Forex trading or overall investing activity requires constant learning and practice. Sometimes, understanding forex and general trading terminologies can seem confusing and overwhelming, but you should not feel intimidated. It is important to understand all the relevant key terms, as this will only help you to become a better trader. It can help you to gain further knowledge from more professional sites as well as participate in interesting trader-centric forums.
Reading, learning, viewing and using forex terms continually will make you more comfortable with trading lingo over time. There are basic and advanced forex glossaries. Basic terminologies will help you get acquainted in the market, whereas more advanced terminologies can even help you to understand sophisticated strategies. To set you off, here are some of the basic terms you should understand:
This is anything that can be exchanged in the financial markets. Assets can be bought or sold.
- Bid/Ask Prices:
Bid is the price at which the broker or market buys an asset from the trader. It is the price at which the trader sells. Ask is the price at which the broker or market sells an asset to a trader or the price at which the trader buys.
This is the cost of opening a trade in the market. It is the difference between the bid and ask prices that the trader pays to the broker.
- Day Trading:
This is a strategy of opening and closing one or more trades within a single trading session or day.
- Swing Trading:
This is a strategy of holding open trades for a few days up to a few weeks with a view of taking advantage of big price swings in the market.
Below you can see the list of articles about the terms that require more than a couple of lines to explain. Read On!
What Is Correlation?
In the world of financial trading, asset correlation establishes how and when the prices of different financial instruments move in relation to each other. With regards to currencies and forex trading, correlation is the behaviour that certain currency pairs exhibit where they either move in one direction or in different directions, simultaneously.
What is a Currency Swap?
In finance, a currency swap, also known as cross-currency swap, is a legal contract between two parties to exchange two currencies at a later date, but at a predetermined exchange rate.
What is Carry Trade?
One of the most popular investments in the financial markets today is the carry trade. This involves selling or borrowing an asset with a low-interest rate, with the aim of using the proceeds to fund the purchase of another asset with a higher interest rate.
What is Arbitrage?
At its most basic, arbitrage can be defined as the concurrent purchase and sale of similar assets in different markets in order to take advantage of price differentials arising from local supply/demand divergences.
What is Slippage?
In financial trading, slippage is a term that refers to the difference between a trade’s expected price and the actual price at which the trade is executed.
What is Liquidity?
The Liquidity definition refers to the extent to which a particular asset can be bought or sold quickly on the market without having a significant effect on its price. Liquidity is an important factor that investors assess when making their trading decisions since it has an effect on their trades.
What is a Market Cycle?
While asset prices may appear to move randomly up and down, technical analysis shows that there are distinct repetitive cycles that occur. These are predominantly driven by the market moves made by large institutional investors, and in order to trade successfully, individual traders should watch these market moves, or market cycles, closely.
What is Currency Peg?
Currency pegging is when a country attaches, or pegs, its exchange rate to another currency, or basket of currencies, or another measure of value, such as gold. Pegging is sometimes referred to as a fixed exchange rate.
What are Contango and Backwardation?
Contango refers to a situation where the futures price of an underlying commodity is higher than its current spot price. This is usually the case for non-perishable goods. Backwardation is when futures prices are lower than current spot prices. This is a common scenario for perishable goods. Learn how to use these situations in your trading here.
What Is Drawdown?
In financial trading, a drawdown refers to how much an account has fallen from its peak to its trough in terms of the capital or investment amount. Learn how the drawdown is calculated, how to use it for evaluating trading strategies, and how to apply it to your money management rules.
What Is a Stock Market Crash?
A stock market crash is a rapid and steep decline of stock prices that happens unexpectedly. While there is no defined numerical figure, a typical stock market crash will result in losses of over 10% within a couple of days, as measured by major stock indices, such as the S&P 500, NASDAQ, and the DJIA.
What are Block Trades?
A block order isn’t only used to sell securities, they can also be used when buying a security. This can help to support the price of a security, or even push it higher if the block trade is large enough compared with the typical trading volume of the specific security.