While the Forex market may be confusing, with just a little research you can easily begin to understand its intricacies. Here are 8 Forex market terms by UFX Markets to help you get started and give you a basic idea of what happens in a Forex trading market.
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Forex
To start, Forex (or FX) is the name of any marketplace where a number of traders gather to globally trade foreign currencies. Trading on a Forex happens quickly and huge amounts can be won or lost in seconds. Forexes are present all over the world and can have different opening and closing times depending on location.
Spread
This is the difference between the buying and selling price of any currency. These prices are determined by individual brokers, which mean traders can undercut competitors in order to make more trades. Of course, this will come at a price for them unless they trade a sufficient amount to make up the difference.
Currency Pair
This is a general term given to any two currencies that are being exchanged for one another. The major currencies of the world are always available in a Forex, as well as many others that may be less known.
Leverage
Leverage is the name given to the amount of sway a trader has when he or she is trading with money he or she doesn’t have. The greater the leverage, the greater the potential profit (or loss).
Margins
Traders give brokers cash amounts based on margins, which means they can trade huge amounts they wouldn’t otherwise have. If the margins are called in, the trader has to repay them back immediately.
Stop Loss
The safety measure of a Forex, stop losses ensure that if traders lose money, they will only lose a portion of their investment, rather than the full amount.
Pip
A pip is a small unit of currency, usually only worth a decimal point or two. However, they can add up when taking leverage into account, so they are not to be discounted.
Long and Short
This term refers to how long a trader holds onto currency before selling it. Depending on the change in exchange rates, holding money long or short can mean the difference between losses and gains, so make sure you understand the marketplace before choosing.