Forex trading is quite interesting once you get the hang of it. But before even considering to open a trading account, first let’s go over some technical jargons or terms that you might run into when trading with forex.
1.PIP –you will often hear traders say this or see such term on any forex trading site. It means “Percentage In Point” or also referred to as Point. It is the most fundamental unit of measure used when trading currencies.
PIP is the minimum price change of a Forex trading rate. The most common Pip is 0.0001.
2. Ask price – in the context of forex trading, ask price is the price you can buy a currency pair at. It is the price at which the trading market is willing to sell the currency to you. It’s basically the minimum price that you are willing to receive as a seller.
3. Bid price – The bid price is the price that you can sell a currency pair at. It’s the maximum price that a buyer is willing to pay.
4. Spreads – Spreads are the difference between bid price and ask price and is parallel to trading cost. If the spread is tight, the trading cost is low. If the spread is wide, the trading cost is high.
5. Currency rate – This is the price/rate of a nation’s currency.
6. Market order – When you place an order either you are buying or selling, there are two fundamental execution options namely: place the order at market or at limit. Market orders – these transactions are to be execute fast with the current market price.
7. A limit order – sets either the maximum or minimum price in which you’re willing to buy or sell and lets you put a specification on the trade entry price.
8. Leverage – is the ability to control a large amount of money in the forex markets. It allows the trader to make meaningful profits on the normally miniscule daily currency movements while risking only minimal capital on a given position.
Leverage may exponentially increase your profits as well as your losses so it is very important that traders be careful when using leverage.
9. Margin – Margin is the amount of money required in your account in order to open a trade. It is calculated based on the current market quote of the base currency of the trader’s account versus the base currency of the trader’s account, the volume requested, and the leverage level of the trader’s account.
The formula for margin is: (Current Market Quote * Volume) / Leverage = $Margin Required10. Expert Advisor (EA) – is basically an electronic system that you install onto the platform that automatically follows a trader’s instructions after meeting a certain criteria. In a simpler sense, it will do the trading without the trader touching the computer or mobile phone.