Key term of forex trading that every trader needs to know. One of the fundamental things in your process to learn Forex is to understand the language of foreign exchange. It includes understanding all the key terms and ideas that are used in the Forex market. As you jump to the market soon or later, there will be several words and phrases you are going to hear like every single minute in trading. What are they?

5 Basic Terms in Forex Trading that You Need to Know

One of the basic terms that you need to know about foreign exchange is currency pair. There is no single trading in Forex which is not traded in currency pair. Every currency is going to be traded in pair. Other than currency pairs, there are some other basic terms that are commonly used in Forex trading. This following information will tell you the detail.

#1 Pip

In the Forex market, you will be familiar with the term pip or percentage in point. This is a measure for exchange price movement. It is presented as a unit of numeric value which eventually calculates profit and loss. One pip is equivalent to 0.0001. Forex traders frequently quote a movement, profit and also lose in pips like “I made 20 pips on last trade”.

#2 Spread

Moreover, there is also spread. Spread is actually the gap between the buying price for certain currency and the selling price of it. When a personal trading currency needs to employ a broker to place a trade, each broker attaches a particular spread to the currency that is operated. It is where the brokers make profit from the trading occurred in their platform. 

When you start trading currencies, you should watch the numbers within the currency pair. If you see that the currency you take has a higher number compared to the currency you are willing to trade for, it means that you will be able to gain profit. If you find it in reverse, it means that you lose. Naturally, losing is not your interest. 

#3 Leverage

Leverage is one of the reasons why Forex market is a unique case. This is the one that makes it possible for a trader with limited capital to get the most of their profits in the market. However, it is the same reason why a lot of new traders quit the market for losing money. Leverage itself is a ratio that defines a loan amount.

In another world, it is a margin in which traders are allowed to employ to get access for larger sums on the trading market. It is highly recommended to use leverage wisely since it is the one that can enhance both losses and profits. There are some common leverage accounts available including 50:1 and 100:1. But, it is recommended to go for the small one.

#4 Margins

In the Forex market, you will need margin to trade. A margin can be understood as the minimum deposit or collateral in the market. It allows you to efficiently take leverage in the Forex market. Along with the term margin, there is also margin call which refers to a notification that you are going to get when there are insufficient funds in your account. 

#5 Stop Loss

The last but not least, there is stop loss. Stop loss is surely a good term to know since it can be your best friend in the Forex market. Placing a stop loss properly can help you to lose only a small investment amount despite where the market will go. As you learn Forex, don’t forget to learn the best strategy to utilize this too.