Trading can be a great way to boost your finances and make a lot of money in a short amount of time. However, despite the obvious bonuses of trading, people have to be careful when trading stocks or currency, as is it also possible to lose a lot of money. One way you can help prevent this is by becoming familiar with the trading world and its language, helping you to figure out exactly what people mean when they use specialist terms.
Image via Wikipedia
Spread
When trading currency on the stock exchange, each broker and trader will set their own buying and selling prices. The difference between these figures is called the spread, and the fact that each trader will have different figures means it is possible to make a large profit if you trade carefully.
Forex
Put simply, this is the name given to a group of traders working in an exchange to buy and sell currencies. Forex’s are open 24 hours a day for six days of the week, and huge amounts can be won or lost in seconds.
Pip
A pip is one of the smallest units of currency in the Forex. It is typically two decimals points of any currency, and although the amount in itself is small, it can soon add up to substantial savings later.
Long Versus Short
Depending on how long you keep hold of your currency before you sell it, you will either be holding long or holding short. Holding a currency long generally means you keep hold of it for more than a week.
Currency Pair
This term is the basic term given to any currencies that are exchanged for one another. If you are going to trade euros for dollars, then you have a currency pair. The changes in interest and exchange rates are the reason people make money on the Forex.
Leverage
Leverage refers to the amount of credit a trader or broker has. Leverage is dependent on margins and means traders can buy or sell more currency than they actually have.
Margins
One of the 8 basic must know Forex trading terms is margins. When traders want to buy and sell more money than they can actually afford, they use margins. These margins can results in huge profits, although if something goes wrong, then it can also mean massive losses for traders.
Stop Loss
To prevent these losses, a stop loss is used. This is a guarantee that ensures the traders will only lose a portion of their investment, rather than the whole amount, and prevents meltdown on the Forex.