20 Trading Terms You Have to Know before Starting Forex Trading

Hi traders, Hiro is here.

 

Today, I made an article which is gonna help beginners traders a lot.

I have collected all important trading technical terms which you have to know before starting your trade.

In order not to make your trade “gambling”, you are gonna need to start trading knowing these terms at least.

If you have any questions, you can ask me anytime.

 

 

1. Chart

Forex chart displays the high, low, opening and closing prices of a security for a specific period. It tells you the foreign exchange rate between two currencies at the moment.

There are three types of trading charts:

  • Line chart
  • Bar chart
  • Candlestick chart

 

2. Spread

 A spread is simply defined as the price difference between where a trader may purchase or sell an underlying asset. Some traders who are familiar with equities will synonymously call this the Bid: Ask spread.

 

3. Swap

FX swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates and may utilize foreign exchange derivatives. Foreign Exchange Swap allows sums of a certain currency to be used to fund charges designated in another currency without acquiring foreign exchange risk. It permits companies that have funds in different currencies to manage them efficiently.

 

4. Leverage

Using leverage means that you can trade positions larger than the amount of money in your trading account. Leverage amount is expressed as a ratio, for instance 50:1, 100:1, or 500:1. Assuming that you have $1,000 in your trading account and you trade ticket sizes of 500,000 USD/JPY, your leverage will equate 500:1.

 

5. Currency Pairs

 currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.

 

6. Stop Loss

A stop-loss order can help you limit your losses. If the market price reaches or crosses through the Stop price, your order is sent to the exchange as a market order.

 

7. Scalping

Scalp trading, also known as scalping, is a popular trading strategy characterized by relatively short time periods between the opening and closing of a trade. Scalping is the shortest-term style of day trading that specialises in profiting from small changes in the price of assets. Its name derives from the way its goals are achieved – by skimming many small profits off a vast number of trades throughout the day. 

 

8. Day Trade

Day trading is the activity of buying and selling financial instruments with the intent of profiting from price movements in the underlying security within a single trading day. While positions may be held for seconds to hours during the day, they are always closed out prior to the market close to avoid overnight exposure risk.

 

9. Swing Trade

Swing trading is a longer term trading style that requires patience to hold your trades for several days at a time. It is ideal for those who can’t monitor their charts throughout the day but can dedicate a couple of hours analyzing the market every night.

 

10. Long, Short

Long・・・When a day trader is in a long trade, they bought an asset and are hoping the price will go up. Day traders often will use the terms “buy” and “long” interchangeably. Similarly, some trading software has a trade entry button marked “buy,” while others trade entry buttons marked “long.” The term often is used to describe an open position, as in “l am long A,mazon,” which indicates the trader currently owns shares of Amazon Inc. 

Short・・・This is opposite to Long position. When a day trader is in a short trade, they sold an asset and are hoping the price will go down.

 

11. Pips

A pip in Forex represents the smallest increment by which the value of a currency pair can change. For most major currency pairs, except those involving the Japanese yen, a pip is usually the fourth decimal place of an exchange rate. For example, if the exchange rate of the GBPUSD (pound vs. US dollar) pair rises from 1.35361 to 1.35371, this move would represent a change of 1 pip.

 

12. CandleSticks

Candlesticks are often used in technical analysis to track price movements of securities, derivatives and currency over time.

Each candlestick is made up of three parts: the upper shadow, the lower shadow, and the real body. The size of each can vary based upon how far apart the prices are from each other. The upper and lower shadows are the two thin vertical lines that look like candle wicks. The upper shadow represents the highest price for the time period, and the lower shadow represents the lowest price.

 

13. Technical Analysis

Technical analysis is a method of forecasting the direction of financial market prices through the evaluation of historic price and, where available, volume data. This analysis is very popular among online traders who trade in the short term like hours to days.

 

14. Fundamental Analysis

Generally applied to longer-term investment opportunities the fundamental analysis is a method that attempts to predict the intrinsic value of an investment. It is based on a theory that the security can be overvalued or undervalued and such securities tend to move towards their ‘intrinsic value’ or the ‘fair value’.

 

15. MTF Analysis

Multiple time frame analysis (MTFA) is the inspection of very basic trend indicators and charts, starting with the largest trends and time frames, and working backward down through successively smaller TFs to see how the smaller time frames and trends feed the larger TFs.

 

16. Economics News

For many traders, the news is very important indicators because of its ability to increase volatility in the short term, so naturally, Some traders would like to only trade news that has the best forex market moving potential. Belows are main news which you have to focus on

● Business sentiment surveys
● Consumer confidence surveys
● Trade balance
● Manufacturing sector surveys
● Industrial production
● Interest rate decision
● Inflation (consumer price or producer price)
● Unemployment

 

17. Trend 

 

A trend otherwise trending market is one in which price is generally moving in one direction like the above picture.

 

18. Range

The range is the sideways trend.. This pattern occurs when a stock experiences some up-and-down movement, but no definite trend to the upside or downside presents itself.

 

19. Technical Indicator

Technical Indicators are the tools that help to understand charts and make decisions with ease. The mathematical algorithms use the existing data to indicate trends, events, etc. and help to set up boundaries for strategies and to look for patterns.

 

20. Moving Average

Moving averages (MA) indicate the average trend within the chosen period, smooth out price action and filter out the noise. They are formed using the average closing price over a set number of periods.

 

 

 

 

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