Seventeen basic forex jagons that every forex beginner must learn before trading live - forex trading live demo

Seventeen basic forex jagons that every forex beginner must learn before trading live ~ forex trading live demo

You are not ready to engage in the business of trading forex on the live charts using real money if you do not understand what the following forex terms refer to. Read them carefully and do detailed research if you intend to be a serious trader. Remember that self learning is the best strategy through which you can succeed in the trading of the forex market. You are your best teacher. Master the forex terms as part of the rites of passage in the forex readiness class.

1.      Spread

Spread is the ‘minor’ expense for engaging in a forex trade online. The spread charge is dependent on the whims of a forex broker. Your forex broker charges the spread depending on the bid and the ask price of a currency. We could say that the spread is the first commercial logic for undertaking the brokerage obligation and that an open trade is the infraction that induces the spread. Some forex brokers provide fixed spreads while other brokers’ spreads tend to vary. A spread charge can also vary depending on the type of account you are trading. Most forex brokers subject forex beginners operating micro and mini accounts to a spread between 3 to 5 pips. If you operate a forex account that can trade a standard lot, then you could be able to negotiate with your forex broker on the spread charge or the spread could be fixed such as at 1 pip. Spread also varies depending on the currency pair you are trading. There is a lower spread for the major currency pairs such as EUR/USD and GBP/USD. Minor currencies or exotic currencies on the other hand tend to attract a higher spread value. The reason for the varying spread charge between the major currency pairs and the other currency pairs is basically liquidity.

2.      Stop loss order

Stop loss is a confidence building measure. It is the point at which you exit a losing trade. It limits damage and enables you to multi task by entering a trade and performing other non forex related matters without the fear of losing your entire forex investment in your account.

3.      Take profit order

This is the point at which you exit a trade that has been a winner. Take profit level does not mean taking the exact top for a long position or the exact bottom for a short position. It must be in tandem to the dictates of risk reward.  When the take profit order is triggered your current position is exited and your forex account is credited with the amount you’ve made through the trade. It is an order that you must leave with your forex broker if you hope to make some money in case the market goes in your favour to a particular point of resistance or support.

4.      Trailing stop

Trailing stop locks in an already acquired profit in case the market is moving in your direction. It is also the number one reason why the best market result that most forex beginners ever get is 1:1. Trailing stop has the ability to pull you out of the market before you get your preferred risk reward ratio. A market moving in your favour will also retrace back to where it’s coming from. If you move your trailing stop too fast it may be knocked and you’ll be pulled out of the trade and will watch in dismay as the markets retrace and keep moving higher and higher.  The trailing stop only rises with the market but never falls when the market falls. That is why it is best to place it after acquiring at least a risk reward of 1:1.5 or more.

5.      Resistance

Resistance is the ‘mean point’ where the highest market points of previous days or weeks have been converging. It plays a greater role in determining your exit or take profit level in an uptrend market. It also helps in ascertaining where to place your stop loss in case you are going short on a trade. Most times resistance is also used to refer to the inability of price to break above a particular point on the charts.

6.      Support

Support is the ‘mean point ‘ where the lowest market points of previous days, weeks or months have been converging.  It plays a greater role in determining your exit or take profit level in a downtrend market. It also plays a greater role in determining where to place your stop loss in case you are going long on a trade. It can also refer to the inability of a price to break below a particular price on the charts.

7.      Risk reward ratio

This refers to the ratio of the amount you are willing to risk compared to your probable gain in the market. There is nothing mathematical about it. You simply have to look at the raw price action charts for the number of pips between your entry level and stop loss level compared to the number of pips between your entry point and take profit level.  For a better risk reward, the pips between your entry level and the take profit level must be larger or more than double the number of pips between your entry and stop loss level.

Margin

Margin refers to the lowest amount of money that must be present in your forex account to sustain a forex trade. Be careful about margin because some forex brokers will let you enter a trade even in the absence of margin and then debit your bank account afterwards. Some forex brokers don’t also demand a minimum margin before you can execute a trade.

8.      Margin call

This comes about when an open trade is nullified due to the absence of sufficient margin in your trading account. It comes about when a forex trader has not used a stop loss or when the stop loss fails to execute and the forex trader’s portfolio is wiped out.

9.      Leverage

Leverage refers to the extent to which you are utilizing the freely available money from your forex broker on any particular trade. If you over-leverage and the trade turns into a loser, you may lose a lot of your real trading capital. Likewise, if you over-leverage and a trade turns into a winner you will have made a lot of money. No forex beginner should trade on a live account before understanding how leverage works. A forex trader must do his risk assessment and find out whether he or she is comfortable with risking a particular amount of money. Leverage is more about what you are bound to lose than what you will gain.

10.  Pending order or limit entry

This is an order you place with your forex broker after confirmation of your trading edge. Its effect is to let you enter the market at a particular point when the market has moved to your preferred direction. The moment your pending order is triggered you will have an open position in the market.

11.  Roll over charges

These are charges in form of commissions deducted from your forex trading account by your forex broker whenever you hold an open position overnight or for more than twenty four hours. Traders of the lower time frames are not subject to the roll over charges. It is mainly subjected to the traders that trade the daily or weekly charts.

12.  Quote

Quote is the currency that comes second in a currency pair. For example in the EUR/USD pair the USD is the quote currency.

13.  Base

Base is the currency that comes first in a currency pair. For example, in the EUR/USD pair the EUR is the base currency.

14.  Open position

Open position refers to a position that is still active and from which a trader can be subjected to either a profit or loss

15.  Closed position

Closed position refers to an inactivate position that is not subjected to the current market conditions. It can arise as a result of a trader manually closing his trade or when the take profit or stop loss order is triggered.

16.  Breakeven point

Breakeven point refers to the point at which you exit a trade without a profit or loss. It arises when you obtain a risk reward of 1:1.

17.  Market order

Market order refers to a situation where a trader buys or sells at the best available market price. You don’t have to wait until the price moves to a particular point. The broker executes the market order at the current rates.

Feel free to leave below any forex terms that I left out which you would like to be defined. Remember, there are thousands of forex terminologies but only the basic ones are of essence to the retail trader. Do not spend time mastering the whole forex dictionary with terms that you will never apply in any trade.
You do not need huge capital to start trading. Open a trading account with NORDfx and trade both forex and binary options for only 10 dollars.
Call us today on 0725 050 419 for the best forex trading orientation.