Once a trader gets interested in CFD trading, most of the time, they can’t go back without digging a little more into the topic. There are hundreds of thousands of newcomers opting into the trading market out of their interest in making some money. However, the currency exchange business is thorny ground which makes them learn about some fundamental aspects of the market before diving in the deep water of this industry.
Various Aspects of Currencies
Among the most critical and fundamental topics in this business, currency pairs are the most indispensable ones. This is because they are the only assets that get traded in the world’s largest market. Numerous cult expressions convey special meaning in the Forex industry.
This article will tell you about some of the expressions that every newcomer needs to learn thoroughly.
1. Long & Short
After choosing the right currency pair, the first decision a trader needs to make is to detect what action to take. He needs to identify whether he has to purchase or sell.
If the decision leans more on buying, that means the trader has greater expectations in observing the base currency attaining momentum. For a favorable market situation, that means, when the price’s movement matches the Mena region trader’s expectations, the base currency experiences price appreciation, and the trader sells it to earn a profit.
The term that describes this activity, as you often may hear, is “going long.” You can also know it as taking a “long position.”
Remember the equation,
Long = buy
If a trader decides to sell, he will sell the base currency to buy the quote currency. In such cases, what he actually does is predict a downward movement in the base currency’s price. He sells all his previously bought base currencies in order to limit losses.
This is termed as “going short.” Taking a “short position” is also a well-known expression that tells of such an event. Be constructive while taking trades in the CFD market. Betting against the market or trying to recover the loss with emotional steps will not help you to recover a single penny.
2. Flat or Square
When anyone doesn’t represent an open position, he is leveled with terms like “flat” or square. “Squaring up” is a common expression for closing any position.
3. The Bid
The bid refers to the amount a broker agrees to purchase the base in exchange for the quote. The bid is the most favorable rate to sell a quote to the Forex market. The easier way to remember the bid is to remember that when you sell an asset to the broker, he buys it from you at the bid price.
4. The Ask
When a broker sells the base of a pair, he sells it at the asking rate. So, the ask is the most favorable price to purchase from the market. The other terminology for the ask is the offer price. Simply put, whenever someone buys something from a broker, he buys it at the asking price.
A spread is simply the gap between the ask price and the bid price. If the bid of EUR/USD is 1.34568 and it’s ask is 1.34588, it indicates that a person can sell Euros at 1.34568 Dollars. It also suggests that he can buy Euros at 1.34588 Dollars. If we subtract the ask from the bid, we get the spread.
A single unit of spread is called as pip.
While trading in a Forex environment, pips are the basic units that traders count to measure their win or loss amount. They determine lot size for every single pip-change in the price movement. For every pip of change, the lot size multiplies with it and shows the net loss and win amount.
So, these are all the expressions and terms that are related to the currencies and their pairs. Before engaging in more in-depth and advanced topics, everyone should have a crystal-clear idea about all of them.