New to forex? Confused by all the new terms and jargon? No need to worry. In this online guide, we’ll take you through the most common the terms and concepts you’ll need to start trading forex.
Ask Price: The price at which you buy a currency pair or other financial product. For example, if the ask price of EURUSD is 1.3525, this means you can buy one euro for 1.3525 US dollars.
Bid Price: The price at which you sell a currency or financial product. For example, if the bid price of GBPUSD is 1.4210, this means you can sell one British pound for 1.4210 US dollars.
Commissions: The fees that some forex brokers charge clients to execute a trade. It should be noted that not all brokers charge fees. Exness charges no commission for the Mini, Classic, and Cent accounts, and just USD 50 per USD 1,000,000 traded with the ECN account.
Cross Pair: While the most commonly traded currency pairs involve the US dollar, cross pairs (or ‘crosses’) are currency pairs that do not. Examples include the Australian dollar against the Swiss franc (AUDCHF) and the Canadian dollar against the Japanese yen (CADJPY).
Exchange Rate: The price of one currency calculated in terms of another currency. If the exchange rate of CADEUR is 1.2500, then one Canadian dollar is worth 1.2500 euros.
Hedge: A position, or several positions, opened in opposite directions that decrease your risk. An example of a hedged order would be to buy 1 lot EURUSD and sell 1 lot EURUSD.
Leverage: Gives you the ability to open more and bigger positions by borrowing funds from your broker. For example, with a leverage of 1:50, you can trade USD 50 for every USD 1 invested. Exness offers flexible leverage of up to 1:Unlimited. Leverage carries with it both increased opportunity and increased risk.
Major Currencies and Pairs: Here are the currencies most commonly traded in the forex market:
- Australian dollar=AUD
- British pound=GBP
- Canadian dollar=CAD
- Japanese yen=JPY
- New Zealand dollar=NZD
- Swiss franc=CHF
- U.S. dollar=USD
Major Pairs (including USD as either base or quote currency):
- EURUSD (euro against the US dollar)
- USDCAD (US dollar against the Canadian dollar)
- USDJPY (US dollar against the Japanese yen)
- GBPUSD (British pound against the US dollar)
- AUDUSD (Australian dollar against the US dollar)
- NZDUSD (New Zealand dollar against the US dollar)
Margin: The amount of money needed to open or maintain a position. Margin is not a fee or transaction cost and will be returned back to the client after a trade is closed. Margin can be thought of as a good faith deposit that assures your broker that you have the funds to cover your open positions. There are two types of margins: free and used. Free margin is the amount available to open new positions, while a used margin is the current amount that’s being used to keep a position open.
Margin Call: A notification that is sent to a trader’s terminal that his or her available margin ratio is getting low and that he or she will need to close the trade or deposit more funds. If nothing is done about a margin call, it can result in stop out. Find out about margin call levels with Exness here.
Point: An increment of price movement on a particular instrument. On most instruments at Exness, points are digits added or deducted from the fourth decimal place of a quote. For example, an increase of one point would cause 1.2555 to become 1.2556. Exness also uses a fifth decimal place for price movement increments. These are referred to as pips.
Swap: This is the money added or deducted for holding any currency trading position open overnight. Depending on the calculation, swap can be a net benefit or a net cost to the trader holding the open position. To calculate the swap of your next trade with Exness, check out the trade calculator here.
Spread: This is the difference between the ask price and the bid price (aka, the buy and sell price). If the ask price of AUDUSD is 1.4555 and the bid price is 1.4551 then the spread is 1 point.
Stop Out: A forced order closure that occurs if the margin level of a position is less than certain percentage. Find out more about Exness account stop out levels here.
Now that you understand the most common forex terms, you should find discussions of forex and forex trading far less confusing.
Interested in giving forex a try? Open an account and trade with Exness for as little as USD 1.