Every professional field has its own terminologies and these are termed as jargons. The same goes for the Forex market, and if you are willing to be a trader in this market, then the first step is to be acquainted with the terms used here. In the forex market, you will find some terms that sound similar to the ones in the other financial markets but have a different meaning. While some of the terms are used just in the forex market. Read till the because these terms will also help you understand the forex market-related information.
1. Counter and Base Currencies
It is possible to sell your security in the bond and stock markets.
In simple terms, it would mean that you can liquify your security (convert the security into cash). Though it can be confusing as in the forex market a trader is already selling and buying currencies or money. This can be clarified with this statement that in the forex market one currency is simply being exchanged for another. The purchase and sale of the currency run parallel to each other. It is thus that you will see the quoted price of currencies always in a pair. The price in pairs signifies the amount of first currency that the trader will have to pay for the second currency in the pair. The right forex trade term for the first currency is the base currency. Remember that the price will always be quoted in terms of the base currency. The pair’s second currency is termed as the counter currency.
2. Short and Long Positions
The terms short and long positions are present in the forex market as well as the stock and bond markets, but in the market of our concern right now, the term makes a completely different sense. Since in the forex market, the traders do the transaction on pairs of currencies, short and long positions have a different meaning.
In the currency exchange market, if you are going long, it would mean that the base currency’s units will be purchased while of the counter currency, the units will be sold. If you say that you are going longer it would mean that you already hold the position of going long and still are continuing that.
Understand this with the following example.
Base currency: USD
Counter currency: EUR
Pair will be USD/EUR. You will purchase the USD and sell EUR
Going short would be exactly the opposite of going long. In this case, you are selling the base currency (USD) and buying the counter currency (EUR). If you get back to a zero or neutral position, the term for it would be squaring off. To square off from a long position you will sell and buy to square off from a short position.
3. Bid Price, Ask Price, and Bid-Ask Spread
The operators of the forex market are the market makers. A two-way market at all times, and for all currencies, is provided by them. Also, the sell and buy quotes are provided in the market by them. Their way of earning a profit is to be able to sell at a higher price than for what they made the purchase.
The bid price is the price at which the market makers want to buy and the ask price is the price which they quote for selling. The bid-asks spread more commonly known as the spread is the difference between the bid prices and ask price.
A lot is a term that is related to future contracts. The size of future contracts in the forex market is always fixed. Let’s estimate that for a multiple of $5000 you can purchase a contract and that is one lot. Buying 5 lots would mean $ 25000.
Joining a trading course will be helpful in getting more acquainted with similar terms and forex trade-related strategies. Though before joining a forex trading course you should make sure the money you are investing does not go waste. You can have a look at the forex trade courses by Hafizzat Rusli. To know how he has helped various of his students around the globe, go through the testimonials on the website of Hafizzat Rusli. To know more click here.