Forex Dictionary – Basic Concepts in FX Trading

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Many people want to get interested in Forex trading but don’t even know how to get started. Trying to find yourself in this world can be quite problematic due to some enigmatic-sounding phrases and terms for beginners. Certainly it will not be easy, but the basics of this characteristic slang should be learned at the very beginning of your adventure with trading. This is what the Forex glossary below is for , it is worth getting acquainted with so that no term related to FX will be a problem.

Foreign exchange trader’s dictionary – why should you know the nomenclature used in Forex trading?

The language used by the Forex community was invented for a reason. Investors use specific words only to make it easier to communicate various phenomena. It works in the same way as business language, the so-called corpomowa.

This usually causes frustration among new traders. Ignorance of basic phrases and terms can create a lot of confusion for them and slow down their actions. Before you start trading, you should therefore read at least the most basic concepts in the Forex dictionary.

Forex trading vocabulary

Let’s start with the key and mandatory terms for every investor, which are contained in the Forex dictionary:

  • Currency pair – an instrument traded on the Forex market. Its price determines how many units of the quote currency we have to pay to get one unit of the base currency
  • FX – short for Forex, which is the international foreign exchange market
  • Base Currency – The currency that is first in the pair
  • Quote currency – The currency that comes second in the pair
  • Lot – the nominal value of the contract on the OTC market, in the case of currencies it is 100,000 units of the base currency
  • Minilot – tenth (0,1) of a flight
  • Microlight – hundredth part (0.01) of a lot
  • Nanolot – a thousandth (0.001) of a flight
  • OTC – an over-the-counter market whose trading is not supervised by a single authority
  • Swap – a daily fee charged at midnight, representing the difference in interest rates of the countries from which the currencies originate
  • Margin – security deposit. Value of funds required to open a position
  • Margin Call – A margin call when there is a significant loss on your account
  • Equity – the balance of funds on the account adjusted by the value of open transactions
  • Margin Level – equity to margin ratio expressed as a percentage
  • Leverage – financial leverage. A tool enabling the conclusion of a contract with a nominal value higher than the funds deposited on the account. It determines how many percent of the nominal contract value the investor must have in the account to be able to enter into it. For example, a leverage of 1: 100 means that only 1% of the contract value is required
  • Time Frame – chart display time interval
  • Volume – the total value of transactions on a given financial instrument in a selected period of time
  • Money Management – capital management, rules explaining that only a small part of your funds should be risked in one investment, a very important element of any investment strategy
  • Liquidity – general determination of the quantity and size of orders in the market
  • Edek – EUR / USD currency pair
  • Kiwi – the NZD / USD currency pair
  • Cable – GBP / USD currency pair
  • Majors – currency pairs related to the US dollar

Instrument price vocabulary

Now let’s move on to the specific terms regarding the instrument’s price in the financial markets:

  • Bid price – the lower price from those given during the quotation, then sales transactions are concluded
  • Ask Price – otherwise the Offer price, the higher the price given during the quotation, after which the purchase transactions are concluded
  • Spread – the difference between the Ask price and the Bid price
  • Commission – fee charged by the broker for the execution of our order on the market
  • Pip – the unit by which the quotation of a currency pair may change, usually 0.0001, while for pairs with Japanese yen 0.01
  • Point – a tenth (0.1) pip
  • Figure – 100 pips
  • Tick – the smallest value by which the price may change
  • Slip – or slippage, the amount of price deviation that the broker is able to accept to open our position without asking for price again
  • Re – quoting – the broker asks for a price again
  • Price gap – the place on the chart where no transaction has been made, the space between the closing price of the previous period and the opening price of the next

Forex Dictionary – Orders

Now let’s move on to specific terms relating to Forex orders:

  • Long – a long position assuming an increase in the price of a given instrument
  • Short – a short position assuming a decrease in the price of a given instrument
  • Stop Loss – a pending order that realizes a loss at a level previously set by the investor
  • Take Profit – a pending order that realizes a profit at a level previously set by the investor
  • Trailing Stop – or a trailing stop, a Stop Loss order that is automatically moved with the price at the indicated distance from the rate along with the increasing profit of the position
  • Break Even – The level at which the position has a zero balance, including commission and spread
  • Stop-Out – the level at which the broker closes the client’s most losing position due to a significant loss of funds
  • Buy Limit – A pending buy order where the activation level is below the current price
  • Buy Stop – A pending buy order with the activation level above the current price
  • Sell ​​Limit – a pending sell order where the activation level is above the current price
  • Sell ​​Stop – A pending sell order where the trigger level is below the current price

Types of Forex Brokers and Order Execution

Now we will touch on more advanced topics, i.e. the vocabulary related to the execution of orders and relating to Forex brokers:

  • Market Maker – the type of broker who does not execute clients' orders directly on the interbank market, decides at what price transactions are concluded. It does not charge any commission outside the spread
  • STP – Straight Through Processing, a broker’s market model by which its clients' orders are automatically transferred to its liquidity partners
  • ECN – Electronic Communication Network, a model in which the broker acts only as an intermediary between the client and the interbank system, so orders are executed directly on the market. The broker charges an additional commission for each order
  • MTF – Multilateral Trading Facility, a completely transparent Forex broker model. The client gets access to the order book, but only orders with a limit are included there. The broker’s remuneration is a commission on trading
  • NDD – No Dealing Desk, a model of the Market Maker broker, in which the broker cannot requote, delay or reject the client’s transactions when executing orders
  • Market Execution – execution of an order according to the available market price at a given time
  • Immediate Execution – otherwise Instant Execution, execution of the order according to the current price or receipt of a re-valuation of your order

The Forex Dictionary and FX Trading is open

Probably all the most useful and difficult to understand concepts in Forex trading have been outlined above. If a beginner investor learns them, he should be well-suited to traders and the world of investments is open to him!