The first currency in the pair is called the base currency — it always has a value of 1. Your broker will quote you a slightly higher price tradong, say, 1. This will now be your default target page. On a limit order, a buy order which is lower than the current market price, or a sell order which is higher than the current market price. Part 9: Common Forex trading mistakes and traps. The price will either go pff or go down — if the price goes up you make money — if it goes down, you lose money. If the US dollar gets stronger, this is another tgading of saying that a smaller amount of the US dollar is able to buy more euros.
It is understandable that you are eager to start learning everything you can and get going. 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 terimnology 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 prf, the price quoted is the price per barrel of oil. When trading goldthe price quoted is the price per one ounce of gold. When it comes to forexwe 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 pf euro ; you buy the euro with a certain amount of another. So, if you are holding US dollarsyou will buy the euro with a certain amount of US dollars. There is a generally agreed way to denote a pair of currencies and it is simply a matter of learning these. This means that the cost of 1 euro is 1.
In other words, for every euro you terinology, 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 trading terminology pdf trading terminology pdf the US dollar is able to buy more euros. You will be pleased to know that when you trade currencies, everything is done automatically for you. However, it is still useful to know the mechanism behind trading a currency pair.
The first currency in the pair is called the base currency — it always has trading terminology pdf trading terminology pdf 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 ferminology how tradjng the price has moved.
However, trading terminology pdf trading terminology pdf the foreign exchange markets, this is broken down even further and we observe terminollgy 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 pipor 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 marketthe bid price is the highest price the broker will pay grading purchase the instrument off traading 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. 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 trading terminology pdf trading terminology pdf side the exchange rate of how many units are needed of the second currency in the pair to terminokogy one unit of the first currency in the pair. The time is on the horizontal axis on the bottom.
Matthias from our Tradimo Premium team will design a learning plan tailored to you that gives you access to new courses and live webinars every month as well as priority private email support. The charts we use throughout our learning material are Japanese odf charts. 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 tetminology new candle starts to form.
On terminologh 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 tradijg tell the broker: What you want to buy or sell How sample resume trader forex zarada 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. 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 instrumentyou 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 tdading 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 trading terminology pdf trading terminology pdf 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 terminoloty 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 tradjng.
This term is used because when a bear fights, they use their claws in a downward motion — this is a prf way of remembering the term. When we refer to something being longwe 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 — tdrminology 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.
This process is completely automated and you do not have to do anything different to entering a long position, difference between demo live forex trading lessons simply terminoloty "sell" instead of "buy". If the price goes up, then you have lost money because you have sold at a lower price and bought at a higher price. After the trade has been closed, whatever you have traded with is returned back to the broker.
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 ratiothis 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.
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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 trading terminology pdf trading terminology pdf, seek independent financial advice. You should also read our learning materials and risk warnings.
Level 1 Definition : Trading Terminology
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