Top 15 Forex Terms
If you are new to forex trading, check out this forex glossary of terms. Here you will find all the definitions you will hear/see while trading in the forex market. You might also check out Investopedia’s Top 300 Forex Terms [PDF]. If these are too much for you all at once, focus on learning these top 15 Forex terms:
Ask Price – the price using of which trader can purchase the base currency.
Base Currency – the first currency which is listed in any currency pair used for trading in the forex (FX) market.
Bear Market – a market with pessimistic diagnoses and declining prices.
Bull Market – a market with rising prices and more optimistic trends.
Bid Price – usually displayed as the ‘left quote’ stands for the price traders may use in order to sell any base currency
Counter Currency – the second currency in a pair and usually its value is predetermined by the opposite base currency’s value
Cross Rate – a price quote composed of any currency which is quoted against any other currency which can’t be related to USD. This quote is the combination of the individual rates for exchange 2 currencies against USD.
Day Trading – intra-day trades based on opening and closing his trading positions during one trading day and to the end of this day a trader has no any position open.
Fed – short for Federal Reserve which in its turn denotes the central banking system effecting significantly on the trends of the Forex market.
Leverage – the loan a trader takes for the FX broker which allows trading only having a small capital. In such way one can increase his profits but the risks get higher as well.
Margin – another term every trader should understand and it denotes the minimal amount of cash deposit a trader can put up for a certain transaction.
Pip – the smallest price which can be found in the last number of the currency pair rate. Commonly it is the 4th digit located after the decimal point.
Price Trend – a stable movement of the currency prices with a certain direction. Spotting trends can capitalize the potential.
Spreads – the differences between the ask and the bid prices.
Stop Loss – the trade order which closes an open trading position in automatic way for preventing losses if the FX market fluctuates against this chosen position.
Practice on a Demo Account
For every new forex beginner, besides learning forex basic knowledge, practice on demo account is very important. They can gain real trading experiences from this process. Most forex brokers offer a practice account or demo account these days. Try trading on a few different ones and see which platform you prefer. The modern day demo account is akin to what is referred to as “paper trading”. It is always wise to gain some familiarity with the investments you want to trade, and nowadays, with with the trading platforms available. All the platforms function differently so if you have chosen one, stick with it, you will only confuse yourself if you keep changing.
If you are considering moving on to the real thing, choose a platform that offers good support. If you are in doubt you could always research the reviews on a company but typing the ‘name of company’ followed by ‘review’. It is very important to choose a demo account provided by forex broker that is very similar to the real account. When you practice on demo account a while, it will be easier for you to switch to trade on real account. PROFIFOREX is a good broker which provides good demo account for beginners. Demo account is exactly the same as real one and they provide good services.
Read a Good Forex Trading Book
I have mentioned several forex trading books on this site, but one of the best is The 10 Essentials of Forex Trading: The Rules for Turning Trading Patterns Into Profit by Jared Martinez who is known as the “FX-Chief”. He is the founder of the Market Traders Institute, the worldwide leader in Forex education and frequently blogs on JaredMartinez.com. According to the book description, “No matter your level of trading experience, you can develop the skills you need to become a consistently successful foreign currency trader-from using the right trading tools and balancing equity management to trading in buy and sell zones and identifying trends and trendlines. You’ll discover what drives the Forex market and how to navigate the three stages of Forex trading: acquiring new trading rules, controlling disciplined thought, and implementing disciplined action.” One reviewer said, “This book encourages you to have a trading plan; using a selected number of indicators looking for a convergence between them. It also focuses very heavily on your mindset which is paramount for success. Irrespective of your level of knowledge and trading experience in Forex…this book is great value for all traders.”
Top 5 Common Mistakes Forex Traders Make
If you’ve ever heard the quote, “Smart people learn from their mistakes, geniuses learn from the mistakes of others,” you’ll pay attention to the mistakes forex traders have made before you so you don’t have to make them yourself. Here is a list of the top 5 most common mistakes forex traders make:
- Inconsistent Trade Strategy
- Lack of Knowledge
- Lack of Discipline
- Not Using a Demo Account First
- Analysis Paralysis
In other words, educate yourself as much as possible. Read everything you can get your hands on and practice with demo account. The more knowledge you have, the more confident you will become in making trade decisions. Education is the best investment you can make before leaping in at the deep end. You might also want to check out forex forums like Forex Tips.