If one has started taking interest in Forex trading, the first things that he or she should do is familiarize with Forex definitions. Forex trading is known for its special vocabulary. It is necessary for an investor to know these specific definitions to understand foreign exchange trading.

Definition Listing

• Bear and Bull: When the value of a currency falls, it is called Bear. While the rising value of the currency is called Bull. These terms are used in the currency pair, where the currency with higher value is called Bear and the one with the lower value is called Bull. However, these terms are relative.
• Base Currency: It is the first currency in the currency pair. It is also known as primary currency.
• Quote Currency: The second currency in the quote is known as the quote currency.
• Appreciation and Depreciation: These terms are used to refer to the respective increase and decrease in the value of the currencies.
• Cross: This term is used to refer to the trading of currency in the Forex market.
• Pip: The smallest unit of difference in the change in currency’s price is called Pip.
• Long: If the investor is buying a currency expecting its value to rise to give him or her a profit, it is called taking the long position.
• Short: If the investor is selling a currency with the expectation that its value will fall, it is called taking the short position.
• Majors: The most commonly traded pairs of currencies are called Majors. They are USD, GBP, CHF, EUR, JPY, CAD, etc.
• Stop Loss: This is a method adopted by traders for damage control, if they see that the results are contrary to what they expected.
• Spread: This term refers to the difference in the price at which the currency was bought and sold.
• Bid: the price at which the buyer has to purchase the currency is called bid. This term is similar to public auction.
• Transaction date: It refers to the date on which the foreign exchange trade is done.
• Settlement date: This is date for the settlement of all foreign exchange contracts.
• Inter Bank rates: This term refers to the exchange rates at which international banks transact.
• Limit Order: It refers to the condition when an investor plans to buy or sell the currencies at an exchange rate that was predetermined.

Why is it necessary to know about Forex definitions?

Irrespective of whether it is called Fx or Forex, it refers to the foreign exchange market. The Foreign Exchange market deals with the trading of foreign currencies. Large organizations as well as numerous individual investors constitute the Foreign Exchange market. On an average Forex experiences a daily turnover of over 3 trillion US dollars. All the stock exchanges put together would not be able to equal the foreign exchange market.

Forex trading might seem intimidating to a newcomer. However, being well-versed with the terminology of Forex will help the newcomer pick up the tricks of the trader sooner. The basic formula for profit in Forex is selling the currency at a higher price as compared to the price at which it was bought. Each currency is assigned a three letter code. An investor has to know the codes and definitions to prevent losses owing to ignorance.