Six Investment Terms Every Trader Should Know

There are lots of terms used in the Forex market. People need to know about these terms properly so that they cannot be confused about them. If you do not understand the terms, you might face difficulties. When beginners first take steps in the market, they should try to gain proper knowledge about the Forex field. To build a glorious career in the Forex field, investors should try to know about every single term. Let’s learn about some important terms.


Currency Pair

Traders trade currency pairs in the market. Depending on how the currency performs against the other one, the investor will trade the currency. The currency pair is divided into three groups such as major, cross, and exotics. There are eight general pairs all of which USD is held as the bottom currency or counter financial instrument and one from either CAD, GBP, EUR, CHF, JPY, AUD, NZD.Cross Pairs are any two crucial currencies which do not contain the US Dollar as the bottom or marker currency. These are considered more changeable than significant pairs such as GBP/AUD, NZD/CAD, and EUR/CAD. Exotics are fully precisely exotic financial instruments, lesser popular currencies which can be exceptionally volatile in the market such as South African Rand, Polish Zloty, and Hungarian Forint.

Leverage

Leverage is offered by the broker to trade more with low capital. Leverage provides the chance the investors to open a trade with a high volume with low cost. High leveraged trading is a good way to trade investors' preferable Forex pairs. For example, when people use a well-known Forex pair like GBP/USD, let’s see what will happen. Depending on a contract size of 200,000 per volume, a trader without using leverage would require around $230,000.00. If we divide the amount by $500, the result will be, 230,000 / 500 = $460. By using 1:500 leverage, an investor can open a trade with $260.00.The trader is now managing $230,000 for just $460.  Note that different brokers provide different leverage ratio. Check here and learn more about a leverage trading account at Saxo so that you can optimize your trades easily.

Going Long/Short

When an investor is going long on financial instruments the first of those instruments is bought while the second is sold. On the other hand, going long or buying a currency refers that the investors expect the value to increase. For example, if the Forex pair is USD / AUD, that means buying the US dollar in opposition to the Australian dollar anticipating the value of USD to increase. Going short means ‘selling’ one-half of a financial instrument expecting that the value will decline.

Margin

Margin is the initial deposit that investors are required to raise to open a position. Margin also provides an investor with the option to open a larger position size. If you want to trade with margin, you are only required to put forward a percentage of the full value of a position for opening the position. Margin opens the door to making money but it also increases the risk.

Bullish and Bearish

Market sentiment provides a perspective of the performance of a specific market or the stock market overall. When the value is increasing, the market sentiment is bullish. This can be called an uptrend. On the other hand, if the prices are decreasing, this is called bearish. That means the market is in a downtrend.

Pip

The acronym PIP means Percentage in Point.PIP is the smallest fluctuations contemplated in an exchange rate on financial instruments. The PIP is the 4th decimal on the value of the quote of a currency pair which is plied to quantify value. For example, if the currency pair is GBP / AUD and the price quote is 0.6872. This means that 1 GBP will enable investors to buy about 0.6872 AUD. If the PIP increasesby 0.0001 to 0.6873 this would mean that they can acquire a little bit more AUD for every £1.

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