Foreign exchange, or forex, trading is the buying and selling of currencies in the global marketplace. In order to understand forex trading, it’s important to be familiar with some of the common terms used in this field. Here are a few of the most important terms to know:
Pip: A pip is the smallest unit of measurement in forex trading. It represents the price movement of a currency pair, and is typically quoted as the fourth decimal place (e.g. 1.2345).
Spread: The spread is the difference between the bid price (the price at which you can sell a currency pair) and the ask price (the price at which you can buy a currency pair). This difference represents the profit that brokers make on each trade.
Leverage: Leverage allows traders to control larger positions than they would be able to with their own capital. It’s expressed as a ratio, such as 50:1 or 100:1, and means that for every dollar you have in your account, you can control $50 or $100 worth of currency.
Margin: Margin is the amount of money required to open a position in forex trading. It’s expressed as a percentage of your total trade size, and varies depending on your broker and your chosen leverage.
Stop-loss order: A stop-loss order is an instruction to close out a trade if it reaches a certain level of loss. This helps traders limit their losses and manage risk.
By understanding these common terms, you’ll be better equipped to navigate the world of forex trading and make informed decisions about your investments.