Forex trading is the term used for exchanging one currency for another on the foreign exchange market. This practice has been done for years and years and this is what causes the changes in exchange rates which we see every day. If you are looking to get into this type of trading as a way to earn some extra income this year, here are some of the terms you need to be able to understand.
When you start off trading on the foreign exchange market it is important for you to know what a currency pair is. When you join a forex referral program or a platform you will notice that currencies are traded in pairs. For example you might choose GBP/USD or USD/EUR and this will be where you buy or sell one currency for another. The first currency in a pair is known as the base currency and the value of this is always 1. The other currency is called the counter currency and the value of this will fluctuate in relation to the first. For example if we look at GBP/USD we can see that GBP is the base and USD is the counter. The value of the pound will be 1 and the value of the dollar could be a value such as 1.31. This means that to buy £1 you would have to pay £1.31 and visa versa.
The exchange rate for a currency is the value it takes on in relation to another currency around the world. The reason this value changes so much is because people spend all day buying and selling currencies which either bumps up the value or drops it depending on the situation. The exchange rate is ever changing and is something you need to look out for when making your trades.
Bullish is a term used when the value of one currency is rising against the other. For example if you were to see an upward trend with the euro against the dollar, you would say that the Euro was currently bullish.
Bearish is the opposite of bullish and showed when a currency is trending downwards. For example with everything happening in the U.K. with Brexit right now, we could say the the pound is bearish because it keeps dropping in value compared to the Euro and the dollar.
A long position is a decision to buy a currency when you believe that the value of this currency is going to rise with time. If you saw an upward trend on a currency you would take a long position by buying this currency and you would wait for the value to increase before you sell for a profit.
A short position is when you sell a currency because you believe it will drip in value. For example with another Brexit example, if you knew a vote was about to be cast and the outcome would likely cause the value of the pound to drop, you would sell this currency and then wait and buy it for a profit.