Forex is like a whole new world with a very confusing language or Forex jargon. Unless you want to earn big in this new world however, you will have to learn every terminology practiced in the industry. Here are some of the most common terms and what they mean, exactly.
Pip
This is the smallest possible increment movement of a currency. They can also be called a ‘point’ and varies from one pair to another. For example, USD-JPY usually has a pip of 0.01.
Bear or Bull Market
These two indicate whether the market is experiencing an upward or downward trend. The Bear usually means downwards while a Bull market refers to an upward trajectory.
Spread
This refers to the difference between the buy and sell of a specific currency pair. Knowing this helps you determine which direction you’ll have to move in order to earn a profit. For example, the USD/JPY reading is at 1.205/1.210 – making the spread 5 pips.
Fill Price
This is the actual amount you receive once you’ve made the decision to transact. Essentially, this is the buy or sell price the minute you’ve executed the order.
Margin
You don’t always have to put up all the money when claiming a trade. Typically, you only need a portion of the total value to hold your position. This is what ‘margin’ refers to – the amount you’ll have to put up in order to keep your position, not necessarily the actual value of the contract.
Carry Trade
Now, this is an interesting principle that every beginner should know about. Essentially, a carry trade means borrowing currency with a low interest rate and using that same currency to purchase something with a high interest rate. The theory is that the difference between the exchange rates will create profit. An example on MTrading.ph explains it like this; “If USD has an interest rate of 1% and you use it to buy JPY with an interest rate of 3% – resulting to a 2% profit”.
You might also want to study the different currency pairs and the shortened names assigned to them. The US dollar is USD; Japanese Yen is JPY and so on and so forth. It makes sense to know only the currency pairs that you’re investing in but the more you know – the better your chances of expanding your trade.