Forex Terms Explained
Are you baffled by some of the terminology used on this site? So were we when we were new to the Forex world, this page Forex Terms Explained should help. Perhaps this glossary of definitions and forex terms will help you find the answers you need without having to Google them.
What Is Forex?
The Foreign Exchange or “Forex” for short is the global market that exists on a massive scale that allows traders to buy and sell currencies with other currencies. Buying 100,00 Euro’s with Dollars before they rise 1% compared to the Dollar and then selling them at that price would earn you a cool $1,000. Forex doesn’t exist in any computer, bank or government but consists of multiple markets connected up with Exchanges for the world to trade between.
Whats An Expert Advisor?
An Expert Advisor is a piece of software that runs typically on Metatrader, although can be in any platform (Metatrader is the most accessible and widely used platform) that trades currencies, metals, stocks or anything else that can be traded digitally without human intervention. These Expert Advisors are usually trained to work to some sort of algorithm or strategy that is known to make money so that it can trade without a human saying buy or sell. Removing the clumsy human element means that trading isn’t done with emotions but purely on what is happening out their in the real world… where the money is!
What Is Drawdown?
The Drawdown of an Expert Advisor refers to how much of the capital in an account it risks and can loose at a time. Say you have $1k in a Forex account and the Expert Advisor you are trusting to trade it holds a position that at one point in time is actually making a loss of $300 but then brings it round to actually close it at a $300 profit, you could say that the Expert Advisor had a drawdown of 40% of the account capital but didn’t actually loose your money.
What Is Forex Hedging?
When somebody says to you that they have Hedged a currency in Forex they mean they have opened up a position in the opposite direction to the actual main trade they believe will be profitable. This may sound weird but technically the 2 will cancel each other out as one profits and the other looses. Traders do this for a number of reasons, say you set the 2 positions to have a take profit of 20 Pips and a Stoploss of 10 Pips, when it goes the wrong direction for 1 position it looses you 10 Pips but as it carries on it gains 20 Pips as the correct position hits its take profit. Hedging can be worked into many strategies and help reduce the loss of capital in an account, although it does take more work.
Hopefully these Forex Terms will help you in your adventure through Forex. If you feel that we have missed something then please suggest to us how we can improve Forex terms explained further.