You are using an outdated browser. Please upgrade your browser to improve your experience. Welcome to the new Tradimo learning platform. If you come from the previous version of Tradimo, you need to register again. Apologies for the inconvenience. Here is our special offer for new users: This lesson is useful to familiarise yourself with some of the common forex terms and trading jargon.

Do not worry about memorising each term, or even understanding them straight away. This lesson is something you can constantly refer back to. There is a lot of information within this lesson and so you might find it beneficial to print this. The first thing that you will notice when we introduce you to forex trading is that we refer to what is called a currency pair. When you think about the price of anything, it is pretty easy to grasp because there is one single price.

For example, when trading Oil, the price quoted is the price per barrel of Oil. When it comes to forex, we also refer to just one price, only it is with regard to two different currencies — a currency pair. This can seem a little confusing at first, so we will explain how there is one single price for a pair of currencies. When we trade currencies, we are buying and selling a currency in relation to another currency. For example, you do not just buy the euro; you buy the euro with a certain amount of another.

So, if you are holding US dollars, you will buy the euro with a certain amount of US dollars. This means that the cost of 1 euro is 1. In other words, for every euro you buy, you have to pay 1. So the exchange rate of 1. If the US dollar gets stronger, this is another way of saying that a smaller amount of the US dollar is able to buy more euros.

The first currency in the pair is called the base currency — it always has a value of 1. The second currency in the pair is the quote currency and is the amount needed to exchange into 1 unit of the base currency. You will find that we refer to pips throughout the lessons. A pip is a measurement of how far the price has moved.

However, in the foreign exchange markets, this is broken down even further and we observe the price as 1.

The last number — the last 0 — is the pip. If the value of that currency pair moves from 1. Pips are how traders generally measure their profit. Many brokers break the price down even further and will include a 5th number called a fractional pip, or pipette — they publish the price as 1. Do not be surprised to see five figures after the decimal when you are looking at the price of most currency pairs on your trading platform.

Japanese pairs are slightly different because their currency is generally devalued against other major pairs, so the pip is the second digit behind the decimal. The easiest way to understand the term spread is by thinking of it as a fee your broker charges you to trade. Your broker will quote you a slightly higher price of, say, 1.

You can see there is a difference between the price of 1. This is what is called the spread. The spread is therefore the difference between the price at which the broker is willing to buy off of you and sell to you. By buying off of you at a lower price and selling at a slightly higher price the broker makes money. The bid is the best possible price at which the trader can buy the instrument being traded at the current time.

In the forex market, the bid price is the highest price the broker will pay to purchase the instrument off of you. The ask is the best possible price at which the trader can sell the instrument being traded at the current time. In the forex market, the ask price is the lowest price that the broker will sell the instrument to you.

Forex Trading Glossary, Learn About Currency Trading | omotohu.web.fc2.com

A chart is the visual representation of the price action and you use this for your analysis. It is what you use to observe the exchange rate or price of a currency pair over a period of time. On a price chart, the price of the currency pair is on the vertical axis on the right hand side the exchange rate of how many units are needed of the second currency in the pair to buy one unit of the first currency in the pair. The time is on the horizontal axis on the bottom.

A Japanese candlestick is a method of illustrating the price movement. They tell us a certain amount of information. First of all, the candlestick can tell whether the price has moved up or down, simply by the colour.

Any colour can be used and the colour is set by the trader depending on their personal preference. The colour will change automatically as the candle either forms as a bearish or a bullish candle.

Candlesticks can cover almost any time period from one minute to one month. On a one minute chart, each candlestick takes one minute to form. After one minute, the candle will finish forming and then a new candle starts to form. On an hourly chart, each candle takes an hour to form and so on.

The candlestick also shows us the opening price and the closing price for that period. So if we are observing a four hour candlestick, then the candle can tell us the opening price at the start of that four hour period and the closing price of that four hour period.

Lastly, a candlestick shows the highest and lowest price within the time that the candle took to form. So if observing a four hour candlestick, then you can see the highest price and the lowest price for that four hour period. The trading platform is where you place your orders to buy and sell. The platform is effectively your command centre where you open up a trade.

You use the platform to tell the broker:. We mostly teach you how to trade using the platform MetaTrader 4 MT4. However, different platforms are used by different brokers. The image above is of MetaTrader 4 showing the order window where you input all the information above.

Almost all trading platforms offer very similar functions and most platforms will offer the kind of price charts you see above. This is a term we use to simply describe the item being traded. For example, when trading Oil, Oil is the instrument. We also refer to this as an asset. After having bought or short sold a financial instrument, you have opened a position. Therefore, buying and selling is sometimes called entering a position.

When the trader exits the market, they are said to have closed their position. An entry is when a trader decides to open a position, either by buying or selling a financial instrument. An exit is when a trader decides to close their open position in the market for either a profit or a loss. A stop loss protects you if the trade goes wrong. As the price keeps going in the opposite direction to your trade, you could in theory lose your entire trading account.

A stop loss is an order that will automatically close the trade once it has reached a point that you consider the loss unacceptable. A profit target is a price at which you decide to exit the market and take the profit that you have made. A profit target is generally determined ahead of time when the trader enters the market.

This means that before you enter the market, if the trade goes well, you know how much money you will make on that trade. A bull is a trader that believes the market will rise.

This term is used because when a bull fights, they use their horns in an upward motion — this is a useful way of remembering the term. A bear is a trader that believes the market will fall. This term is used because when a bear fights, they use their claws in a downward motion — this is a useful way of remembering the term. When we refer to something being long, we think of it as going up.

This means that the trader has entered a buy position. The concept of going long in trading is relatively straight forward. The price will either go up or go down — if the price goes up you make money — if it goes down, you lose money. You have, in fact, sold something you do not own, to buy it back at a different price. So if you short sell an asset and the price goes down, you make money; if the price goes up, you lose money. Your broker will lend you whatever asset it is that you want to sell.

You then sell that asset, the price of it changes and you buy it back. If the price went down, then you made a profit because you have made money by selling it at a higher price and then buying it back at the lower price.

If the price goes up, then you have lost money because you have sold at a lower price and bought at a higher price.

To put this simply: If you think the price will go up, you click buy on your trading platform and if you think the price will go down, you click sell on your trading platform. The concept of short selling currency is different to short selling a stock.

Spot currency is always traded in pairs. You always trade one currency against another currency. When refering to the risk to reward ratio, this is essentially the ratio of how much you are risking on any single trade, to how much you make if the trade goes in your favour. Tradimo helps people to actively take control of their financial future by teaching them how to trade, invest and manage their personal finance.

Trading in financial instruments carries a high level of risk to your capital with the possibility of losing more than your initial investment. Trading in financial instruments may not be suitable for all investors, and is only intended for people over Please ensure that you are fully aware of the risks involved and, if necessary, seek independent financial advice.

The educational content on Tradimo is presented for educational purposes only and does not constitute financial advice. Courses Premium Community Brokers About Log in. Your browser does not support HTML5 video. What are the most important terms in Forex trading? It is understandable that you are eager to start learning everything you can and get going. A currency pair has one price The first thing that you will notice when we introduce you to forex trading is that we refer to what is called a currency pair.

When trading gold, the price quoted is the price per one ounce of Gold. Another way to think of this: A currency pair is made up of a base currency and quote currency The first currency in the pair is called the base currency — it always has a value of 1.

Currency movement is measured in pips You will find that we refer to pips throughout the lessons. Japanese pairs are different Japanese pairs are slightly different because their currency is generally devalued against other major pairs, so the pip is the second digit behind the decimal.

Forex Trading Glossary, Terms & Definitions - Pepperstone

Spread is a cost of trading The easiest way to understand the term spread is by thinking of it as a fee your broker charges you to trade. Bid The bid is the best possible price at which the trader can buy the instrument being traded at the current time.

Ask The ask is the best possible price at which the trader can sell the instrument being traded at the current time. A chart shows the price action over time A chart is the visual representation of the price action and you use this for your analysis.

Japanese candlesticks chart shows a lot of information The charts we use throughout our learning material are Japanese candlestick charts. You use a trading platform to trade The trading platform is where you place your orders to buy and sell. You use the platform to tell the broker: What you want to buy or sell How much you want to buy and sell When you take your profit if the trade goes well When you take your loss if the trade does not go well We mostly teach you how to trade using the platform MetaTrader 4 MT4.

Opening and closing a position After having bought or short sold a financial instrument, you have opened a position. Entry An entry is when a trader decides to open a position, either by buying or selling a financial instrument.

Exit An exit is when a trader decides to close their open position in the market for either a profit or a loss. A stop loss protects your account A stop loss protects you if the trade goes wrong. Profit target A profit target is a price at which you decide to exit the market and take the profit that you have made. Bull and bear A bull is a trader that believes the market will rise. Long position When we refer to something being long, we think of it as going up. Short selling The concept of going long in trading is relatively straight forward.

After the trade has been closed, whatever you have traded with is returned back to the broker. Short selling a currency The concept of short selling currency is different to short selling a stock. Risk to reward ratio When refering to the risk to reward ratio, this is essentially the ratio of how much you are risking on any single trade, to how much you make if the trade goes in your favour.

The risk to reward ratio is then 1: The Basics of Forex Trading. What is Forex and Forex Trading? What is a Forex Broker? What are the best times to trade Forex? Enrol into this course now to save your progress, test your knowledge and get uninterrupted, full access.

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