It's like learning a new language...
I mean, there are so many words and phrases specific to forex trading that it's a bit daunting at first.
But learning how to 'speak forex' isn't half as hard as you might think.
And to help you along, I thought today I'd run through a few terms specific to placing forex trades.
How 'riverbank trades' could pocket you Â£57, Â£84 or Â£122 a week
Because using this simple strategy you could pick up a Â£57, Â£84 or Â£122 profit tax-free whichever way they move.
you'll come across
This is the first currency quoted in any currency price.
For example, if you're talking about the EUR/USD, the EUR is the base currency.
Or if you were referring to the USD/JPY, then the USD would be the base currency.
On the other side of that you have the...
As you can guess, this is the second currency quoted in a currency price.
So, if you're talking about the GBP/USD, the USD is the quoted currency.
Both the base currency and quote currency are pretty fundamental phrases when it comes to trading forex, as too are these next phrases...
When you're buying one currency against another, you're said to be 'long' on that currency.
So, if you're buying, say, the GBP against the USD, you're said to be 'long' the GBP.
Going 'long' on something just means that you expect its price to rise.
And the opposite of going long, is...
Going 'short' is when you sell the base currency against the quote currency.
You're selling the currency in the hope that you can buy it back when the prices are cheaper.
Yes, you can make money when the price of the currency falls.
Spot Market/Spot Price
You'll often hear the word 'spot' mentioned in regard to forex trading, either in reference to the spot market or the spot price.
Generally a spot market is one in which the financial instrument (in our case foreign currencies) are traded and delivered immediately.
So in a spot forex market, the trades themselves are executed on that very day.
However, due to the time it would take to move the actual currency from one bank to the other, the delivery is delayed by two days.
The spot price merely refers to the prices of the currencies as they are recorded in the spot market.
But as spread bettors we don't need to worry about the spot market as money from traded through our accounts is settled in the day of the trade.
Finally, a key term that we use a lot in forex trading...
The spread is the difference between the buy and sell price of a currency.
So, if the GBP is quoted as 1.5049/1.5052, the spread is 0.0003.
It's the spread that spread betting companies use to make money as the price you buy or sell back your trade will always be affected by the spread.
Of course, these are just a few of the terms you need to be able to 'speak forex', but it's these fundamental concepts that act as the base for your understanding so be sure to set them to memory.
And I'll be sure to expand on these and cover some more complicated terminology in future issues too.