Quick Start Forex Definition Guide

 

In order for you to fully take advantage of the material provided, you will need to understand basic Forex terminology. Review the terminology below so it does not slow you down in future lessons. Take you time and get comfortable with all of the terminology.

Ask: The price you pay to Buy or go Long on a currency pair; the price others are asking to sell.

Base Currency: The first currency listed in a Currency Pair (Ex. EUR/USD – EUR is the Base currency; When EUR/USD rises,the Euro is strengthening against the US Dollar & vice versa).

Bearish: A negative perception; More sellers than buyers causing a currency pair to decrease in value (Down Trend).

Bid: The price you pay to Sell or go Short; the price others are bidding to buy.

Break Out: When a Currency Pair breaks out of a defined Range and begins to Trend (Technical Analysis).

Broker: A bank that you buy and sell currency pairs from. They charge a commission to Buy/Sell, known as the Spread. Not all brokers are necessarily safe, a high amount of research should be done before choosing the right one for YOU.

Bullish: A positive perception; More buyers than sellers causing a currency pair to increase in value (Up Trend).

Commodity Currencies: Currencies that are directly correlated with commodities such as gold, oil etc.

    1. AUD/USD (Australian Dollar / US Dollar) associated with gold commodities.
    2. NZD/USD (New Zealand Dollar / US Dollar) associated with gold commodities.
    3. USD/CAD (US Dollar / Canadian Dollar) associated with oil commodities.

Counter Currency: The second currency in a Currency Pair (Ex. EUR/USD – USD is the Counter currency; When EUR/USD rises – Euro is strengthening against the US Dollar & vice versa)

Day Trading: Holding a trade through out the current day

Double Bottom: When a price hits a previous Low on a chart, then reverses (Technical Analysis).

Double Top: When a price hits a previous High on a chart, then reverses (Technical Analysis).

False Break Out: When a Currency Pair attempts to breaks out of a defined range and then reverses (Technical Analysis).

Fill: The actual price your broker gives you when you execute a trade (buy/sell a currency pair)

Forex: The foreign exchange market (Currency, Forex, or FX) trades currencies. It allows banks, corporations, and individuals to easily buy and sell currencies.

Fundamental Analysis: To analyze economic indicators such as Inflation Rate, Unemployment Rate, Interest Rates, Gross National Product (GNP), Retail Sales, Consumer Price Index (CPI), Non-Farm Payroll, and the sales of Durable Goods. CLICK HERE to see today’s Fundamental News.

Gambling: The wagering of money on an event with an uncertain outcome with the primary intent of winning additional money. The risk is artificially created; the risk is already defined before you play the game.

Investing: Committing money or capital to an endeavor (a business, real estate, stock market etc.) with the expectation of obtaining an additional income or profit

Leverage: The degree to which an investor or business is utilizing borrowed money.

Limit: The maximum profit you are willing to take in a trade. Traders use Physical Take Profits (Where your broker automatically closes your position if that price is hit) and Mental Take Profits (Where you manually close your position if that price is hit)

Liquidity:The ability of an asset to be converted into cash quickly and without any price discount.

Micro Lot: Represents $1,000 of currency. When trading, 1 Micro Lot = $0.1/ Pip (5 Micro Lots = $0.5/Pip)

Mini Lot: Represents $10,000 of currency. When trading, 1 Mini Lot = $1/ Pip (5 Mini Lots = $5/Pip)

News Trading: Using fundamental news releases to immediately buy or sell a currency pair depending on the information released

Pip: The unit of measurement in Forex. 0.0001 = 1 Pip

Position Size: The size you bet on a currency pair ( Ex. 1 Mini Lot, 7 Mini Lots, 12 Standard Lots etc.)

Position Trading: Holding a trade for several days or even several months

Range: When a currency pair stays within a defined price range on a specific time frame. (Ex. The high is 1.5000 & the low is 1.4000, it is in a 100 Pip Range)

Risk/Reward (R/R): They amount of pips you are willing to risk in order to profit a defined amount of Pips (Ex. If are risking 10 Pips to make 20 Pips, Your R/R = 1/2) NEVER RISK MORE THAN YOU ARE EXPECTING TO PROFIT

Robots: A software that automatically takes trades with no user interaction.

Rollover Fee: The amount of pips your brokers pays you, or vice versa, for holding a position during rollover. Rollover occurs at 5:00PM EST Monday – Friday. Wednesday is called Triple Interest Wednesday because the roll over fee is tripled to account for Saturday and Sunday.

Scalping: Holding a trade for seconds or minutes

Signal Software: A software strategy that tells you when to Buy or Sell specific currency pairs

Slippage: When you execute a trade, but your broker gives (fills) you a different price than you asked for. (Ex. You sell a currency pair at 1.5000 and your broker gives (fills) you at 1.4997. You were slipped 3 Pips.)

Spread: The difference in price to Buy (Ask) or Sell (Bid) a currency pair. (Ex. If you can sell a currency pair at 1.4997 and can buy at 1.5000 – Spread is 3 Pips; A built in commision you pay to place every trade.

Standard Lot: Represents $100,000 of currency. When trading, 1 Standard Lot = $10/ Pip

Stop Loss: The maximum loss you are willing to accept in a trade. Traders use Physical Stops (Where your broker automatically closes your position if that price is hit) and Mental Stops (Where you manually close your position if that price is hit)

Swing Trading: Holding a trade for a couple days or a week

Take Profit: (AKA Limit) – The maximum profit you are willing to take in a trade. Traders use Physical Take Profits (Where your broker automatically closes your position if that price is hit) and Mental Take Profits (Where you manually close your position if that price is hit)

Technical Analysis: Focuses on forecasting the future direction of prices through the study of past market data, primarily price. Common technical analysis includes: Candle Stick Patters, MACD, MFI, ROC, RSI, Slow Stoch, Fast Stoch & Bollinger Bands.

The Majors: Constitutes up to 90% of all trades in the Forex Market

      1. EUR / USD (Euro / US dollar)
      2. USD / JPY (US Dollar / Japanese Yen)
      3. GBP / USD (British Pound / US dollar)
      4. USD / CHF (US Dollar / Swiss Franc

Trend: When a currency pair is moving in a defined direction.