The forex market is full of technical jargon and can be overwhelming for new traders. If you are looking to get started, you need to understand the basic concepts first. This guide by Seekapa experts will walk you through some of the most important forex trading terms to help you trade with confidence.
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Currency Pair
A forex trade involves two currencies, known as a currency pair. The first currency is the “base currency” and the second is the “quote currency”. For example in EUR/USD, the euro is the base currency and the US dollar is the quote currency.
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Major, Minor, and Exotic Pairs
Major pairs include the US dollar, such as the EUR/USD, GBP/USD, and USD/JPY.
Minor pairs (cross-currency pairs) do not involve the USD, such as EUR/GBP or AUD/JPY.
Exotic pairs incorporate one major currency and one from an emerging market, like USD/TRY (US dollar vs. Turkish lira).
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Exchange Rate
The value of one currency against another. If GPB/USD stands at 1.28, it means 1 GBP is equal to 1.28 US dollars.
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Pip
A “Percentage in Point” (pip) indicates the smallest price movement in forex. In most currency pairs, a pip is the 4th decimal place (0.0001), except for some pairs like USD/JPY where a pip is the 2nd decimal place (0.01).
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Lot
A lot is the unit of measurement of a forex trade.
- Standard lot = 100,000 units
- Mini lot = 10,000 units
- Micro lot = 1,000 units
Traders choose lot sizes based on their risk tolerance and account size.
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Spread
The spread is the difference between the buying and selling prices of a currency pair. It exhibits the trading costs and is represented in pips.
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Leverage
Leverage allows traders to control larger positions with a smaller amount of capital. For example, with 1:100 leverage, a trader can control a $10,000 worth of position with just $100. While leverage increases profit potential, it also increases risk.
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Margin
Margin is the amount of capital a trader must deposit to open a leveraged position. It is like a security deposit.
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Margin Call
A margin call occurs when a trader’s account balance falls below the required margin level. The broker will request additional funds to maintain open positions. If the trader does not add funds, the broker may close positions to prevent further losses.
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CFDs (Contracts for Difference)
A CFD (Contract for Difference) is a financial derivative that allows traders to speculate on the price movement of an asset without owning it. With CFDs, they can go long (buy) or short (sell) on forex, stocks, commodities, indices and more. Seekapa is a leading broker that offers its clients 600+ tradable assets, including forex, stocks, commodities, and crypto CFDs, equipping them with a broad range of opportunities.
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Market Order
An order to buy or sell at the best available price immediately.
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Limit Order
An order to buy or sell a currency pair at a pre-determined price.
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Stop-Loss Order
A risk-management tool that closes a trade at a specific loss level to prevent further losses.
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Take-Profit Order
An order that locks in profits by closing a trade once a set profit level is reached.
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Liquidity
Liquidity refers to how easily an asset can be bought or sold without affecting its price. The forex market is highly liquid, especially in major currency pairs.
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Support & Resistance
Support is a price level where buying interest is strong enough to prevent further declines.
Resistance is a price level where selling interest is strong enough to prevent further increases.
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Volatility
Volatility measures how much a currency pair’s price fluctuates over a certain period. Higher volatility means greater price swings, which can present both risks and opportunities.
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Technical Analysis
Technical analysis involves using historical price data, charts, and indicators like moving averages and Fibonacci retracements to predict future price movements.
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Fundamental Analysis
Fundamental analysis focuses on economic indicators, news, interest rates, and geopolitical events to assess a currency’s value.
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Long Position
A long position means buying a currency pair, expecting its value to rise.
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Short Position
A short position means selling a currency pair, expecting its value to decline.
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Candlestick Chart
A popular chart type that visually represents price movements using candlestick formations to show opening, closing, high, and low prices.
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Swap
The interest fee traders pay for holding a position overnight.
Conclusion
Understanding forex terms is a crucial step toward becoming a confident trader. Beginners building their foundation and seasoned traders fine-tuning their strategies alike will find these definitions essential for exploring the fast-paced forex market.
If you are looking for a reliable trading partner, Seekapa stands out with its commitment to providing enhanced trading conditions. The broker provides everything you need with tight spreads, access to multiple global markets, advanced tools, and a secure trading environment, making it a top choice for traders worldwide.
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