Before trying to go deeper into the salient details of the foreign exchange markets and trading, it would be best to get acquainted with the basics of forex trading.
Simply put, Forex trading is the trading of foreign currencies in the global market, where foreign currencies are traded with other major currencies, specifically targeted at playing along currency movements, be it the rise and fall on the value of these currencies.
Here are some common terms used in forex trading that will surely benefit those who are willing to try one of the most lucrative global markets today.
A 'spread' is the difference between the price that a certain foreign currency can be sold for, which is called a 'bid,' and the price for which that particular currency can be sold, also called 'ask', at any given time.
For example, if at a given time a British Pound has a bid or selling value of USD 1.5 and the asking or buying price is USD 1.8 on the forex trading market, the spread is USD 0.3.
On the other hand, the 'pip' is the smallest unit by which any cross price quote can change and in forex trading, there is a general rule that trading for major currencies is generally gauged to a '3-pip spread.'
Here are some other terms that are common in forex trading;
'Appreciation' is an increase in the value of a currency, regardless of territory or region.
'Ask' is the asking price or a price that is being pushed by the trader. This is usually the lowest price the seller is willing to accept or sell his currency.
'Base currency' is the currency by which the investor is buying or selling.
A 'bear' is a person who believes that currency prices or rates are going downward, while a 'bear market' is characterized by a sustained fall in prices and value for which it may not be able to recover quickly.
A 'bid' is the price offered by the trader and is indicated by the highest prices a buyer will likely pay.
The 'bid/ask' as it goes together as a term, is when the bid rate is the rate at which a trader can sell and the ask rate is the rate at which the trader can buy.
When one hears a 'bull', it is simply a person who is generally optimistic and enthusiastic about the market, while a 'bull market' is characterized by sustained and enthusiastic buying.
When trading between two currencies, a trader buys a currency with another one and these currencies are called the 'cross' like the EURUSD(Euro/USD).
Meanwhile, a cross rate is the exchange rate calculated from the two other exchange rates in the forex trading market.
So, if you should try your hand at this, always be armed with the basics of forex trading and you can't go wrong.
