If you have decided to invest some of your money to generate future wealth, then it is a smart move. The low interest rates which most bank deposit accounts now offer make investing some of your spare cash a much better idea. Doing so will help you to attain a higher percentage annual return thereby increasing your personal wealth for the future.
While there are many sectors in which to invest, the Forex market is one that is increasing in popularity and is easy to access. Open 24-hours a day, 5-days a week around the globe, you only need a PC, an internet connection and a small amount of money to begin trading.
As with every investment sector though, it is important to know what you are doing and how it all works before diving in. Top of the list here is to learn the necessary terminology to help you get started and to better understand what you are doing.
Common FX terminology
Here are some of the most common phrases or words you will see.
- Pip – this stands for ‘Percentage in Point’ and is the increment by which profits or losses are usually calculated in FX trading. For example, when a pair you have invested in wins, you may gain 50 pips which is then calculated back into a real monetary value.
- Chart indicators – one common catch-all term you may hear is ‘indicators’ for the charts you view. They help you to find trends and simply confirm whether you want to open a trade on a currency pair. While some are common, there are exotic ones like the Alligator Indicator. For more information on this valuable tool, check out the alligator indicator explained by ForexTraders.com.
- Spread – this is the difference in the Bid and Ask prices that FX brokers offer when placing trades. The Bid relates to opening an order to Buy currency pairs while the Ask is for a Sell order.
- Leverage – this allows you to control a larger amount of money in the market but without it being all your own. Normally expressed in a ratio like 10:1, it enables you to risk less on any open position and also to trade bigger lots without having all your own money to do so. Remember! This is a loan and it has to be repaid.
- Margin – this is the term for the amount of money you need in your account to open a trade. You may also come across the term ‘Margin Call’ which is your broker warning you when you are running out of the funds needed to keep a trade open.
- Stop: Loss – this term relates to pre-defining when a trade you are about to open will automatically close. You not only set a level at which it closes if the trade is losing but also when it will end if you reach the profit level you desire.
Knowing the right terminology is vital
As with any kind of investment, it really does pay to know the common terms when investing in Forex. It will help you to instantly understand what is going on when you hear the news or other traders chatting online. It will also help to educate you about the FX market which is vital for success. Hopefully, the above has given you a great head-start!