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Forex Terminology

Knowing and understanding forex 'lingo' is critical for your success. Below are some of the most common forex words and definitions.

Common Forex Terminology

Bear market - A market where prices are falling

Bull market - A market where prices are raising

Hedging - Placing an opposite positions to lower the risks

Leverage - known as "Margin". The amount of money a trader has to deposit in order to open a trade. The leverage is expressed as a fraction. For instance, a 1:50 leverage means that you need to deposit $1 for a $50 trade. The bigger the leverage, the more you can trade with a smaller deposit.

Currency pair - A pair representing the value of a currency compared to another. The first currency is called "base currency", while the second is known as "counter currency". An example of a currency pair is EUR/USD.

Pip - known as "point". The smallest unit of a currency quote. Usually, the pip is the 4th decimal of a currency quote.

Long position - Buying the base currency. Long positions profit from raising markets.

Short position - Selling the base currency. Short positions profit from falling markets.

Resistance point - A certain value where traders are supposed to sell. The technical analysis tries to determine those points to identify selling opportunities.

Support point - A certain value where traders are supposed to buy. The technical analysis tries to determine those points to identify buying opportunities.

Slippage - The difference between the execution value of the order and the ordered value. Slippage occurs when the market is extremely volatile and the exchange rate changes every second. Slippage usually happens when major news are released.

Spread - The difference between the buying and selling price of a currency pair. The spread is measured in pips, and represents the broker's commission.

Stop loss - The order that limits the risk on a transaction. Applying a stop loss order will ensure that you don't lose more money than the value specified on a transaction.

Take profit - The order that will close the position when a certain amount of profit was obtained.

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