Forex glossary

FOREXAs it’s always important to know what you are doing, for noobs here are some of the most used terms in forex market.

Ask: the price at which a trader is willing to sell a specified quantity of currency

Bid: the price at which a trader is willing to buy a certain amount of currency

Backtest: simulation of forex technique based on real historical data

Leverage: probably the most important thing on forex market. It is used to operate with more capital than the amount deposited into your account. In the currency market leverage is almost always shown as a percentage. For example, 1% margin produces a 100:1 leverage, so with a $10,000 deposit you can have the opportunity to trade up to $1,000,000

Fund: term used by the broker to indicate the operation of deposit money into the forex account

Gap: distance between closing and opening price of a new market.

Hedging: possibility to cover one or more positions with one or more opposite positions in order to reduce investment risks

Long: is the act to buy the currency pair. Is the opposite of short.

Margin: the amount of money that must be available on the account “to ensure against leakage” of open transactions.

Margin Call: request for additional funds by the broker in order to “cover” losses due to open positions.

Overnight: trades that remains open until the next day.

Pip: is an acronym that stands for “Percentage In Point.” It is the smallest unit of a Forex price.

Resistance: price threshold where a price start to reverse, from a rising market to a downtrend one. Is the opposite of support.

Short: is the act to sell the currency pair. Is the opposite of long.

Support: price threshold where a price start to reverse, from a downtrend market to an uprising one. Is the opposite of resistance.

Spread: the difference in price between the ask price and the bid price

Stop loss: price level at which losing positions are liquidated. It is necessary to protect account against more losses.

Timeframe: period of observation of the prices (i.e. 30 minutes, 1 hour,   hours, etc.)

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