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Basic terms you need to know before starting trading forex.

If you are a beginner, you’ll have difficulty understanding forex trading. When we think through the lens of a beginner, initial knowledge is required. So, there are some basic terms you need to know before starting trading forex. 

After understanding these terms, you’ll be able to trade conveniently without interruption. So, keep reading to know in depth about it. 

Pip

Pip is the abbreviation of percentage in point. In forex trading, it is the slightest exchange rate movement. It is a decimal value to measure profit or loss in trading. Moreover, it is the 4rth decimal in the price quote.

Currency Pair

When you start the trade, you have to select a currency that comes in pairs, like EUR/USD. In forex trading, we call this type of currency a currency pair. There are various currency pairs you can see while trading. You have the option to choose based on your needs. 

Bid

It is primarily a price at which you’ll sell a currency pair. That price is your bid whenever you sell an asset at a price. Moreover, whenever you bid, the process is called bidding.

Currency

Any money you use while trading is called currency. There are many currencies, and you can choose the one that suits you best. However, it is preferred to choose a major currency pair. 

Ask

In forex trading, ask is the price you want to buy your assets or currency pair. It will be displayed on the right-hand side. 

Spread

Spread is mainly a difference in price between the bid and ask. It is an essential terminology that a trader should know. Whenever you make a purchase, the difference between the bid and ask price will be called the spread. 

Leverage

Leverage is a loan a trader takes to invest in forex trading. Forex provides a high leverage option. It is the reason why people are attracted to forex trading. 

Exchange Rate

The exchange Rate is the price you must pay whenever you buy another currency. If you have euros and want to purchase dollars, then you have to pay some amount to buy dollars from euros. This amount is the exchange rate. 

Base currency

The currency that comes first in a currency pair is the base currency. Like, in the case of USD/EUR, USD is the base currency. 

Quote Currency

In a currency pair, the currency that comes after the base currency is the quote currency. Like, in the case of USD/EUR, EUR is the quoted currency.

Major pairs

It is mainly a currency pairing with USD as the base currency. Major pairs have one USD currency paired with any of the following currencies;

  • EUR
  • NZD
  • GBP
  • JPY
  • AUD
  • CAD
  • CHF

In Forex trading, you can choose one of these major pairs to get started.

Margins

In forex trading, the margin is the minimum deposit you need in your account. It is necessary to have a margin for maintaining an open position. Margins also open the doors toward high leverage.

Going Long or Short

In forex trading, going long means buying assets, and going short means selling assets. When people buy, it is said to go long; when they sell, it is said to go short. 

Cross pairs and exotics

A currency pair is a significant pair without having USD as the cross pair. However, exotics is a currency pair with no primary currency that we mentioned in the significant pairs section. 

Pipette

It is the smallest increment of the pip. A pipette equals 1/10 of a pip, meaning 10 pipettes make one pip. So, we can say it is a part of a pip in forex trading.

Slippage

It is a term when you’ll face a minor difference between your expected and execution prices. 

Bullish/Bearish

Forex trading marketplace provides a chart view to know the progress. When the price goes up, it means the market sentiment is Bullish.

However, when the price goes down, the market sentiment is Bearish. So, you can see the fluctuations as Bullish and Bearish.

Conclusion 

After reading this article, you have the basic terms you need to know before trading forex. Moreover, if you want to know about the forex before you start trading, you can read the reviewforex for satisfaction. 

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