forex trading – Forex trading terminology
In this first article dedicated to Forex we focus on terminology, or on the glossary of terms that are never lacking in the didactic path. Before you start working even in demo mode you will be very comfortable knowing the terms of Forex in such a way that you always know what you will be dealing with. A bit like for the player who must know the rules of the game before playing haphazardly, so those who want to start trading must know the rules of negotiation and its terminology. Many terms are English and are used in the same way in Italy, so even if we provide more or less translations to the letter, get used to using them and recognize them in the original version.
1 Foreign Exchange
2 exchange rate
3 go along, go short
4 why EUR/USD and not USD/EUR?
What is Foreign Exchange? Easy, it’s the Forex. This word is in fact an abbreviated form of foreign exchange market or “foreign currency exchange market”, also known as the “currencies market” or “currency market”. This is the largest-sized market, with a frightening number of transactions that never stops. Every day the volume of trade is about 2 trillion dollars and there are large banking institutions, investment banks, governments, multinationals but also small investors who can operate only through brokers and banks. For this reason, if you would like to invest in Forex, you should contact a broker (even a much cheaper online broker) or a bank (with very High commission costs).
Exchange rate means the ratio of two currencies. For example, taking a currency pair such as the EUR/USD, that bar is just like a dividing bar. This is a ratio between the euro and the dollar, so there is a numerator (the euro) and a denominator (the dollar). The purchase or sales order is relative to the currency that is in the denominator.
Always taking as an example the currency pair EUR/USD and you “buy” (Buy EUR/USD), it means that you buy the euro and you sell at the same time its value expressed in US dollars.
Those who buy EUR/USD can also say “bullish EUR/USD”, or “go along”.
Get used to these ways of saying because in Forex are the daily bread.
On the contrary, those who sell EUR/USD are bearers of EUR/USD and “go short”.
Go along, go short
Going along and going short are two Forex terms that you will always meet but are at the same time very simple. We have already seen them in the previous paragraph but you may think that it is only used with the EUR/USD pair. In fact, every purchase is a long go, so every sale is a short go.
Now, remember that in online trading you can open “short” positions even without buying previously. A feature that allows you to earn both by betting on the raises, and on the rebates.
Why EUR/USD and not USD/EUR?
Each currency pair has a fixed, immutable, non-switchable denominator and numerator. When you refer to the Euro dollar pair you use and refer to the EUR/USD and the same happens in the other pairs. The main, even primary calls are:
The euro is always in the numerator.
In the next lesson, we’ll find out what the Forex quotes are and we’ll make some examples to understand them at best.