Forex trading terminologies are frequently used when forex traders communicate with each other. Obviously, you need to be familiar with these trading terms before you start involving yourself with buying and selling positions in forex.

In this article, we will help you become acquainted with five of the commonly used terms you will encounter in any Forex trading activities.

Pip

A percentage in point, commonly known as pip, is a standardized metric of change in a currency pair. It is a fundamental measurement unit in Forex and the smallest quantity that a quotation for a currency can be changed. 

Practically speaking, a pip is the one-hundredth of 1% or its fourth decimal position (0.0001). Forex pairs are used in bids to distribute trade quotes or request quotes that are valid to four decimal points. In a simplified way, forex traders purchase or sell value of a currency that is related to another currency.

Although a pip is a very tiny unit of measurement, forex traders are commonly profoundly leveraged by this concept and just a one-pip differential may be equal to major advantage or loss.

Copy Trading

Copy-trading allows people in the stock markets to duplicate positions that are opened or taken by another trader. By connecting your profile to other participants, you can imitate all of their existing market positions, and any move they will take from now on. In short, whatever they do, whether they open, close, win or lose, the same thing will happen to you.

This does not imply you have no power regarding the trade performance. For most trading sites, you still have the option to close trades after you have formed a connection, create new ones, and manage the overall output. However, you can quickly earn profits by just copying another dealer who is very experienced.

Spread

Spreads are based on a currency pair’s buy and sell price.The purchasing price (bid) for a specific currency pair, and the sale price (ask) are the two key prices of forex spread. Traders spend a particular amount to purchase the currency and are obliged to exchange it for lesser value if they wish to sell it back quickly.

Forex uses spread like any other market. A spread is generally calculated as the amount between an asset’s point of buying and selling. This bid is usually called by traders who are experienced in equity as “ask spread.”

Leverage

Leverage means borrowing the capital needed to spend in trade. It is the broker who normally lends currency in forex trading. Forex trading provides strong leverage in the way that a trader can create and manage a large sum of capital for an initial margin prerequisite.

With leverage, you can control or trade $100,000 in a specific currency pair by only having $1,000 in your account. However, leverage can also be detrimental to traders. For instance, if the currency that underlies one of your trades swings in the direction opposite to what you expected will happen, leverage would significantly intensify the possible loss.

Fundamental and Technical Analysis

Fundamental analysis is a method of measuring stocks by aiming to calculate the intrinsic worth of a portfolio. Fundamental experts research everything from the general trends of the industry and economy to the financial situation and operation of firms. To fundamental analysts, investments, earnings, assets, and liabilities are all essential aspects.

Technical analysis is a market methodology employed to analyze transactions and locate market prospects by examining statistical patterns obtained from trading activity, such as price change and quantity. Technical analysis tools are used to assess how changes in price, implied volatility, and volume can be affected by supply and demand.