In the second part of this two-part series, we continue to look at common terms that often confuse those who are just getting started in forex trading.
This is the difference between how much traders pay for a currency pair and how much the seller receives. For example, if the bid price is 1.4005 and the ask price is 1.4009, then the spread is 0.0004 – or 4 pips. Since forex brokers do not charge commissions, the spread is one way that they make money.
Loonie
This is a nickname for the Canadian dollar, which has a picture of a loon on the one dollar coin. For those that are not familiar with lumens, these are iconic water birds found in Canada and throughout North America, with a booming, haunting cry that has come to symbolize the Canadian wilderness. The common loon is the one portrayed on the Canadian one dollar coin – this is the official bird of Ontario, the most populous Canadian province. The Canadian two dollar coin is called a toonie, although this is a made-up name and not a bird.Long and short
These describe two different positions in the forex market – and in other financial and equity markets as well. When a trader has a long position, they have bought a currency pair because they believe its value will rise. With a short position, the trader has sold the currency pair in the belief that its value is likely to drop.Pip
A pip is a small measure of currency pair movement and is equivalent to 1/100 of a basis point. For example, a movement of one cent in a US-denominated currency pair is a move of one basis point, or 100 pips. In fact, a pip is the smallest amount that any currency exchange rate can move.
Spread
This is the difference between how much traders pay for a currency pair and how much the seller receives. For example, if the bid price is 1.4005 and the ask price is 1.4009, then the spread is 0.0004 – or 4 pips. Since forex brokers do not charge commissions, the spread is one way that they make money.Stop loss
A stop loss is a secondary order placed with a primary trade in order to limit risk. For example, a trader could buy a currency pair at 1.4271 with the expectation that it is going to rise. However, they can limit risk by placing a sell order at a level below the price at which they purchased – for example at 1.4250. This limits how much they can lose, since the sell order will execute once the price drops to this level. Similar approaches are available to limit risk when a trader enters a short position.Trend
This is when a currency pair tends to move in a particular direction for an extended period of time – either upward or downward. Following trends is a very popular forex trading strategy, and often involves significant technical analysis to determine when a trend may be underway and when it may be coming to a conclusion.
Editors’ Picks
EUR/USD climbs toward 1.1800 on broad USD weakness
EUR/USD gathers bullish momentum and advances toward 1.1800 in the second half of the day on Tuesday. The US Dollar weakens and helps the pair stretch higher after the employment report showed that Nonfarm Payrolls declined by 105,000 in October before rising by 64,000 in November.
GBP/USD climbs to fresh two-month high above 1.3400
GBP/USD gains traction in the American session and trades at its highest level since mid-October above 1.3430. The British Pound benefits from upbeat PMI data, while the US Dollar struggles to find demand following the mixed employment figures and weaker-than-forecast PMI prints, allowing the pair to march north.
Japanese Yen seems poised to appreciate further; awaits BoJ decision on Friday
The Japanese Yen maintains its bid tone through the first half of the European session on Tuesday which, along with a bearish US Dollar, keeps the USD/JPY pair depressed below the 155.00 psychological mark. The growing acceptance that the Bank of Japan will raise interest rates this week turns out to be a key factor behind the safe-haven JPY's outperformance.
Editors’ Picks
EUR/USD climbs toward 1.1800 on broad USD weakness
EUR/USD gathers bullish momentum and advances toward 1.1800 in the second half of the day on Tuesday. The US Dollar weakens and helps the pair stretch higher after the employment report showed that Nonfarm Payrolls declined by 105,000 in October before rising by 64,000 in November.
GBP/USD climbs to fresh two-month high above 1.3400
GBP/USD gains traction in the American session and trades at its highest level since mid-October above 1.3430. The British Pound benefits from upbeat PMI data, while the US Dollar struggles to find demand following the mixed employment figures and weaker-than-forecast PMI prints, allowing the pair to march north.
Gold extends its consolidative phase around $4,300
Gold trades in positive above $4,300 after spending the first half of the day under bearish pressure. XAU/USD capitalizes on renewed USD weakness after the jobs report showed that the Unemployment Rate climbed to 4.6% in November and the PMI data revealed a loss of growth momentum in the private sector in December.
US Retail Sales virtually unchanged at $732.6 billion in October
Retail Sales in the United States were virtually unchanged at $732.6 billion in October, the US Census Bureau reported on Tuesday. This print followed the 0.1% increase (revised from 0.3%) recorded in September and came in below the market expectation of +0.1%.
Ukraine-Russia in the spotlight once again
Since the start of the week, gold’s price has moved lower, but has yet to erase the gains made last week. In today’s report we intend to focus on the newest round of peace talks between Russia and Ukraine, whilst noting the release of the US Employment data later on day and end our report with an update in regards to the tensions brewing in Venezuela.
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