Forex Terms for Beginners
The first things you need to learn when starting Forex are the terms. What's a bid? What a USD? What do all these words mean? Here's a list of basic forex terms to help you get started:
Currencies
Here are the most popular forex currencies:
1. USD - United States Dollar 2. EUR - European Euro 3. JPY - Japanese Yen 4. GBP - Great Britain Pound 5. CHF - Swiss Franc (Confoederatio Helvetica Franc) 6. CAD - Canadian Dollar 7. AUD - Australian Dollar 8. NZD - New Zealand Dollar
Here are other forex terms you should know:
9. Currency Pair
Every currency is paired with another currency. For example, you might see something like this:
USD/CHF = 1.2. This means "1 USD = 1.2 CHF."
In other words, you need to pay 1.2000 Swiss francs to BUY one US dollar. On the other hand, if you are SELLING the US dollar, the other person would need to pay you 1.2 Swiss francs.
However, it doesn't work exactly that way because to make money, dealers often buy and sell for a price different from the actual value.
10. Bid is how much the dealer is willing to buy your dollar. He might put in a value like 1.1995, meaning he will buy your dollar for only 1.1995 Swiss dollars instead its real value, which is 1.2000 CHF.
11. Ask is how much the dealer is selling his own dollars. Yes, he has his own dollars to sell. He will put in a value that is still lower than the actual price, which is 1.2000 CHF, but higher than his buying price, which is 1.1995 CHF. In this case, he might sell at 1.998 Swiss francs.
The ask price is always higher than the bid price. Because the dealer wants to make money, he will always SELL the dollar at a price HIGHER than he BOUGHT it for.
12. Spread is the difference between a dealer's bid price and ask price. The formula is BID - ASK = SPREAD.
13. Base Currency is the currency on the left.
14. Counter Currency / Quote Currency is the curency on the right.
15. "Going long" or "Take a long position" means to buy.
16. "Going short" or "Take a short position" means to sell. One way to remember this: If you're "short" on cash, you need to "sell," right?
With these terms, it should be easier for you to understand what's going on when you receive an email that goes: EUR/JPY = 158.0512, BID = 158.0507, ASK = 158.0510, take a long position. (It means that one euro is equal to 158.0512 japanese yens, it's being bought by this trader at 158.0507 and being sold at 158.0510, and you should buy some.)