Forex trading has gained a lot of popularity in recent times because of the high returns investors can run from trading. But to earn such good returns it is important to have excellent know-how of the market works. We will look at some of the forex terminology that we provide you better insight of how the market functions.
Common Forex Terminology
Uptick: It is a term which refers to new price quotation which is for higher price compared to previous quote.
Uptick Rule: It is one form of regulation according to which a forex trader can not sell securities if trade before such short sale was not for a lower price than the current short sale price.
Prime Rate: This is the interest rate for which a bank lends to its corporate customers.
Value Date: Value date is date when counterparts in any financial transaction consent on settlement of their individual obligations such as exchanging payments. In case of spot transactions normally value date is 2 days forward and is also known as maturity date.
Variation Margin: This is the amount of funds forex broker has to request from his or her clients for depositing the necessary margin. Variation margin normally indicates the extra funds that are to be deposited because of price movements which are not favorable.
Volatility: It is one method for measuring price fluctuations. In a price series the standard deviation is the frequently utilized medium for measuring price volatility.
Volume: It means the net amount of forex trading taking place in any stock, index or commodity in a day. The volume also refers to total contracts that are traded in a day.
Weak or Strong Dollar: Dollar would be weak compared to other currency if more dollars are needed for buying another currency. On the opposite, it is strong when fewer dollars will be needed for buying some other currency.
Whipsaw: It refers to a situation where the market is quite volatile and sharp movements in price are followed by similar sharp reversals.
Yield: This term means the return gained on the capital investment made.
Ask Rate: Ask rate means the lowest price that can be agreed upon for sale, like ask/bid spread in a forex market.
Limit Entry Order: The terms limit entry order is a form of order where buying takes place below market level and sale occurs above market level.
Lot: Lot is a term which indicates any transaction standard size and 1 standard lot is equivalent to 100,000 base currency units and if it mini account then it is equal to 10,000 units.
Margin Call: It is a necessity put forward by the forex broker for depositing extra funds for maintaining open position in the market. A few times margin call means the position will be closed if there are fewer funds in the deposit. Such a measure by the broker insures that investor does not incur any more losses or even worse, have debit balance in the account.
The above details must have helped you in developing a broad idea of how the forex market functions and the things you need to know about before entering any day trading activity.