When exploring foreign exchange (forex) trading, you are likely to come across a huge range of technical terms, which are used in every area of the trading industry.
These terms do have their uses, as they allow for traders to instinctually recognise certain aspects of their trading experience, and understand exactly what is being shown without the need for explanation.
However, the need for explanation is in fact very present for a large percentage of forex traders. This could range from forex trading beginners, to professionals who need refreshing on certain terms.
For this very reason, we have created this forex trading glossary of trading terms, all of which you will find essential in your forex trading journey.
Here are the fundamental terms you should know as a forex trader:
Assets – An asset is the very thing that is being traded or exchanged. Assets can be a range of different financial instruments, including stocks, commodities and bonds. In regards to forex, the asset being traded is currency.
Contract for Difference (CFD) – A forex CFD trade is a form of trading that involves purchasing contracts (units) on a forex currency pair, where you speculate on the price movement. Your CFD position can be either long (buy) or short (sell), and your profit or loss is determined from the change in the value of the currency pair, between opening and closing of the contract.
Currency Pairs – Currency pairs are the asset traded in forex. Every currency needs to be exchanged at a certain rate when making foreign transactions. Thus, each currency has a certain value compared to another. A currency pair is the combination of two currencies, a base currency (the main currency), and a quote currency (the currency it’s measured against).
Exposure – Exposure is the overall amount of money invested in an asset and your position in the market, as well as the potential amount of profit and loss that can be made.
Forex – Also known as foreign exchange, the forex market is a financial market used by millions of traders around the world, where currencies are exchanged for potential profit. Currency pairs are exchanged on a forex trading platform.
Indicators – Technical indicators are highly useful calculations that help predict price fluctuations in the forex market. More expert forex trading platforms will have a wider range of accurate indicators.
Leverage – Leverage is used to determine the level of exposure you can gain on a trade, compared to the amount you deposit. Each currency pair will have a leverage ratio that establishes this. Trading forex with CFDs is a highly popular way to benefit from leveraged exposure, although be aware, the exposure increases potential profit and losses.
Margin – Margin is the minimum deposit required to begin trading a currency pair. This is also established by the leverage ratio.
Position Trading – Position trading is a strategy of forex trading that involves buying a currency pair, and holding the position for a prolonged period of time. This is often done to produce a significant, long-term profit from the movement of a currency value over time. This position can often be held from several months to several years.
Trading Plan – A trading plan is a strategy designed by traders to make smarter, more profitable investments. Forex trading plans can include thorough analysis of the current market, to ensure currency pairs are traded more effectively, and with better rewards.
Trading Platform – A forex trading platform involves online software which allows you to execute all your trades, and where your entire forex journey takes place.
Trends – A trend is a pattern shown in the movement of currency pairs on the market. This can be a clear direction of movement, which can be rising or falling in value.