For those just getting started in the Forex market, are looking at the right market to change their lives. The lavish lifestyle portrayed on Instagram by many traders is not a false impression of the wealth people make in the Forex industry. Since you are here, we will help you get started with your journey just like once we were guided.

Here is a list of the words you will hear every day in your trading life:

1. Forex

Forex (Foreign Exchange Market) is about trading currencies, unlike the stock market, where company stocks are traded. In 2019, the daily turnover was 6.6 Trillion making it the most liquid market of the world. Forex is traded by making an account with a Forex Broker, online through a computer or a smartphone sitting in the comforts of your home or your favorite beach location during 24 hours of a day 5 days a week. Traders are speculating the price of currency pairs whether your chosen currency will go up or down, and make profits when your predictions are going correct.

Be aware that predictions do go wrong and people blow their accounts due to lack of understanding of the market. Read our next blog on how to avoid common Forex Trading mistake.

2. Currency pair

Currencies are always traded in a pair of two, our of hundreds of currency pairs, some major and most profitable ones are EUR/USD, GBP/USD, USD/CAD, USD/CHF,

USD/JPY, and AUD/USD.

At a certain level on a Forex chart, the pair makes a price quote where a trader places a deal. The deal can be a selling or buying price. More on that coming below.

3. Pip

This is the smallest movement made by a currency against the other.

Currency prices are always quoted with four digits after the decimal point and the last digit is called the pip. For example, with Yen USD/JPY 1 pip = 0.01 and for EUR/USD 1 pip = 0.0001,

4. Spread

Getting more technical here, this is the difference between the Bid (Buy) price and Ask (Sell) price of the currency pair. The Sell and Buy price are shown with different lines on a chart and the spread is the distance between the two in terms of pips. The smaller the spread the better.

For example, if the EUR/USD has a Bid price of 1.0661 and Ask price of 1.0664, then the spread is the difference between the two which, in this example, is 3 pips.

5. Fixed vs. Floating Spread

Forex brokers usually offer two types of spreads, fixed or variable (floating). Fixed spreads are preset and remain constant during all market conditions. Variable spreads, usually decrease during low market liquidity and increase during high market liquidity. Every broker has its own levels, and traders chose based on their trading strategies.

6. Leverage (or Margin)

Leverage gives you the ability to trade with large amount of money even if you have small capital in your account. This is called opening larger positions. For example, if you are using 1:100 leverage, you can open a position of $100,000 with only $1,000 in your account. Using leverage helps you make larger profits; however, it also amplifies your losses if the market goes against you. This defines what 1 pip will be equal to.

7. Lot size

Lot size is the unit size of a trade. The standard lot size is equal to 100,000 units of the base currency, a mini lot is 10,000 units, and a micro lot is 1,000 units.

Smallest lot size 0.01 will take 10 pips to give you a profit of $1 and 100 pips to give you $10. Traders can change this for very deal placed. Large lot sizes give you bigger profit and also reduce you capital in cases of loss significantly.

8. Stop loss

A stop loss is a type of barrier placed on your deals as to limit the losses by closing your deals once the market starts going against you. This order type helps minimize your losses, which is very important for your long term success. This is most important tip any Forex trader would stress on.

9. Long vs. Short Position

Long Position is a Buying deal when a trader is predicting the graph to go up, traders Buys at lower level and closes when it goes high. A Short Position Sells a deal at a higher position and closes when price goes down as predicted.

The trader decides how long he/she wants to keep the position, for example a few hours, days or months.

10. Swap or Rollover

Swaps are deductions from your capital when keep your deals open for more than one working day. This is interest rate difference between two currencies. If you have bought (placed a long position) the currency which has the higher interest rate, you will earn interest. On the other hand, if you have sold (placed a short position) the currency with the higher interest rate, then you will pay interest.