Financial markets have their terminology. The forex market features phrases similar to those used in other financial markets but means distinct things in the forex market. Some terminologies are unique to forex. In this article, we will go deep into forex terminology. Will utilize these terms extensively in subsequent articles in this module.
Base and counter currencies
One can sell their security in the stock and bond markets. This implies they can turn their security into cash. However, money is already being bought and sold in the forex market. So, how exactly does trading work?
In the FX markets, one buys and sells currencies simultaneously. This entails exchanging one type of currency for another. As a result, currency prices are always quoted in pairs. The price represents the unit of the first currency that the buyer is willing to pay for the second currency. The first currency is the base currency because the price is always given in terms of it. The counter currency is the other currency stated in the pair and trade245 withdrawals.
For example, in a US dollar/EUR pair, the US dollar is the base currency, while the Euro is the counter currency.
Long and short positions
The forex market allows traders to take long and short positions like the bond and stock markets. However, in this market, the meaning of long and short positions shifts. This is because currencies are exchanged in pairs. As a result, new investors are perplexed about what happens when they go long and what it means to go short.
Going long in the forex market implies buying units of the base currency and selling units of the counter currency. When someone holds a lengthy position and continues to hold it, they are said to be going longer.
For example, to go long on the USD/EUR pair, you would have to buy USD and sell EUR on the market.
Similarly, going short in the forex market implies selling units of the base currency while buying units of the counter currency. Going shorter refers to adding to the short position. To go short on the US dollar/EUR pair, you would have to sell the USD while concurrently purchasing the EUR.
Squaring off is also returning to zero from a long or short position. If you’re long, you must sell to square off; you must purchase to square off if you’re short.
Value dates and Rollovers
The value date is when the trade’s parties agree to settle their accounts. This means that all open positions in derivative contracts are automatically closed on the value date. As a result, contracts become more volatile as the valuation date approaches.
In addition, many traders choose to roll over their contracts. This means they decide to settle their contracts on the next value date rather than the current value date.
If you’re new to the forex market, you’ve probably come across an article or a forum post that includes phrases. These are the fundamental words of the forex market that all traders must understand. To assist you in getting started in the market, we’ve compiled a list of the most relevant forex trading terminology.
While this is not an all-inclusive point, it does cover the three most prevalent terminology used by forex traders.