To a beginner, trading on the Forex, or foreign exchange market, can be a daunting prospect, not least for its many exclusive terminologies and terms. However, this initial complexity need not be a deterrent. If you are just starting out in the market there are a number of easy-to-understand basics that can make your first steps simple ones. Below are a handful of words that are vital to any successful foray into the Forex world.
Before you start, it is imperative you know what it is you are actually trading. The Forex market has eight main players, known as ‘majors’, which are the world’s most traded currencies. These eight comprise of the Euro, US Dollar, Japanese Yen, British Pound Sterling, Swiss Franc, Canadian Dollar and Australian and New Zealand Dollars.
Each of these currencies also has its own nicknames that are commonly used amongst traders on the market. The GB pound is also known as the ‘cable’ and the US Dollar as the ‘buck’ or ‘Greenback’ while the Canadian Dollar is generally referred to as the ‘Loonie’. Easier to decipher are the ‘Aussie’ (Australian Dollar), ‘Kiwi’ (New Zealand Dollar) and the ‘Swissie’ (Swiss Franc).
Basic Terms of Play
Once you have understood what you are trading, it is important to then get a grip on the lingo associated with the forex trading process itself.
Currencies on the Foreign Exchange are always traded in twos, with each coupling known as a ‘Currency Pair’. In any listed pairing, the ‘Base Currency’ is the first listed in the quote, whilst the second listed currency is known as the ‘Counter Currency’. Each piece of currency is known as a ‘Unit’, with a ‘Lot’ representing the amount of a base currency to buy or sell.
The ‘Ask Price’ is the price at which currencies are bought, shown at the right side of any quote, while the ‘Bid Price’, on the left side of any quote, is the price at which each currency is sold. The ‘Bid/Ask Spread’ is the difference between the two and represents the amount made in broker’s fees.
One word that arises frequently in any Forex discussion is ‘Pip’. A ‘Pip’, which stands for ‘percentage in point’, is the smallest price change that can occur between any currency pair. For most currencies, this is 0.0001. The Pip can be measured either in terms of the currency or in terms of the quote and it is this that is used to calculate any profit or loss that a trader may make on the market.