Basics of Forex Trading: Learning the Terms

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Basics of Forex Trading | TTS

1.     Bear and Bull

If you have paid even the slightest attention to the world financial news, you must have come across headlines like “Bullish reversal in the trends” or “Forecasts predicts a bearish trend”. So what does this “bullish” and “bearish” stand for?

These are nothing but metaphors to describe the rising and the falling trends of the market. The two terms are derived from the way the animals attack their opponents. While the bull charges their enemies with their horns, the bear, on the other hand, knocks down their opponent to the ground. The terms have a historic connotation where there used to be bull and bear fights. The term later permeated the Stock Market and consequently, the Forex Market.

The bull represents someone who has a positive outlook and believes the market will rise whereas as the bear is an individual who feels that the market will fall. A bullish trend represents a rising trend and conversely, a bearish trend in the market represents a falling trend.

2. Long or Short

Long refers to Buying Position

Short refers to Selling Position

When someone says that they want to go long on a certain currency, they mean that they want to buy it in the hopes of making some profit. To go short on a currency means to sell it. The two terms mean the same. In fact, they are just the opposite sides of the same coin.

You can say that you want to go long on EURUSD since you are bullish about that market. It means that you want to open a buying position on EURUSD because you are optimistic about it and think that the prices are going to rise.

On the other hand, if you say, you want to go short for USDJPY since you are bearish about the market, it technically means you want to open a selling position for the USDJPY because you think the market prices are going to fall.

3. Bid and Ask

When you are trading in the Forex Market via a Forex broker, you will come across two kinds of prices, The Bid price and The Ask Price. The prices may differ from one broker to another.

The Bid Price – The bid price is an indicator of the price that people are willing to pay for the currency. It is the actual market price of the currency that would be visible on the screen.

The Ask Price – The Ask Price is what the sellers or the brokers are asking for the same currency. It is the lowest possible price at which the sellers would agree to sell the currency. It is often regarded as the best quoted price for the currency.

Since the brokers have entered the trade to make profits themselves, they always want to keep the asking price slightly more expensive than the bid price. This way, they would urge you to buy the currency at prices that are higher than the bid price or the actual market price.

This difference in prices, i.e., the difference between the bid price and the ask price is known as the Spread.

We shall discuss more Bid, Ask and Spread prices in later chapters.

With this, we come to an end of the first chapter. In the consequent chapters, you will take leap into the history of the Forex Market and how it flourished immensely to gain its remarkable size and power and become the stalwart that we see it as in the present financial market.