Forex Trading Basics: Forex terms for better understanding

What is Forex trading?

Forex trading is a smart business and it can generate huge profit for you. It mainly refers to trading of foreign currencies. There are some other trading options on different trading platforms. Other available trading options are gold, oil etc. Before you start Forex trading you should be familiar with terms used in Forex and Forex brokerages.

Definitions of the terms used in Forex trading

Before you start Forex trading you should be familiar with the common terms used in Forex brokerage. Your success depends on the better understanding of the Forex terms.

Pip is the term that make profits

The first term is the pip or pips because you will trade on pips and it will determine your profit or loss. On the most trading system there is 5 digits on the meta trader terminal after the decimal point. Each point value is counted as pip and each pip determine 0.01 profit or 0.01 loss for 0.01 lot size.

Lot is the volume of your trade

It is the volume or size of a trade. 1 lot equals to 100000 in 5 digit breakage . Usually traders trades in 0.01 to 0.03 lot size. As a beginner you should use only 0.01 lot size.

Currency pair is the selection of your trading area

Currency pair is the combination of two currency for trading. The first currency is called based currency and you will sell or buy base currency with the second currency on the pair. For example: EUR/USD is a currency pair where Euro is the base currency and USD is the second currency.  EUR/USD ask price 1.46493 is the price of 1 Euro to buy with  1.46493 USD. Similarly EUR/USD bid price 1.46481 is the price at which you will sell 1 Euro at 1.46481 USD.

Stop loss is the risk management of your trades

Stop loss is the point where your opened order will be closed automatically accepting loss amount

Take profit is the expectation of your profit from the trade

Similarly take profit is the point where your order will be closed taking profit.

Trailing Stop Loss is the profit over your profit

Trailing stop loss is a continuous process to  reduce the loss amount as your order has reached profit and it help traders to take profit without a loss. For example if you set 15 points as your trailing stop loss and you have gained 16 pips in profit then it will set to close the order at 1 pip. Suppose your profit is now 30 pips then it will set stop loss at 18 pips profit. Trailing stop loss do not go reverse, it just go towards your profit and use the last reached profit point. To make you clear suppose you have reached 100 pips and it get reversed of 15 pips from 100 to 85 pips, your order will be closed taking 85 pip profit.

Ask price is the price at which you will place a buy order

It is the action to place a buy order or long position.

Bid price is the price at which you will place a sell order

It is the action to place a sell order or short position.

Brokerages allow you to trade

Brokerage: Brokerage is a platform that allow you to run a Forex trading. They make profit from each order execution.

Leverage is the virtual fund that allow you to trade more

Leverage is liquidity of your funds. For example if your account has 1:100 leverage and your deposit is 10 USD then you are trading with 10000 USD virtually with your small y. It is recommenced that you should use small leverage if you are a beginner at Forex. I will say, it is mandatory that you should practice in demo accounts first and become expert in Forex before  you start Forex trading.

Equity is the real time funds of your account

Equity is the current balance of your trading account. If you close all the opened position, your balance will be the equity amount showing there on the mt 4 trading terminal.

Margin and free margin defines the trading range

Margin, free margin and level: These are trading term that determine your trading volume and availability to place a order.

Practice Forex trading for free

To open a free trial account you may try Exness reliable Forex trading platform.