Chapter 5

The Language of FOREX


YOU ARE HERE—You have read a brief history of currency trading, why investors find it an attractive market to trade in, the various FOREX markets and something of the rather complex regulatory scene. Now you are ready to learn the mechanics of trading. First, with two informational chapters, and then with four how-to chapters.

As in any complex endeavor, the FOREX markets have their own language, terms, and abbreviations. You, the novice trader, must thoroughly comprehend many of them before making your first trade. As your eighth-grade English teacher taught you in vocabulary class—to use them is to know them. In Chapter 9, “How to Open a FOREX Account,” you are encouraged to open a demo account; it’s a great way to use and learn the lingo.

Currency Pairs

Every FOREX trade involves the simultaneous buying of one currency and the selling of another currency. These two currencies are always referred to as the currency pair in a trade.

Major and Minor Currencies

The seven most frequently traded currencies (USD, EUR, JPY, GBP, CHF, CAD, and AUD) are called the major currencies. Pairs made up of them are called major pairs. Smaller nations’ currencies are referred to as minor currencies. The most frequently traded minors are the New Zealand Dollar (NZD) and other currencies of Europe such as the Norwegian Krone (NOK) and Swedish Krona (SEK). Beyond those, the frequency is difficult to ascertain statistically because trading is not extremely ...

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