What are the vital terms to beware of before trading in the forex market?

You should know the following in the forex market.

Currency pairs

You need not dive deep into your imagination to decode this forex term. It is simply what it means. You will get choose a foreign currency and will say that would perform better than another currency. If your say goes true, you could get the profit of the sale. The two currencies you choose for your trade combined are known as the currency pair. The currency you bank on would be the base currency and the one that acts as your opponent would be the counter currency. For instance, a currency pair would look like USD/EUR, where USD is the base currency and EUR is the counter currency. If there is USD in any of the two, the pair is known as the major pair. A cross pair of currencies would contain anything other than USD. If the two currencies chosen for the trade are not well known, it would be an exotic pair. South African Rand is an example of an exotic currency. However, you can find brokers with zar account easily. 


Leverage could be considered as a synonym for borrowing in trading. If the broker offers leverage to you, you can buy the currency pairs worth of an amount that you do not have in your pocket. For instance, let us assume that the pair you are about to buy would cost you $13000 but you have only $26. Now, you can use the leverage of 1:500 ration to buy the pair anyway even you do not have the money. The brokerage would lend you the money and you could return the money after you make a profit. However, you would have to make an initial security deposit to make use of the leverage. Leverage would help traders to earn a lot even without much capital. 

Bid price and Ask price

Let us assume that you are willing to pay $100 for a currency pair. So, $100 would be the bidding price for that pair. Also, if a seller of the pair is asking for $105, it is the asking price. The difference between these two pairs, $5 is the spread. 

Long and short

Let us assume that you predict that the Australian dollar would rise with time and the USD would go down comparatively. So, you will buy the AUD and will sell the USD at once. So, when put as a pair, you would buy the first portion and will see the second one. In our case, AUD/USD. It is known as going long in this pair. However, if the situation reverses and you think AUD will go down, you will sell AUD and will buy USD. So, the equation would be AUD (sell)/USD (buy). It is known as going short against AUD.


Whenever you think of opening a position with a currency pair, you would have to pay an initial deposit amount known as the margin.