Just like languages have alphabets, forex have basic terminologies that all beginners need to understand before trading in the forex market.
- Exchange Rate
The exchange rate is the rate at which one currency is exchange for another. The exchange rate shows you how much of the quote currency you need if you want to buy a unit of the base currency. Exchange rates is not usually stable and changes rate most of the time.
For instance:
The exchange rate of NGR/USD used to be 600, but currently this pair exchanges around 800.
2. Ask Price
Also known as the offer price, the ask price is the price visible on the right-hand side of a quote. This is the price at which you can buy the base currency. It is the lowest price at which a seller will sell a particular currency.
For example, while using EvergreenFFX trading bot, if the quote on the EUR/USD currency pair is 1.1965/1.1967, it means that you can buy 1 euro for 1.1967 US dollars.
3. Bid Price
Bid price is the price at which you can sell a currency pair. It is the highest price a buyer will pay to buy a specified amount of a currency at any given time.
For example, if the EUR/USD is quoted at 1.4568/1.4570, the first figure is the bid price at which you can sell the currency pair.
Bid is always lower than ask. And the difference between bid and ask is the “spread“.
4. Spread
Spread is the difference in pips between the ask price and the bid price. It represents the brokerage service costs and replaces transaction fees. Spread varies depending on broker, here at EvergreenFFX, we do recommend brokers to our users but we usually encourage them to make their findings and pick a broker with a tight spread.
There are fixed spreads and variable spreads.
Fixed spreads maintain the same number of pips between the ask and bid price, and are not affected by market changes, Variable spreads, however, fluctuate (i.e. increase or decrease) according to the liquidity of the market.
5. Positions
Positions are trades that are held open during a certain period of time. Position can either be a long or a short position.
Long Position
In a long position, the base currency is bought. It is also referred to as the “buy” position i.e Supposing Evergreen trading AI expect the EUR to strengthen as compared to the USD in the EUR/USD pair, the AI will buy EUR and profit from the whole Evergreenffx community would profit by its increase in value.
Short Position
When you enter a short position, you sell a base currency. It is also referred to as the “sell” position. For instance, if the Evergreenffx trading AI expects the EUR to weaken as compared to the USD in the EUR/USD pair, the AI will enter a sell the EUR/USD pair and the entire Evergreenffx community would profit from its decrease in value.
Close a Position
If you enter a long position and the base currency rate has gone up, you want to get your profit. To lock in your profit, you must close the position. The same way, if you enter a short position and the base currency rate has weakened, you want to get your profit. To lock in your profit, you must close the position. This is why the Evergreenffx trafing bot has been designed to take close positions on all trades in profit.
6. Pip
A pip(Percentage In Point or Price Interest Point) is the smallest price change of a given exchange rate. Most currency pairs are priced out to four decimal places and a single pip is in the last (fourth) decimal place.
We have been able to learn some terminologies in Forex today😇🥳. Stay tuned for more😉.