreign exchange market, the concept of bear and bull market is very conventional.