KEY FOREX TRADING TERMS EVERY TRADER SHOULD KNOW:
- Base currency: The first currency in the currency pair is called the base currency. In AED/USD, the United Arab Emirates Dirham is the base
- Variable/quote currency: The second currency in the quoted pair is called the variable currency. In the previous example, USD is the variable currency.
- Bid: The highest price a buyer is ready to pay is called the bid. This price occurs to the left of the quote and usually red in colour.
- Ask: The ask represents the lowest price a seller is ready to accept. You will see this on the right and often in blue when you are looking to buy a pair.
- Spread: The difference between the bid and the ask price is called its spread. This represents actual spread in the market and additional spread
added by the broker.
- Pips/points: Whenever there is a one digit move in the fourth decimal place, it’s called a pip. If AED/USD moves from 0.2701 to 0.2702, that .0001 USD
rise in value is one pip.
- Leverage: Leverage allows traders to put up a fraction of the full value to control larger positions with a small amount of capital. It amplifies your profits AND losses.
- Margin: The amount of money needed to open a leveraged position is called Margin. It is the difference between the funds being lent by the broker and the full value of position.
- Margin call: A margin call occurs when the value of an investors margin account falls below a specified level. When the total capital deposited, plus or minus any profits or losses, dips below a certain point (margin requirement).
- Liquidity: When a currency pair can be easily bought and sold because of high number of people trading them, it’s said to be liquidity.