Words to understand before entering the forex market

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The Basics of Forex Trading

Forex market and trading could be new to several traders and the process is becoming popular in recent times. So, once you enter the market, you would face several strange terms that you have never heard of before in any other markets. Without the knowledge of these terms, you would end up being lost in the market during your initial stages of trading. However, you can learn a lot about the basics of forex trading with the help of various online resources. In this article, let us discuss the top most important terms to begin your forex trading career in brief. 

Currency pairs

You would know that the forex market is full of currencies from foreign nations that would decide whether you are in the profit zone or not. However, the basis of the forex market is the selection of a pair of currencies and predicting their movement in the future. If you take USD/EUR for your speculation, it is your currency pair. Likewise, there would be several currencies to choose from. Some brokers would also provide trading accounts with different currencies for the local traders. You can find brokers with zar account in SA. However, whatever currency is available for your broker account, you would choose two currencies for your trading sessions. Depending on the presence of USD, the pair would be named either as major pair (with USD) and cross pair (without USD). Sometimes, you can choose two unknown currencies or less popular currencies. This pair is known as the exotic pair. 

Leverage

There is a luxury in forex trading that you can buy any currency pair even when you do not have enough money to do so. All you have to do is to make a small deposit with your brokerage and borrow money from the company using the leverage option. Once you place the order using leverage, the company or the broker would lend you the money necessary for buying the currency pair. You would have to return the amount after the trade closes. You can make use of this option if you do not have enough money to go for long trades. 

Ask price and bid price

There would be sellers and buyers of the currency pairs in the forex market as there would be in the stock market. However, here, the buying and selling would be based on the currency pairs. The person who sells would tell a price for the pair and it would be the ask price. The price which the buyer is willing to provide a price for the pair would be the bid price. 

Long and short

In your currency pair, there would be two currencies as AUD/USD. Let us assume that the price of the USD seems to fall in the future while AUD will go up. So, you will go long and buy AUD and sell USD. On the contrary, you would have to sell AUD when it seems to be going down and buy USD. It is known as going short. 

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