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Trading terminology

Trading terminology

Currency Pair

– a term used when buying and selling one currency concerning another

Bid

– the price trader is eager to BUY a certain instrument

Ask

– the price trader is eager to SELL a certain instrument

Pip

– the smallest price movement in percentage

Spread

– the difference between the Bid and Ask.

Leverage

 – is the capital that you borrow from broker for the short-term which enables you to control a big position with a relatively small capital

Margin

– is a percentage of the full value of a trading position that you are required to put forward in order to open your trade.

Stop Loss

– can be defined as an advance order to sell an asset when it reaches a particular price point. It is used to limit loss.

Currency Pair

 

It is actually the first terminology you will be introduced to when trading for the first time. The term refers to the process of trading currencies. It means that a trader buys and sells one currency about another.

Example: let’s say you have a certain amount of USD. You want to buy EUR with a certain amount of dollars you have. So, this is actually a currency pair of EUR/USD. The first one (EUR) refers to the currency you want to buy. It is also known as the base currency. The second one (USD) refers to the one you have. It is called the quote currency. When buying an asset, you will need to spend the amount of quote currency needed to cover the value of 1 base currency.

 

Bid

 

The key goal is to “catch” the best possible price to buy or sell an asset. When it comes to buying, bid refers to that ultimate price tag every trader is waiting for. When we say “the best”, we mean the highest price a trader is ready to pay.

 

Ask

 

Unlike the bid, Ask is the best possible price tag to sell an asset. As a result, when we say “the ask price”, we mean the lowest cost of the asset a broker is aimed to sell.

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Pip

 

The term used to describe the lowest price movement. When we use this term in reference to a particular currency pair or asset cost, we mean the 4th decimal place.

Example: let’s say you want to trade the EUR/USD pair with the starting price at 5.0031. That it goes up and reaches the level of 5.0036. It means that the price has increased by 5 pips (36 – 31 = 5).

 

Spread

 

The spread is the difference between the bid and ask price. The higher that difference is the higher revenue a broker gets.

 

Stop Loss

 

A trading technique lets a trader define the position that is considered as a loss. Once you have reached that position, the order is closed automatically. The tool may come in handy in case of an unpredictable price movement. The situations when it goes in the opposite direction to the trade are common.

 

Take Profit

 

Another efficient tool to prevent beginners from huge losses right at once. It is used to set a fixed price upon your decision to take the profit instantly. The good thing about the features is that the target price can be set in advance before you enter the market.

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