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 stays defensive below 1.1900 as USD recovers
EUR/USD trades in negative territory for the third consecutive day, below 1.1900 in the European session on Thursday. A modest rebound in the US Dollar is weighing on the pair, despite an upbeat market mood. Traders keep an eye on the US weekly Initial Jobless Claims data for further trading impetus.
GBP/USD holds above 1.3600 after UK data dump
\GBP/USD moves little while holding above 1.3600 in the European session on Thursday, following the release of the UK Q4 preliminary GDP, which showed a 0.1% growth against a 0.2% increase expected. The UK industrial sector activity deteriorated in Decembert, keeping the downward pressure intact on the Pound Sterling.
USD/JPY consolidates around 153.00 favoured by lower Fed easing bets
USD/JPY steadies around 153.00 after hitting two-week lows at 152.25. A strong US Nonfarm Payrolls report provided some support for the US Dollar on Wednesday. The Yen remains on track for a 2.6% weekly rally, boosted by Takaichi's victory at Sunday's elections.
Editors’ Picks
GBP/USD holds above 1.3600 after UK data dump
\GBP/USD moves little while holding above 1.3600 in the European session on Thursday, following the release of the UK Q4 preliminary GDP, which showed a 0.1% growth against a 0.2% increase expected. The UK industrial sector activity deteriorated in Decembert, keeping the downward pressure intact on the Pound Sterling.
EUR/USD stays defensive below 1.1900 as USD recovers
EUR/USD trades in negative territory for the third consecutive day, below 1.1900 in the European session on Thursday. A modest rebound in the US Dollar is weighing on the pair, despite an upbeat market mood. Traders keep an eye on the US weekly Initial Jobless Claims data for further trading impetus.
Gold sticks to modest intraday losses as reduced March Fed rate cut bets underpin USD
Gold languishes near the lower end of its daily range heading into the European session on Thursday. The precious metal, however, lacks follow-through selling amid mixed cues and currently trades above the $5,050 level, well within striking distance of a nearly two-week low touched the previous day.
Cardano eyes short-term rebound as derivatives sentiment improves
Cardano (ADA) is trading at $0.257 at the time of writing on Thursday, after slipping more than 4% so far this week. Derivatives sentiment improves as ADA’s funding rates turn positive alongside rising long bets among traders.
A tale of two labour markets: Headline strength masks underlying weakness
Undoubtedly, yesterday’s delayed US January jobs report delivered a strong headline – one that surpassed most estimates. However, optimism quickly faded amid sobering benchmark revisions.
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