Forex Terminology Explained

So you’ve decided to a take the plunge and join the world of online forex trading, congratulations! But deciding on getting involved with the forex market and actually succeeding within it are two different things. Before you start investing your money into currency you need to get to grips with the basics of trading forex, starting with the terminology that you care likely to come across.

Forex – The term that stands for foreign exchange and the market itself. The process of changing one currency for another is fairly self-explanatory. After logging into an online forex trading platform, you will have the right to purchase currency and exchange that currency for others. For example, you could exchange USD for EUR or GBP for AUD. Each transaction takes place within a strict time frame, with quotes being issued for both the buy and sell prices. Transactions take place on the spot, with the forex market being a truly fast paced domain.

Lot – In accordance with a standard brokerage firm, a deal is often provided in lot terms. The term lot refers to the value of the transaction taking place within the forex market, whether that is in unit or financial size. For example, a lot transaction may be listed as 10.000 or £1,000. When addressing a lot forex transaction always remember that it usually entails a larger than average sized trade.

Margin – The margin within a forex trade is the different between the buy and sell prices of the two currencies involved. The margin largely relates to how much profit can be made from a currency exchange. Say for example you purchase USD and then go and sell it at $1.30, but find that the final sale price is $1.20, then the margin is $0.10. The term margin is also sometimes used to refer to the difference between the buy and sale price.

Buy – The buy position relates the practice of initiating a trade of a currency pair. This is usually detailed by a quote and/or exchange price, which usually has a variant scale in place. For example, you may receive a quote to purchase USD and sell EUR, with the position related to the USD purchase being known as the buy position.

Sell – The opposite of the buy position and one that results in selling a currency either to cash out entirely or trade it for another. When you choose to sell you give up your position and interest in a particular currency. For example, in a USD/EUR trade you will be in a sell position when it comes to the EUR you hold.

Analysis – Coming in both technical and analytical form when it comes to the forex market, analysis is a key element within successful trading. Technical analysis involves evaluating the movement and value within a price on a chart. Fundamental analysis is more conjecture and requires traders to make pricing predictions based off of economic, political, and security based elements related to the currency’s nation.

Risk warning: Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.