forex basics

Forex Terminologies that you should know

I am sure that you have read articles or even watched videos of forex traders and will have come across certain words that you did not understand.

 

Those words would have been the common terminologies that forex traders use to refer to certain things and in this blog post, I am going to cover this.

 

These words are actually quite new for everyone and lots of beginners do not understand them and it might have happened with you too.

 

But here I am with this blog post, so be attentive till the end and don’t skip anything.

Contents

Bull

Bear

Long

Short

Pip

Lot

Leverage

Spread

Aussie

Kiwi

Swissy

Guppy

Yuppy

Loonie

Ninja

Greenback

Quid

Chunnel

Cable

Fiber

Dead cat bounce

Buy the rumours, sell the news

Are there any terminologies that you have come across?

 

Bull

 

 

In forex, bull does not mean an animal, but rather is a market condition. A market is said to be a bull market when the prices of the assets are moving up.

 

The market sentiment in such conditions is that of optimism and confidence and market participants are buying and this is driving prices higher.

 

It is said that the name bull came from the way the bull attacks by swinging the horns in an upward motion.

 

Bear

 

 

A bear market is a market condition where the prices of the assets are decreasing and the market sentiment is that of pessimism and low in confidence. In a bear market, the market participants are selling.

 

The name bull comes from the way a bear attacks, it swings its paws in an up to down motion.

 

Long

 

 

Long, in trading, is a type of position that market participants hold or have entered into.

 

So if you as a trader or as an investor have bought a currency pair in the forex market or any other asset in another market, then you have a long position. Participants that have gone long in a trade expect the price of the asset to increase.

 

Short

 

 

Short is again a type of position held by traders or investors in the financial market that they are participating in.

 

If you sell a currency or any other asset, then you are said to hold a short position or have gone short on that asset. Participants that have gone short in a trade expect the price of the asset to decrease.

 

Going short is against the conventional method of buying now and selling later and people that are new to this have a question as to how can one sell something they do not own.

 

The process here is that when you go short and place a sell order, your broker initiates that order by borrowing that quantity of the asset from other clients. These are simply backend functions and we have nothing to do with it or to be concerned with.

 

Pip

 

 

Pip stands for Points in Percentage or Price Interest Point. It is the smallest measure of change in the prices of the currency pairs listed on the forex market.

 

1 pip is $0.0001, it is basically one tenth of 1% and it is known as 1 basis point.

 

If the price of EURUSD moves from 1.2210 to 1.2211 then the price is said to have increased by 1 pip.

 

Lot

 

 

A lot denotes the size or quantity of the currency pair that is being traded. Hence it measures the transaction unit.

 

Consider this as buying milk or something else from the grocery store where you will get it in some quantity.

 

There are different lot sizes in forex, standard lot size is 100,000 units of the currency pair, mini is 10,000 units, micro is 1,000 units and nano is 100 units.

 

Leverage

 

 

Leverage is basically your broker giving you a loan to trade currency pairs in the forex market. So consider that you have $100 in your trading account. With a 100x leverage, you can trade with $10,000.

 

Having leverage increases your capacity to trade. Almost every forex broker provides leverage and each of them have different amount of leverage. Leverage can be both a boon and bane for traders, so use leverage properly.

 

Spread

 

 

The forex market is huge and there are numerous people participating in it and placing orders to buy or sell various currency pairs.

 

The forex market works on an order matching system where buy orders are matched with sell orders and transaction is completed. Now, it is not compulsory that these orders will be placed at the same price and that they will match.

 

So spread is the difference between the buy and sell orders or the bid and ask price. For instance, if you place a buy order for GBPUSD at say 1.4200 and the closest seller is at 1.4205, then 0.0005 or 5 pips is the spread.

 

Aussie

 

 

Aussie is short term or a slang used for the Australian Dollar, the currency of Australia.

 

The currency pair of AUDUSD is commonly called as Aussie.

 

Kiwi

 

 

Kiwi is short term or a slang used for the New Zealand Dollar, the currency of the country of New Zealand.

 

The currency pair of NZDUSD is commonly called as Kiwi.

 

Swissy

 

 

Swissy is a short word or a slang for the Swiss Franc which is the currency of Switzerland.

 

Forex traders normally call the CHFUSD currency pair as Swissy.

 

Guppy

The GBPJPY currency pair is also known as guppy by some forex traders.

 

 

Yuppy

Yuppy is a nickname for the EURJPY currency pair, it is just a slang that forex traders use to refer to this particular currency pair.

 

Loonie

 

 

Loonie is a slang or a nickname for the USDCAD currency pair.

 

It gets its name from the bird Loon, which is very common in Canada and it is engraved on the reverse side of the $1 coin in Canada.

 

Ninja

 

 

The USDJPY currency pair has a nickname or a slang for itself and it is often called as Ninja by forex traders.

 

Greenback

 

 

Forex traders call the US Dollar as Greenback and it is simply a nickname for this major currency.

 

It is called greenback because the backs of the dollar bills were printed in green ink.

 

Quid

 

 

Quid is a slang term for the GBP currency.

 

It is said that it gets its name from the Latin term, quid pro quo, which means something for something.

 

Chunnel

The EURGBP currency pair is known as chunnel and many forex traders choose to refer to this currency pair by this nickname.

 

It gets its name by merging channel and tunnel. This is a reference to the railway underwater tunnel that connects Britain to Europe and it is a coincidence that the tunnel was completed around the same time as the Euro was launched.

 

Cable

Cable is a slang term for the GBPUSD currency pair in the forex market.

 

This nickname came about because of the steel cables placed under the Atlantic Ocean that was used to transmit exchange rates of the dollar and the sterling.

 

 

Fiber

The EURUSD currency pair is also known as fiber and it is a common slang among forex traders.

 

There are two origins for this nickname, first, that the Euro banknotes consisted of pure cotton fibre which made is more durable, second, because of the strong fibre optic cables that are found in Europe.

 

Dead cat bounce

 

 

A dead cat bounce is a somewhat price action pattern in which the price of the currency pair or any asset is already declining and it sees a temporary recovery only to tank again.

 

This is a bearish continuation pattern in which there is a price decline, a pullback in the upward direction, and decline again. The pullback might seem like a price reversal but it is merely a short lived recovery.

 

The phrase dead cat bounce is based on the notion that even a dead cat will bounce if it falls fast and far enough.

 

Buy the rumours, sell the news

 

 

Buy the rumour and sell the news is a common strategy that a few traders follow but not many are even aware of it. You will have seen that once a news is out, the price will have already increased or decreased according to what the news holds.

 

This happens because traders with sophisticated tools and access to information, act before the news is out in mainstream media. It is not that they already know what the news is, instead they take a calculated bet and analyse things around the news and get a bias.

 

Once the news is out, the reacting traders like the retail traders will jump in the trade and at such time the traders that were already in the trade will book profits or cut their position and let the remaining ride.

 

There are several high frequency trading firms that have coded algorithms to scan for news releases that can have effects on price. These algorithms are way quicker than you or me in reacting to the news and they will enter the trades within microseconds, which would take us at least a couple of minutes.

 

Hence, whenever there is a news release that is anticipated, try to analyse deeper and find signals that can help you predict what the news might be and you take trades beforehand. Or, instead of predicting, you can plan trades for both sides, initiate it, and cut of the losing position once the news is out and let the winning one ride.

 

Are there any terminologies that you have come across?

These were some of the most common terminologies that you will come across in the forex trading space.

 

Now, these are just slangs and aren’t any formal terms and traders use these to simplify things for themselves. You can choose to use them or not, but you should be aware of it.

 

Let me know if there are any additional terminologies or such slangs that you have come across.

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