When you start trading forex online, you will quickly realise that a lot of jargon is associated with the process, which can be highly confusing for newcomers. This guide will explain some of the most common forex terms to help you get up to speed.
The most common terms used in online forex trading
Here are the most common terms used in online forex trading.
Pip
A pip in forex is the smallest unit of price movement in forex trading. It is typically equal to 0.0001 of a currency pair. For example, if the EUR/USD currency pair moves from 1.2345 to 1.2346, this would be considered a one pip move.
Leverage
Leverage allows traders to control a more significant amount of money than they have in their accounts. For example, if you have $10,000 in your account and use the leverage of 1:100, you can trade $1,000,000. However, leverage can be a double-edged sword as it can magnify profits and losses.
Margin
Margin is the amount of money that is required to open a position. The deposit covers any losses that traders may incur during trading. For example, if you have a margin of 2% and you want to buy $100,000 worth of EUR/USD, you will need to deposit $2,000 into your account.
Spread
A spread in forex is the difference between a currency pair’s bid and ask price. You typically measure it in pips. For example, if the bid price of EUR/USD is 1.2345 and the asking price is 1.2346, the spread would be one pip.
Slippage
Slippage occurs when you fill a forex order at a different price than you initially requested. It can happen due to several factors, such as market volatility or slower internet connection speeds.
Commission
The commission is a fee charged by brokers for each trade that you execute. It is typically a small percentage of the total trade value.
Currency pair
A currency pair in forex trading is two currencies you trade against each other. The first currency of the pair is the base currency, while the second currency is known as the quote currency. The most common currency pairs are EUR/USD, USD/JPY and GBP/USD.
Stop-loss order
A stop-loss order to close a trade at a loss limits the amount of money traders can lose on a trade. For example, if you buy EUR/USD at 1.2350 and place a stop-loss order at 1.2300, your trade will be closed automatically if the price falls to 1.2300.
Take-profit order
A take-profit order is an order you place to close a trade at a profit to lock in profits. For example, if you buy EUR/USD at 1.2350 and place a take-profit order at 1.2400, your trade will be closed automatically if the price rises to 1.2400.
How to get started trading forex online?
Now that you understand some of the most common forex terms, it’s time to start trading and gradually expand your savings. If you’re new to online forex trading, we recommend you start by opening a demo account, which will allow you to practice trading with virtual money before putting your capital at risk.
When you’re ready to start trading for real, the first step is to open a live account with a broker. We recommend that you compare different brokers and choose one that best suits your needs.
Once you have opened an account, you need to deposit funds into it to start trading. Most brokers offer a variety of payment methods, such as bank transfers, credit/debit cards or e-wallets. Once you have deposited funds into your account, you can start trading immediately.
If you’re not entirely confident with your trading yet, you can always try forex robots.
Finally
These are just a few of the most common forex terms you need to know to start trading. However, there are many more forex terms and concepts that you will need to understand before you can become a successful trader. We recommend you research and read some books or articles on forex trading before you start trading live.
