Top 6 Forex trading terms you should know

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There are many terms in Forex trading that might be a little hard to understand for beginners. If you are new to the Forex trading market, everything might seem a little confusing. However, if you take your time, you will be able to very easily understand the real meaning behind some of the most important FX trading terms.

To make your jobs easier and help you start trading, we have decided to come up with comprehensive guides to some of the most important concepts in Forex trading that every trader should know. After going through different types of acronyms and names, we have found the 6 most important terms that every trader will encounter in the first days of trading.

So, check out our detailed guides to the most important Forex trading terminology and start trading today!

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Forex trading swaps

swap in forex tradingIn Forex, swap stands for a type of agreement that is used while exchanging currencies between two foreign parties. Swaps are very important in Forex trading, and they should be understood by every trader. A very interesting thing about swaps, something that not many might know, is that it is not charged during the trading day.

Because of this, if you are a short-term trader, and you are using strategies like day trading and scalping, you will not have to think about Forex swaps at all. However, if you open positions for more than a trading day, swaps do occur. There are several ways to avoid paying or receiving swaps and to learn more about this, you can check out our very detailed guide to Forex swaps.

Forex leverage for beginners

Many beginner traders are having a hard time understanding the real meaning behind leverage. In reality, it is not that hard at all. Leverage represents an integral part of Forex trading, which is designed to increase the volume of your positions. There are millions of traders using leverage for trading, but, there are some things that you should consider before you start trading using high leverage.

The thing about leverage is that it acts very much like a double-edged sword. Although it is true that it can increase your profits, it is also able to increase the risks of Forex trading. If you end up being successful while trading with leverage, your profits will be multiplied, but if your position is not successful, you will have to deal with higher losses.

To learn more about Forex trading leverage and its importance for traders, check out our Forex leverage guide and learn how to use it for the best outcome.

What are spreads in Forex?

forex spreads comparisonForex trading spread stands for the difference between the bid and asks the price. In Forex, a bid is a price at which you can sell the base currency, while the ask is the price you can buy the currency. Spreads are a very important part of Forex trading, and they act as some type of a ‘commission’ that traders have to pay for the trading services.

Spreads are mostly one of the main sources of income for brokers, which is used to diversify and better the services. The amount of spread you might have to pay depends on several factors, such as trading hours, the currency pair you are trading, and many others.

Our detailed guide to Forex spreads will help you better understand the real meaning of spreads in Forex trading.

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Forex lot meaning

In Forex trading, a lot refers to a specific amount of money that traders use for their positions. There are various types of lots available for Forex traders, depending on the broker they are using. The standard lot in Forex trading equals 100,000 units of the currency you are trading, mini lot equals 10,000 units. The micro lot in Forex stands for 1,000 units of currency, while the smallest, nano lot, represents 100 units of a currency. The standard size of a currency pair in Forex trading is constant and pre-determined.

We have prepared a very detailed guide to a lot, which you can check out right now. In our guide, you will learn about different types of Forex trading lots and the ways to differentiate them.

Forex pip explained

forex pips explainedIf you have ever read something about the price movements in the Forex market, you should have already heard the term pip. In Forex trading, pip can be defined as the percentage in point. It represents a measurement of the minimum price movement in the Forex trading market. Depending on the currency pair you are trading, the pip might be a little different. For the majority of the currency pairs available in the market, pip is the fourth number after the decimal point – 0.0001. For others, such as JPY pairs, the pip is 0.01.

There are several types of pips available in Forex trading. There actually is even a smaller part of the price movement in Forex, called a pipette. The pipette in Forex is also known as the nano pip. For the majority of currency pairs, it is the fifth number after the decimal point – 0.00001, and for the JPY pairs, it is the third number after the decimal point – 0.001.

But, there is much more that goes into Forex trading pip. Click here to see our guide to FX pip and learn how it actually works.

Understanding CFD trading

In recent years, CFD trading has become very popular among investors. But what are CFDs and how do they work? CFDs in trading stand for the Contracts for Differences. It represents a type of arrangement made in form of financial derivatives. In this market, CFDs offer traders the ability to trade different types of assets without the need to actually own them.

If you want to know how you can utilize CFDs you can check out our guide where you can learn everything about CFD trading.

Final thoughts on Forex trading terms

Understanding different types of terms in Forex trading is not easy. This is especially true if you are a beginner trader. There are many things that novice traders have to learn about the financial markets before they start trading. The more you know about Forex trading, the easier it will be for you to trade.

So, follow the guides that we have created about the most important Forex trading terms and start trading today!

FAQs on Top 6 Forex trading terms you should know

What are the terms used in Forex?

There are several general terms mostly used in Forex including currency pairs, spreads, leverage, and pips. Each of them has its own meaning and purpose. If you are someone who wants to start trading, it is the best idea to get familiar with the basic terms first, so your trading journey starts with an enjoyable experience. You can easily look up these terms on the internet and make sure that you are equipped with all the relevant knowledge.

How are pips calculated in Forex?

In order to calculate the value of a pip, you have to divide 0.0001 by the exchange rate. For most currency pairs, pip is the fourth number after the decimal point – 0.0001. For others, such as JPY pairs, the pip is 0.01.

What is a lot size in Forex?

Generally, Forex is traded by customers in specific amounts. These amounts are called lots, or in other words, the number of currency units customers want to buy/sell. There are several types of lot sizes but the standard is 100,000 units. You can also come across nano, micro, and nano lot sizes which are 100, 1000, and 10000 units.

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