The A-Z of forex terms for beginners

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The foreign exchange (forex) market is one of the most actively traded of all the financial markets. Because of this, you might be wondering how you could benefit from opening a position, and trading in some of the most popular currency pairs worldwide. 

The market is highly volatile, which means that prices are highly susceptible to changed and are affected by a multitude of external factors. These can include:

• Macroeconomic factors — for example, inflation and interest rates.
• International trade figures — trade deficits and surpluses.
• Unprecedented events — the coronavirus pandemic, for example. 
• Political events — such as elections. 
• News releases 

The volatility that these events can create can present you with opportunities to make profits, but also losses, so it’s vitally important that you know what can affect the market and how you can best navigate volatile periods. 

However, first and foremost, you’ll need to know the specific terms that you’ll see and hear when trading in the market. We’ve created an A-Z guide to help you to get to grips with forex terminology, taking you that one step closer to opening a position in the market. 

• Bid and Ask Prices

When trading in the forex market, you’ll notice that there are two different prices — the Bid and Ask price. The Bid is price that you, the trader, are prepared to pay and the Ask is the minimum valuation that the seller or broker is willing to take.

You can find both the Bid and Ask price of a currency pair when you invest online on the Skilling trading platform and can speculate on the price movements of some of the most actively traded pairs in the world. 

• Bullish/Bearish 

If a market is described as bullish, it means that prices are rising. If you approach the market with a bullish sentiment, you intend to buy. On the other hand, when prices are falling the market is bearish, and a bearish investor would likely sell their position. 

• Currency Pair

Currencies are traded in pairs — their value deduced by comparing one against another. In a pairing, there is a base currency and a quote currency. Take the British pound (GBP) against the US dollar (USD), for example — the pound in this instance acts as the base currency and the dollar is the quote currency. When you invest in this currency pair, you’ll be buying the pound and selling the dollar. 

• Leverage

When you invest on an online trading platform, you have the ability to apply leverage to your trade. This technique requires you to deposit just a portion of the total value of a trade, borrowing the remaining capital from an investment broker. This method will enable you to gain greater exposure in the forex market without depositing great quantities of your own capital. 

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• Lots

The value of a forex transaction is typically measured in lots. This will apply when trading online, as an order will be quoted to you in this way. A lot is effectively the number of currency units that you are buying and selling. 

• Percentage in Point (PIP)

This is the measurement that represents the smallest fluctuation of a currency pairs’ exchange rate. For pairs that involve the US dollar, this is typically $0.0001. As this is a standardised size point, it can protect your capital and prevent you from making significant losses during periods of high volatility. 

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With these terms, you’ll have a base to start researching and trading in the forex market. You might be a beginner now, but with thorough research, an understanding of fundamental and technical analysis, and the implementation of a well-conceived strategy, you could be trading successfully in no time.