If you have never tried FX trading, or even heard of it, then the first thing to learn is the basic forex trading terms and definitions. Each day, nearly $4 trillion worth of currency (in US dollars) is traded through forex brokers, meaning that Forex trading provides savvy investors with the potential for substantial profits. With these forex basics, you will begin the path toward successful FX trading.
Forex Trading Dictionary
Currency: Any form of money that is endorsed by a government and used for forex trading.
Broker: The intermediary body that handles buyers and sellers orders. A forex broker needs to be licensed by the US Commodities Future Trading Commission (CFTC).
Support: The price level below which a currency has difficulty falling.
Support Levels: The specific high and low prices at which an exchange rate will correct itself.
Resistance: The price level at which people are estimated to sell.
Breakout: A prices movement through a selected support or resistance. Breakouts are usually followed by heavy volume and increased volatility.
Volatility: The amount by which an asset price is expected to fluctuate over a period of time. Volatility is normally measured by annual standard deviation of daily historic price changes. Implied volatility can also be estimated from futures/options pricing.
Tick: A minimum up or down change in price.
Down Tick: When a currency is sold at a lower price than the previous sale.
Parity: When two currencies are of equal value in the forex trading market. The exchange rate would be 1:1.
Range: The difference between the highest and lowest prices during a trading period.
Cover: Any action that involves the closing of a position.
Position: A given currencys netted total exposure.
Short Position: A position at which base currency is sold. More currency is sold than bought, and price declines are favorable for FX trading.
Flat/Square Positions: A position at which there is no exposure.
Long Position: A position at which base currency is bought. More currency is bought than sold, and price increases are favorable for FX trading.
Cover on a Bounce: When a trader covers a short position after it has arrived at and “bounced” off a support level.
Risk Capital: The amount of money that a trader is willing to lose. This is important for individuals involved in FX trading to determine so that they can implement stop-loss orders to their forex trading platforms.
Fundamentals: The macroeconomic factors affecting currency markets.
Exotic Currency: A currency that is not popularly traded.
Discretionary Account: A type of account with which the account holder gives a company or trading body power over all buying and selling transactions. The company or trading body is also given power to choose which currencies are to be bought and sold. This type of account is also called a managed or controlled account.
Commission: The transaction fee that brokers charge. Most forex brokers collect a commission.
Limit Order: An order that includes specific boundaries meant to control how much profit and loss that a trader is willing to handle.
Fundamental Analyst: Market analysts who look mainly at the fundamental aspects of an economy when forming their opinions. Fundamental analysts often read and analyze economic data about current market conditions in order to determine what is fundamentally driving the market and where the market is headed.
Technical Analyst: Market analysts who rely primary on chart indicators and patterns in order to predict where prices will be moving. Technical analysts often use Fibonacci retracement, candlesticks, and momentum indicators.
Daily Cut-Off: The time at which trading is over for the day.
Ask Price: The price at which the market is currently selling a currency. Traders buy their base currency at this price.
Bid Price: The price at which the market is currently buying a currency. Traders sell their base currency at this price.
Bid/Ask Spread: The difference between the bid price and the ask price.
Free Forex Trading Practice
If you are still interested in the potentially lucrative world of FX trading, but are afraid of making costly mistakes, try opening a free forex demo account. This device allows users to practice forex trading without having to risk any money. You can learn how to place orders, read forex resources, and interpret forex news. Then, when you are ready, open a real account and begin investing.