If you are a beginner in the Forex industry and feel complicated with all the acronyms, unusual terminology, and so on; you may have hard times while using the trading platforms like MT4 and MT5. In order to build your knowledge onto a solid basis and start your journey in a healthy way, there are the most important Forex terms you should know beforehand.
- Currency Pair
A currency pair refers to the comparison of two selected currencies against each other. It is represented as a ratio and if you buy a currency pair, you speculate on the good performance of the pair. For example, let’s say you buy GBP/USD pair. This purchase means you bet that the British Pound will perform better than the US Dollar.
- Bid / Ask price
The bid price is the price which a buyer, usually the exchange offices, is willing to pay and a trader is willing to sell. The ask price is the price a seller is willing to sell and a trader will buy a currency pair. The difference between the bid and ask price is known as the spread, which is the profit source of the exchange offices.
- Long/Short Positions
If you take a long position on a pair, it means that you make a profit if the price of the pair will go up and the short position means exactly the opposite. Suppose you take a short position on GBP/USD which is the same with selling GBP for USD. In that case, you will benefit from a price decrease of the currency pair as GBP performed poorer than USD.
- Leverage
Leverage is one of the Forex terms you should know and it serves as a multiplier and you can take a position worth much more than your capital depending on the leverage. For example, a standard GBP/USD contract size is 100,000 per lot and a trader should have around $130,000 to open a position. However, if the leverage is 1:500, you can open it with only $130,000/500=$260 and make a profit with $260 like you invest $130,000.
- Bullish/Bearish
These two terms stand for the price trends as bullish trend means the price is going up and bearish trend means the price is going down. These two names come from the attacking pattern of these animals. Bulls strike upward and bears swipe downwards like the price trends that they are linked to.
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