Forex terminology is information that every investor should know when entering the market. Terminology refers to specialized and specialized words used in transactions. That’s why not knowing their meaning will cause investors to make mistakes when trading. Join Learn Forex Trading to find out their meaning through the article below!
Overview of Forex terminology that users need to know
Currently, on the market, there are many terms in forex that investors need to know.
Definition of swap fees
Swap is also known as an overnight fee. With this fee, investors will need to pay when holding positions overnight. And it only appears when holding an order overnight, otherwise, there will be no such fee. Regarding swap fees, investors can refer to the forex ranking broker with the lowest swap fees to trade.
To make a profit, the interest rate of the currency pairs when sold needs to be higher than the interest rate when investors buy. If you want to invest long-term, traders can also take advantage of swap fees. A small note for those holding long-term or overnight orders. Every Wednesday, the overnight fee will increase significantly compared to weekdays.
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What is the concept of Pip in the foreign exchange market?
In the foreign exchange market, you will often hear the phrase Pip. Pip is abbreviated from the phrase Percentage in point. Simply put, this is a common unit used when talking about exchange rate fluctuations.
In the market, trading codes will have different exchange rates representing products. For example, the exchange rate of the EUR/USD code from 1.2222 to 1.2232 means an increase of 1 Pip. Most currency pairs have 4 decimal places and Pip will correspond to the 4th decimal place.
What is the concept of Forex terminology commission?
The commission is also known as a commission fee. This is a fee that investors need to pay to the broker to process trading orders. Each commission fee that an investor must pay will be different. If any exchange has a commission fee that is too high, investors need to pay attention. Because these could be forex scam exchanges.
Investors will have to pay the same commission fee as when withdrawing money at a bank. Banks use transaction fees for maintenance, while commission fees are used for business.
Major and minor currency pairs in Forex
Forex terminology for major currency pairs are often highly liquid currency pairs and are traded by many investors. Currently, currency pairs containing the USD are widely traded currency pairs.
Some popular major currency pairs include USD/JPY (US Dollar/Japanese Yen currency pair). Or some other popular pairs like GBP/USD, EUR/USD,…
Besides the main currency pairs, there are also several secondary pairs, also known as cross pairs, that are also of interest to many investors. In the foreign exchange market, if you know how to grasp it in time, everything can create profits for investors.
Instructions on how to calculate Pip and Swap in the foreign exchange market
Currently, most foreign exchange exchanges have software that automatically calculates for investors. However, in order not to depend on the exchange, investors can also calculate it themselves according to the formula.
Pip value while trading in the forex market
Pip is a Forex terminology for the unit used to measure price fluctuations on financial instruments. Pip helps investors simplify the calculation process. In particular, this type of instrument has a low exchange rate and is quoted in decimal places.
In the foreign exchange market, most currency pairs will have prices at 5 decimal places. And Pip is displayed in the 4th decimal place. However, some special cases such as the Japanese Yen JPY only have 2 decimal places. At this point, Pip will be in the second decimal number.
For example, a GBP/USD currency pair has its price increased from 0.98154 to 0.98174. At this time, the price difference of this currency pair is 0.0002 and corresponds to 2 Pips.
How to calculate Swap when trading on the foreign exchange market
Swap is when you place a buy order with the expectation that the purchased currency will increase in price and you will profit from this activity. This is a fee that the exchange adds to your trading account for holding positions. Overnight positions so you can calculate the spread between the two currencies in the pair you are opening the position for.
Daily fees are calculated at the end of the US session, which can be negative or positive depending on the exchange. And many people wonder why this fee is charged. The answer is to maximize profits or minimize losses. This fee is charged at market close. As soon as the market opens, the buy and sell order has to be done again from the beginning, sometimes not possible.
Forex terms about orders
Currently, when trading forex, there are many Forex terminology regarding orders for investors to execute. Let’s learn specifically about the types of orders on the Forex exchange
Buy and sell orders in the forex market
Currently on forex, Buy orders are also understood as Long orders, and Sell orders are understood as Short orders. Many people misunderstand that a Long order is a long-term order and a Sell order is a short-term order.
However, the nature of these two orders is a buy position order and a sell position order. Forex trading is always a two-way transaction. That’s why investors can place buy and sell orders at any time.
Forex terminology about pending orders in forex
Pending order is understood as a type of market order that will meet certain conditions. For example, an investor does not want to waste time waiting for manual entry points. Instead, they will place a pending order, and when the pending point of the order is matched, the order will be executed.
The difference between pending orders and market orders is their entry point. With the market, orders will be matched immediately at that time. However, with pending orders, it will need to match the entry point.
See more: How to register ICMarkets broker account
Entry points in the foreign exchange market
The entry point in forex is understood as the point where an investor decides to place a buy or sell order. The entry point is very important in investing, it will determine the investor’s profit results.
To determine the entry point, investors need to rely on fundamental analysis indicators and technical analysis. If the time to enter an order is not appropriate or the price is not appropriate, investors can lose a large amount of money.
To be able to find an entry point, investors need to have a specific investment plan. Identify the trend as well as support and resistance levels.
Conclude
Above is the basic Forex terminology that any investor should know. Besides specialized terminology, investors also need to prepare themselves with knowledge before entering the market. Hopefully, the information Learn Forex Trading sent to you will be useful.
FAQs
What is the definition of leverage in forex trading?
Leverage is a financial tool that helps improve investors’ ability to place orders.
What does the term Gap in forex mean?
The gap in forex is understood as the space between prices
Should you trade a demo account in Forex or not?
For new investors entering the market, demo trading should last from 1 to 3 months.
