Let's start this trading article for beginners by introducing some of the most common terms you'll need to know if you want to trade Forex!

This form of Forex trading involves buying and selling real currency. For example, you might buy a certain amount of British Pound Sterling and exchange it for Euros, and then, after the value of the Pound increases, you can exchange your Euros back for Pounds, receiving more money compared to what you originally invested in the purchase.

The term CFD stands for 'Contract for difference'. This is a contract used to represent movement in the prices of financial instruments. In terms of Forex, this means that instead of buying and selling large amounts of currency, you can take advantage of price movements without having to own the asset itself. Just like with Forex, CFDs are also available in stocks, indices, bonds, commodities, and digital currencies. In all cases, CFDs allow you to trade the price movements of these instruments without having to directly purchase the underlying asset.

If you're interested in learning more about CFDs and how they work, we recommend the following article, which explains CFD Trading for beginner traders: CFD Trading Guide | What Are CFDs or Contracts for Difference?

A pip is the base unit in the price of the currency pair or 0.0001 of the quoted price, in pairs other than JPY. Therefore, when the purchase price of the EUR/USD pair goes from 1.16667 to 1.16677, this represents a difference of 1 pip.

The spread is the difference between the purchase price and the selling price of a currency pair. For the most popular currency pairs, the spread tends to be lower, sometimes even less than one pip! For pairs that are not traded as frequently, the spread tends to be much higher. Before a trade in the Forex market becomes profitable, the value of the currency pair must exceed the value of the spread.

Margin is the money retained in the trading account when opening a position in the market. However, as the average 'Retail Forex Trader' does not have the necessary margin to trade a high enough volume to make a good profit, many Forex brokers offer their clients access to leverage.

This is a must-know concept for the beginner trader who intends to invest in the Forex market! Leverage is the capital provided by a Forex broker to increase the volume of positions that their clients can make.

Example:

• The value of a contract or lot is equal to 100,000 units of the base currency. In the case of the EUR/USD pair, this would be €100,000.
• If you use a leverage rate of 1:10 and have €1,000 in your trading account, you can trade a currency pair with a position of €10,000.
• If your position is successful, leverage will maximise your profits by a factor of 10. However, keep in mind that leverage also multiplies your losses in the same proportion.

Therefore, leverage should be used with caution, whether we're talking about trading for beginners or experts!

This is a term used to describe the stock market when it is moving in a downward trend. In other words, when stock prices are falling. If the price of a stock falls deeply and quickly, it is considered very bearish.

The opposite of a falling market is a rising market. When the stock market goes through a period of rising stock prices, we call this a Bull Market. An individual stock, as well as a sector, can also be called bullish or bearish.

A broker is a company that facilitates the buying and selling of a specific financial instrument, through its platform (in the case of an online broker). They generally charge a commission.

The bid is the price traders are willing to pay for the asset. It is set in relation to the selling price (ask), which is the price at which sellers are willing to sell their assets. What do we call the difference between the bid/ask price? If your answer was spread, you're right!

Day trading occurs when traders buy and sell a particular financial asset on the same day. Day trading is a common trading strategy, however, if someone day trades, they can also make long-term investments (have a long-term portfolio).

As we've seen, Forex is the market where currencies/currencies are traded. In a more simplified way, a Forex transaction might be, for example, when your local currency is transferred and exchanged for another currency, for a holiday trip abroad.

In the Forex or Foreign Exchange – currency market (can also be abbreviated to FX), an estimated volume that totals $5.3 trillion is traded daily among governments, banks, companies, and speculators.

Knowing how Forex works is important, because the collective combination of all participants creates the market in which you will be able to trade. The relative weight of each market participant is measured by the money that this participant manages – from billion-dollar hedge funds and investment banks, to private traders with a few thousand euros or dollars in action.

Currencies are traded in pairs, and the movement of currency pairs measures the value of one currency relative to another. For example, the EUR USD pair measures the value of the Euro against the American Dollar. When the value of the pair increases, this means that the value of the euro has increased in relation to the American dollar. When the value of the pair decreases, it means that the value of the dollar has increased (or that the value of the euro has decreased).

The number of markets you will have to explore for opportunities depends on you, but do not limit yourself to just one financial instrument or just one market.

When trading Forex and CFDs, traders can make profits from these movements between currencies.

Limiting markets can lead to excessive trading, the so-called 'overtrading', so make sure to diversify your investments.

Forex pairs can be classified into three categories, majors, minors, and exotics.

The major FX pairs are composed of the most frequently traded currencies, which are:

• USD – American Dollar
• EUR – Euroo
• JPY – Japanese Yens
• GBP – British Pound
• CHF – Swiss Franc
• CAD – Canadian Dollar
• AUD – Australian Dollar
• NZD – New Zealand Dollar

A major pair contains any of these currencies against the American Dollar, such as EURUSD, USDJPY, or GBPUSD. Minor pairs are composed of major currencies that do not include the American dollar. These pairs include EURGBP, EURCHF, AUDNZD, ZAR, among others.

Finally, exotic currencies are any currencies that we haven't previously mentioned, such as the Hong Kong Dollar (HKD), the Norwegian Krone (NOK), the South African Rand, and the Thai Baht (THB). Exotic pairs include an exotic currency and a major currency.

When learning about Forex, many beginners tend to focus on the major pairs due to their daily volatility and low spreads. But there are numerous opportunities – from exotic pairs in Forex, to business opportunities in CFDs of stocks, commodities, energy futures contracts, and even indices. There are even indices that track groupings of other indices, and you can trade them as well.