There is a lot to learn about forex markets and how everything works when an individual attempts to trade foreign currencies via a reliable broker. The increase in demand for forex is making investors curious about various terminologies.
Those who have only started trading forex a while ago and are still trying to grasp the whole idea behind it need a comprehensive guide or a forex glossary. Using such a glossary, one can quickly find out which term means what in forex. In this helpful forex glossary, readers will find the definition of the 10 most frequently asked terms related to forex trading.
Arbitrage is a process of making a profit in forex done with the help of a difference in the price of a single forex pair which is traded in several markets instead of just one. Arbitrage is considered an expert move that is employed by people who have been trading for a long time.
When you see a currency pair while trading forex, the first currency is written in a pair is called the base currency. The base currency not only constitutes a foreign exchange pair but also remains constant as we consider the currency pair’s price. U.S dollars and Euro are said to be the dominant base currencies.
Any physical good present in the market such as food, metal, or fuel is called a commodity. It is worth remembering that commodities are interchangeable with other commodities of the same type. Any basic type of good that we can buy or sell such as crude oil, natural gas, sugar, gold, wheat, etc. is a commodity.
When the value of a country’s national currency is lowered concerning other nation’s currencies then it is known as devaluation. As the name suggests, it is a disastrous situation for that particular country from an economic sense. When devaluation occurs, imported goods become expensive while export items are bought at dirt cheap prices.
An ECN type of CFD forex broker acts as a gateway to an electronic communications network for its clients. Through this network, forex traders get streaming quotes from some of the top global banks. There are many benefits of using an ECN type broker such as enhanced transparency, quick processing, tighter spreads, and improved liquidity.
Traders need to understand that the forex market comprises banks, central banks, commercial companies, hedge funds, investment management companies, retail FX brokers, and lots of investors. Foreign exchange is nothing but a high-density financial market with participants who trade international currencies by speculating on the relative price of a particular currency against another.
Guaranteed Stop Loss Order
This is one of the many stop-loss order types which specialized forex brokers allow their clients to use via an advanced trading platform. As the name suggests, it is an order for buying/selling as market prices reach “stop” prices. Guaranteed stop-loss saves traders from losses, unlike a standard stop-loss which is affected by slippage and gapping.
Hedging is a risk-averting technique utilized by market participants and investors to reduce the potential risk of losses. By limiting their risk exposure, traders can make a considerable profit. You can find hedging techniques followed usually in the case of CFD or futures contract to protect one’s capital in case interest rates or FX rates move in the wrong direction.
Intraday is a forex trading process during which forex pairs are traded within one trading day. Both scalping and day trading is known as intraday trading in forex. When you buy and sell trading positions without holding them overnight. Most of the time intraday traders utilize leverage to enhance returns from small price movements.
Similar to bar charts are Japanese candlesticks charts. Every single candle in this chart represents the opening, closing, high, and low prices for a particular time. You will find red and green colored candlesticks depending on whether the closing price is higher or lower than the opening price at any given time.
Forex markets are easy to comprehend only if traders keep the knowledge of the terminology used.