Top Ten Forex terms you must know

Before I move on to discuss the local Forex seminar market, I think I should give you the Top Ten Forex terms that a Forex trader must know. Once you understand these terms, you can start trading Forex but whether you win or lose is another matter. You can trade but you'll probably lose and that's where you'll need to learn the finer points of trading in order to be a winner.

Among the terms here, the most important is the Stop Loss Level (SLL). Every trade must have a Stop Loss Level set and this is the insurance for the Forex trader. It doesn't mean that you will not lose by having the SLL but it will allow you to stay in the game longer and you will not be wipe out in a single trade, which can easily happen if the SLL is not set. You can still be wiped out but it will at least be a slow death after many trades and you will gain experience in the process, that's the pessimistic view. On the optimistic side, you will conserve your capital so that you can have more trades and some of them can turn into winners.

So here goes, the Top Ten Forex terms.

1. Currency Pair – Whenever you trade currencies, you always trade in pairs and the pair of currencies is called the Currency Pair, e.g. EURUSD. (Euro/US Dollar) Note that the order of the currencies is fixed and in this example, you’ll never see it as USDEUR or otherwise there will be utter confusion. Other popular pairs are GBPUSD (British Pound/US Dollar), USDJPY (US Dollar/Japanese Yen) and USDCHF (US Dollar/Swiss Frank). When you see the value of EURUSD given as 1.3856, it means that 1 Euro is equal to 1.3856 US Dollar. The value of all major currency pairs are given to 4 decimal places, except for those involving the Japanese Yen where it is given to 2 decimal places e.g. the value of USDJPY is 92.83 which means 1 US Dollar is equal to 92.83 Japanese Yen.

2. Pip – the smallest unit of price for a currency. In the example above for the EURUSD, one pip will be 0.0001 while for USDJPY, it will be 0.01 since it is the smallest unit for this pair. If the value of EURUSD moves up from 1.3856 to 1.3859, it would have gone up by 3 pips. If the value of USDJPY moved from 92.83 to 92.81, it would have gone down by 2 pips. (Not to be confused with PIPS, the Plug In Profit Site that is my website for internet marketing.)

3. Trend – the general direction in which a currency pair is moving in relation to time, it can be moving up (value increasing with time), moving down (value decreasing with time) or moving sideways (value moving within a range with time).

4. Long – when you long a currency pair you buy it with a view that in will increase in price, usually when it is moving in an uptrend. You’ll sell it when it reaches a certain higher value and you profit from the difference measured in number of pips.

5. Short – when you short a currency pair, you sell a currency pair with a view that it will decrease in price, usually when it is moving in a down trend. You’ll buy it back when it reaches a certain lower value and again you profit from the difference measured in number of pips. This is equivalent to short selling in the stock market.

6. Spread – When you change your local currency to a foreign currency, the money changer will sell the foreign currency to you at a higher rate than when he buys it back from you, that’s how he make his profit. It’s the same in the Forex market and the difference between the buy and the sell price of a currency pair is called the spread and is measured in pips. The spread will vary from pair to pair and from broker to broker. The more popular pairs will have a smaller spread as compare to less popular pairs. Typically, the EURUSD will have a spread of 2 pips while the GBPJPY will have a spread of 9 pips.

7. Lots – Traders buy and sell shares in the stock market while in the future market, they buy and sell contracts. In the Forex market, they buy and sell lots. If you have a mini-account, you can trade any number of lots from 0.01 upwards depending on the capital that you have.

8. Stop Loss (level) – The preset level that you set for the trade to close automatically when the market is moving against your favour, i.e. the trade is not moving in the direction that you wanted. Once this level is reached, the trade will close and this will limit you loss to a predetermined number of pips.

9. Take Profit (level) – The preset level that you can set for the trade to close automatically when the market is moving in your favour, i.e. the trade is moving in the direction that you wanted. Once this level is reached, the trade will close and this allows you to take profit in a predetermined number of pips.

10. Instant Order – an order that is executed the moment you click the buy (a long trade) or sell (a short trade) button at the current price level.

11. Pending Order – an order that will be executed sometime in the future when the price reaches the pre-determined level in your set-up. It can either be a buy or a sell order.

Oops, there are more than 10; can't help it as some of them occur in pairs; consider it a bonus.

Ronald Kwok
http://ronaldkwok.atomicblog.hop.clickbank.net/