Basic Terms Used in Forex Market

Every area, region has its own language, so does forex have its own language

Special terminology is used in the forex market, the terminology is combine known as forex market language.

To trade in the forex market one must know the terminology to interact in a proper language and save him/herself from the shamed otherwise felt because of not knowing the meaning of some terminology.

So, here we go to introduce a few well-known terminologies used in the forex market

Quote

A quote in the final settlement price on which the deal is finalized.at which the buyer and seller become agree and transition occurs.

Ask Price

A price on which you buy currency, it is also known as the offer price given by the seller,

For example, if the quote on the EUR/USD currency pair is 1.1765/67, it means that you can buy 1 euro for 1.1767 US dollars.

Bid Price

It is the price on which you want to buy a currency pair.

For example, if the EUR/USD is quoted at 1.3568/1.3570, the first amount is the bid price at which you can sell the currency pair. The bid price is always lower than the asking price because we always want to buy at lower price than the buyer offers.

Spread

Spread is the difference between the bid price and the ask price.

For Example, if the seller offers you the EUR/USD for 1.1589 and you want to pay him 1.1489 so the difference of 0.01 is the spread.

There are two types of spreads:

Fixed Spread: always fix

Variable Spread: changes in accordance with the change in the external factors

Pip

Pip is the smallest difference in the value of the exchange rate of the country currency. The pip is a significant portion of the currency fluctuation in value and is something to monitor as you’re trading.

Lot

A great number of the amount is known as a lot in the forex market.

A micro lot has 1000 units of base currency and a standard lot has 100000 units of the base currency.

For example, if you buy 1 standard lot of EUR/USD at 1.4125, you buy 100,000 Euros and you sell 141,250 US dollars. Similarly, when you sell 1 micro lot of EUR/USD at 1.4120, you sell 1,000 Euros and you buy 1,412. US dollars.

Equity

Equity is the total amount of money available in your trading account, either in terms of currency, bonds, or any other shape.

The Money is either your investment, profit earned, Debt or any broker’s investment in your account, all is known as Equity.

Margin Call

Margin Call is a major part of risk management in the forex market.

The broker will remind you about the money has dropped below the margin and you have to deposit more money in order to maintain your trade position, means margin used, in the Forex Market this percentage is 50%.

For Example: If your trade amount goes below 50% of your trade amount then your broker will call you to invest more amount.

Margin Used

It is the amount of trade money, that your broker locks for you in order to not drop you in a negative balance

Free Margin

Free Margin is known as the equity-margin used remaining amount, that remaining amount is known as free margin.

Leverage

Leverage is an investment technique in which you use a small quantity of your own money to produce an investment of much bigger value. It is an investment model in which the trader is required to put up only a fraction of the total position value

Conclusion

The above given are just a few terms, the basic terms that are used in the forex market, there are other big terminologies that I will define in another article, which are also very necessary to know in order to run a smooth trade and have the terminology on your fingertips, so that anyone in the forex trade market ask you and talks about pip, that you currency is increased by 4 pip, so in order to get his words you must be clear that what actually the pip is.

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