Forex Market Terminology - Understanding The Basics

When you first start trading the Forex market you can become overwhelmed with the amount of information there is to consume.

One of the hardest parts for a new trader is learning the lingo. Some of the terms used in currency exchange are self-explanatory, whereas others are not. In this section I provide brief definitions of some of the most common Forex trading terms.

Spot Deal

A deal taking part between two parties who can deliver a certain amount of different currencies to each other within 2 business days of each other (excluding Canadian dollar where the trade is executed within 1 business day)

Market Order

This is the execution you make when deciding to buy a currency. In other words you see a currency exchange rate quote on screen and you place a ‘market order’ when you click the button to execute the trade.

Entry Orders

This is basically and advance order, you decide at what price you want to buy or sell a currency and you place an ‘entry order’. As soon as the currencies reaches this rate your trade is executed.

Stop-Loss Order

This is a function offered by some brokers which is aimed at reducing your risk, you can decide the maximum and minimum amount of profit or loss you want to exit a trade at. In other words if you decide you are happy to make $1,000 from one trade but don’t want to lose anymore than $1,000 should the trade go the other way you can place this safety net on your trade.

Bid

This is the currency rate that you wish to buy or sell at.

Offer

This is the currency rate you will actually get when buying or selling

Spread

The difference between the bid and offer rates

Pip

This is the last decimal of the exchange rate with the exception of the Japanese Yen where it is the second decimal.

Lot

The amount of units of the base currency when you enter the market.

Margin

The minimum amount of money you need for each lot to trade, for example the margin may be 1 lot for $100 and therefore you would need $300 in your account to trade 3 lots.

Trend

The direction the market is currently moving in.

Long Position

This is used to describe a market in a long-term buy trend

Short Position

This is used to describe a market in a short-term sell trend

I hope that these helped clear up any uncertainties you had about common Forex terms. If there are any you feel we have missed that should be included feel free to email me at: office@instantforexincome.com

Next we will look at the Forex currency pairs that make up your options when deciding where to invest your trading money. Click on the 'Next' button below to continue.