Thursday, May 12, 2011

Forex Trade-Forex Trading Basics: Glossary of Common FX Trading Terms

Here we go again with Forex Trading Basics: Glossary of Common FX Trading Terms.

Due to the great need identified with new or inexperienced forex traders today, there is enough justification to some bit more on the basics to mastering how best to trade Forex successfully online. As a follow-up to our last chat together, we shall be treating the topic...

Forex Trading Basics: Glossary of Common FX Trading Terms
By Patrick Kalashnikov

Forex: Abbreviation for Foreign Exchange (also known as FX), Forex is the buying and selling of a country's currency in order to turn a profit.

By studying fluctuations in the economy, investors can predict whether a country's currency will increase or decrease, thereby allowing them to buy low and sell high. The trading occurs through the simultaneous buying of one currency and selling of another. While the New York stock exchange deals with amounts of money in the millions each day,

Forex brokers trade over $4 trillion daily.

PIP: One pip is the smallest change in value that a currency pair exchange rate can make, either increasing or decreasing. It is the last decimal point in a quotation; for currency's it is equivalent to a ten thousandth (1/10,000) of a unit of that currency.

For example, if the EUR/USD is valued at 1.3114 and it is said to have raised two pips, then it will be valued at 1.3116. Although these seem like infinitesimal gains,

...with enough money invested and wise trades it is possible to make a substantial profit.

Limit Order: When an investor wants to control how much profit and loss he/she is willing to handle, a "limit order" is instructed to a Forex broker. This is an order with specified boundaries, telling the Forex broker at what point above market level to sell and at what point to purchase below market level.

Instead of having to constantly check the updates in the market, a limit order allows the trader to trust the Forex broker to sell the currency when it hits a particular number, assuming that it has hit its peak and will no longer continue increasing in value.

Likewise, the broker is charged with purchasing a currency when it reaches a specified level below the market price, in hopes that the currency's value will turn around and increase shortly thereafter.

Stop- Loss Order: This is an order instructing a Forex broker to cut off a current trade once a specified low is hit in order to limit losses. Sometimes currencies do not perform how their investors anticipated. A stop-loss order is an attempt to dump the currency in order to prevent further losses by setting a minimum value at which the investor is no longer willing to stick with a particular transaction.

Exotic Currency: Any currency that is not heavily or popularly being traded.

Hawkish: This an adjective used to describe any Forex trading person or group that takes an aggressive stance in regards to a particular economic situation. It is most commonly used in reference to the economy or interest rates of a country.

For example, if the Bank of England suggested that they were going to increase interest rates in order to reduce high inflation, they would be considered "hawkish" in their aggressive actions.

Dovish: This adjective is used to describe a passive or non-aggressive viewpoint in response to an economic event, particularly in regards to a country's interest rates or economy.

An example would be bankers who prefer economic expansion and the creation of jobs rather than tightening interest rates, allowing the market to correct itself with little government interference.

Patrick Kalashnikov is a freelance writer who's got a bunch of great info on general Forex trading and popular Forex trading platforms. To get in touch with a Forex broker that offers free practice accounts, visit

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Hope you did not simply gloss over the material featured today because these are Forex terms you will come across quite often. A word is in place to state that there are other Forex terms in use but these have been provided in order to get you familiar with the regular FX trading terms.

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