A forex trading glossary helps you understand different terms and phrases related to forex trading. A foreign exchange asset is a monetary contract in which a trader gains the right to receive a currency from a counterparty. This asset can be a balance sheet asset, a forward contract, or a spot contract. The exchange rate is also adjusted periodically, according to market and economic indicators.
Forex trading is a complex and diverse financial market. The terms used can be complex and confusing to new traders. A forex trading glossary will help you understand the terminology used in the market and make you more comfortable. The glossary is meant for both beginners and professionals alike. By learning the jargon and concepts of the market, you can improve your chances of making money and becoming a better trader.
Another key term to understand in the forex world is the milliard. It is the currency used to purchase commodities. It is also used to define inflation. A rise in the price of commodities is called an uptick, while a decrease in the price of commodities decreases the value of an index. A decrease in the value of one currency may be accompanied by a rise in the other.
A currency’s exchange rate is often set by a central bank. A peg is a currency’s official rate versus another currency, often a valuable commodity, such as gold. A peg will move in line with the other currency, though some pegs are stricter while others have bands of movement. Another term is a pip, which is the smallest increment of price in a currency pair. An example of a pip is one hundredth of a cent. Another term related to forex trading is position. A position may be a long, short, or square one. A profit taking strategy will allow you to unwind a position and realize profits.
Leverage is an important term in Forex trading. Millions of people use leverage to increase their profits, but it is also a risky strategy. Using leverage means you can borrow from your broker a certain amount of money, which increases the risks of trading. A good leverage ratio is one hundred to one.
In forex trading, a currency pair is composed of two currencies: a base currency and a quote currency. A currency pair may be expressed as USD/EUR/GBP. It is important to know that you’re trading in pairs. This can increase the risk of losing money, since you can’t always know what the other currencies will do.
Another term related to currency trading is the spread. This is the difference between the bid and ask prices and it is the main source of the broker’s commission. Most traded currency pairs have narrower spreads than others.
