Knowledge of forex terms is essential when entering the forex market. It also ensures that one single term is enough to explain a paragraph of idea to a person. A trader must be well versed with various forex terms. Forex trading also has its wide share of terms some of which are explained here.
Pip, is one such term that is commonly used in Forex trading circles. It is an acronym for percentage in point. It is the smallest unit of a forex trade. The currency value that is used in Forex trading is valued up to the fourth decimal point. This particular digit is called the pip. A forex trader usually makes profit in terms of 1 to 3 pips in one transaction.
A lot, is a term that represents 100,000 USD. And leverage is a term that means the borrowing of individuals for increasing their buying power of lots. A margin is the term that represents the amount left in the traders account. This leverage loan amount is not chargeable while calculating interest.
There is market order which means that the market price has been used for this transaction whereas if a price that was specified earlier has been used, then it is called limit order. For those who wish to reduce loss due a falling currency value they would use a stop loss order.
Another commonly used term is the ask price, which is the cost of one unit of the currency being traded. A currency pair however means the exchange rate between the two. There is a change in the value of the currency at the time order is placed and that when the actual execution takes place. This is called slippage.
There are many more such terms used in forex trading. These are but a few common ones