Pips, leverage, support, pairs, and so on…an entire esoteric series of words that are used to convey joy, fear, instructions and a variety of other things. Understanding what your broker and fellow traders are saying is absolutely critical to your success in the Forex market. A lot of people think of those in the financial industry as being less than friendly but I can assure you this is not the case, contrary to popular opinion those who work hard and get paid for it tend to be a very friendly group of people. Forex traders in my experience have been a great group of individuals looking to help new traders when and where possible. To take advantage of these resources however you need to be able to communicate, so let’s go over my top three Forex vocabulary words!
Pips-This is a word you will see over, and over…and over again. It is what every broker and trader is after, and what you should be after as well. For the sake of clarification let us assume that you invested in the pair EUR|USD and at the time the euro was worth 1.3490 in comparison to the US dollar. So your trade goes from 1.3490 to 1.3498, you have just made 8 pips. The exception to this four decimal point standard is the pair of the US dollar to the Japanese yen in which there are only two decimal places.
Leverage-Another extremely important word to know (and a very important concept as well) is leverage. In the Forex market leverage makes our profits possible and our leverage is greater than that in any other market. Since currency is typically purchased in 100,000 lot increments (dollars, yen, euros, etc…) there has to be a rather large amount of leverage given to the trader on the part of the broker. For a $1000.00 trade the leverage will typically be 50:1 or a total of $50,000.00 ($1000.00+$99,000.00 from your broker). This sounds like an insane risk on the part of the broker until you consider that currency rarely decreases in value by more than one percent on any given day.
(Currency) Pair-It is all about pairing in Forex, you are buying one type of currency with another in the hope that the purchased currency will become more valuable so that you can exchange it back at a profit. An example of this would be purchasing $50.00 euros for $100.00 dollars, and two days later buying back your dollars with the value of the euro increasing by (FOR THE SAKE OF CLARIFICATION) 50%, at this point you can change your euros back in for $150.00 for a profit of $50.00. Of course with leverage in play currency won’t have to jump much at all for you to realize profit.
These are just the absolute must knows I have decided on in the Forex market, there are (give or take) about 200 words (by my estimate) that being used by Forex traders/brokers to refer to the market. I will make an effort in the future to come up with a more comprehensive list in the future but this should get you started!