Being familiarized with major terms used in Forex trading will form feedback you may constantly refer back to. To prevent you from browsing dozens of websites and glossaries, we have put all the baseline Forex trading terms in a single article. The explanations are provided in the most newbies-friendly manner. All you need is to learn everything you can and get going.
Baseline Terms Used in Forex Trading
Most beginners think that the financial market is nothing but a wonderland where everyone gets a chance to grab a piece of a pie. Well, that is not the way it works. Forex is a marketplace that strict financial and economic paradigms.
It is a kind of science featuring its unique rules, terms, and techniques used to generate revenues. Mastering those techniques is impossible without the learning curve like in any other science. Knowing the basic terms of Forex trading will prevent you from feeling stranded once you have entered the trading platform.
Beginner Forex Trading Terms
To make a good and hassle-free start, you need to learn at last the following:
- Currency Pair – a term used when buying and selling one currency concerning another;
- Bid – the price trader is eager to BUY a certain instrument;
- Ask - the price trader is eager to SELL a certain instrument;
- Pip – the smallest price movement in percentage;
- Spread – the difference between the Bid and Ask.
Now, let's have a closer look at all of the above-mentioned terminologies in forex trading.
It is actually the first terminology you will be introduced to when trading for the first time. The term refers to the process of trading currencies. It means that a trader buys and sells one currency about another.
Example: let's say you have a certain amount of USD. You want to buy EUR with a certain amount of dollars you have. So, this is actually a currency pair of EUR/USD. The first one (EUR) refers to the currency you want to buy. It is also known as the base currency. The second one (USD) refers to the one you have. It is called the quote currency. When buying an asset, you will need to spend the amount of quote currency needed to cover the value of 1 base currency.
The key goal is to "catch" the best possible price to buy or sell an asset. When it comes to buying, bid refers to that ultimate price tag every trader is waiting for. When we say "the best", we mean the highest price a trader is ready to pay.
Unlike the bid, Ask is the best possible price tag to sell an asset. As a result, when we say "the ask price", we mean the lowest cost of the asset a broker is aimed to sell.