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10 forex trading terms every trader should know

Many people get into the forex trading business without fully knowing what all will happen. However, there are a lot of terms and forex jargon that everyone should be familiar with if just starting out with forex trading. It’s highly likely that a lot of terms will come up that you may have no idea whatsoever what they mean, so here are some of the most important forex trading terms that every trader should know when starting out.


1. Base Currency - This is the first term in a forex trading currency pair. For example, if you are trading using your national or domestic currency of United States Dollars against Canadian Dollars, the three letters “USD” will go before the letters “CAD” to mean that you are trading United States’ dollars against Canadian dollars. In a real forex trade system, this whole currency term would appear as “USD/CAD,” which implies that the base currency is the United States’ Dollar.

2. Quote Currency - Also referred to sometimes that the Term Currency, the Quote Currency is the second term in a forex trading currency pair. In the example above, the quote or term currency would be the Canadian Dollar. Essentially, a person would be concerned with how many United States Dollars would be required to obtain one unit of the quote currency, or Canadian Dollar.

3. Buying On Margin - This is a term that is not for beginners to experiment with without expert forex help, however, buying on margin essentially means that an individual is using collateral in a forex trade and using someone else’s funds to use in the forex trade deal. An example of this would be that someone would put up $10,000 in order to trade with $100,000. This is considered a major risk and should only be done by professional forex traders.

4. Spot Trade - A Spot Trade is a forex currency trading deal that is settled right away, or as the name implies, “on the spot.” An individual may be buying or selling some country’s currency and receive appropriate compensation at that exact moment. On the other hand, there are such deals made that are known as Futures Contracts, which are not settled immediately.

5. Spot Exchange Rate - If you are quoted this rate when dealing with forex trading, the spot exchange rate is the rate at which you’ll receive in a forex deal if you settle immediately. This term is also known as a “straightforward rate,” and changes from day to day.

6. Universal Currency Converter - If you want to delve heavily into forex trading, using a Universal Currency Converter should be a top priority. To avoid being confused, Universal Currency Converter tools will allow an individual in a forex trading deal to be able to see how much they’ll receive in one currency when they have paid with another, and these types of tools are updated daily based on the current forex trading rates.

7. Speculation - When a person is versed in forex trading, he or she may want to try trading as a “speculator” The term Speculation basically refers to a person who is trading forex currencies with a very high risk, such as when they’re buying on margin.

8. Real Exchange Rate - This exchange rate is the rate that is used in forex trading when a person is trading one currency against another. The exchange rate is determined relative to the other major forex currencies and constantly fluctuate based on the daily inflation models of different countries.

9. Soft Currency - A developing country’s currency is an example of “soft currency.” This term basically means that the country’s currency is weak and not stable, even though the country’s government will try to inflate the exchange rate to compete with the other major currencies on the forex market.

10. Settlement Period - When trading forex, one will most likely run into the “Settlement Period” phrase at some point. This basically refers to the amount of time between when a transaction is settled and when it is actually completed.

Now that you know 10 of the most important terms in the forex trading business, you can now use this as a reference when starting on your own forex trading journey. Indeed, there are many terms to know when just starting out, but spending only a week or two around these terms will more than likely have one using them as second-nature.

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Asides

  • Wondering if online forex trading is genuine? The answer is yes, online forex trading is genuine. However, not all forex brokers are reputable. Online forex brokers who operate dealing desk operations should usually be avoided as they are believed to make their money by trading against you so you are pretty much guaranteed to lose your money. Look for brokers who run no dealing desk operations or a forex Electronic Communications Network otherwise known as an ECN.  The reason more everyday individual forex traders use a retail forex broker instead of trading via an ECN which is regarded the most ideal way to trade forex online, is that retail brokers usually have smaller minimum balances and many new traders can only afford a small initial deposit.

  • If you are new to forex trading and wondering what is a forex trading account and how to get one, a forex trading account is an account that you apply for with an online retail forex broker. Your account allows you to trade forex online at any time of day or night from Sunday at 5:00PM EST to Friday at 4:00PM EST.

    You will usually have to fill out an application and submit evidence of your identification to obtain an account with any reputable forex broker. Your application will be reviewed and once accepted you will then have to fund your account in order to begin trading forex. Different brokers have different limits on the amount that you need in order to establish a live account forex trading.

  • FX is just another term for forex and fx online trading refers to forex trading conducted via the Internet. The Internet has made forex trading accessible to the masses. Once upon a time  the fx trading market was restricted to participants trading on the interbank level and other well-financed players. Today, every day indivuduals are trading forex via one or another online forex trading platform thanks to the services provided by retail forex brokers.

  • Day Trading is an investing term. It refers to the act of buying and selling financial instruments within the same trading day, which means your trade does not carry over into another trading day. You open and close positions all in the same trading day.

    Forex is a short form of foreign exchange and foreign exchange refers to the financial market wherein currencies are exchanged or traded.

    Currency when referenced in the context of day trading forex refers to the money of one country that gets exchanged or traded for the money of another country.

  • Don’t expect to be able to predict what’s going to happen in the forex market. The forex market is unpredictable. Just when you think you have the market figured out, it does the exact opposite of what you expect it to do based on your previously drawn conclusions.

  • When you consider that even professional forex traders lose money it should give you a good enough idea that forex trading is not Math or Science. There isn’t a formula that  will yield profit 100% of the time like adding 1 + 1 must yield 2 100% of the time.

  • Some forex analysts recently forecast that that euro would be trading at 1.45 USD within a few months and if things continue on their current path these analysts will have projected accurately. The EURUSD rate is currently fluctuating between a day low of 1.4697 and a day high of 1.4828 August 13th, 2008.

  • The US dollar is starting to let up a bit, and analysts expect the majors to do some climbing back after dropping significantly against the USD over the last couple of weeks; however the expectation is for the majors to drop again.

    Get some trading ideas from expert strategists who are following the USD currency trading drama.
    Forex Market Prepares For Dollar Strength Correction

  • FXCM Trading Station II is probably one of the best forex trading platforms out there for novice traders. It’s fairly easy to use. In fact it’s such a nice system even Deutsche Bank uses it with their DBFX trading station. But in the case of FXCM don’t expect the trading station to behave exactly the same in live mode as in demo mode. There is definitely a difference even though you can’t see the difference structually. Even FXCM admitted the live mode and demo mode aren’t exactly the same. They look the same but your trading experience while in demo mode will be a lot more profitable than while in live mode. That should make you wonder. They say it’s the slippage and volatility but in demo mode you’re almost always profiting. In live mode almost always losing….

  • The truth is you probably won’t get rich trading forex. Successful forex traders understand the foreign exchange market and currency trading on a level that is not understood by the average retail forex trader. If you don’t actually understand the fundamentals or even the technicals for that matter you’re going to find it’s a lot more difficult to make a profit from your fx trading account; but even though it will be difficult it’s not impossible. You probably won’t join the forex millionaires club,  but you can still make decent money.

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