Forex Trading Glossary

Forex Trading Glossary

Here are some of the most common terms used Forex trading:

Ask Price – This is also known as the Offer Price, it is the market price for traders to buy currencies. Ask Prices are always shown on the right side of a quote – e.g. EUR/USD 1.1595 / 68 – means that one euro can be bought for 1.1595 UD dollars.

Bar Chart – This is a type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which shows the following information – the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the opening price and the horizontal line on the right of bar shows the closing price.

 

Base Currency – This is always the first currency in a currency pair. A quote shows how much the base currency is worth in the quote (second) currency. For example, the quote - USD/JPY 128.13 – US dollars are the base currency, with 1 US dollar being worth 128.13 Japanese yen.

Bid Price – This is the price that a trader can sell currencies. For example EUR/USD 1.1285 / 68 – means that one euro can be sold for 1.1285 UD dollars.

Bid/Ask Spread – This is the difference between the bid price and the ask price in any currency quotation. The spread represents the broker's fee, and varies from broker to broker.

Broker – This is the intermediary between the buyer and seller.

Candlestick Chart - This is a type of chart used in Technical Analysis. Each time division on the chart is displayed as a candlestick – a red or green vertical bar with extensions above and below the candlestick body. The top of the extension shows the highest price for the chart division and the bottom of the extension shows the lowest price. Red candlesticks indicate a lower closing price than opening price, and green candlesticks indicate the price is rising.

Cross Currency – A currency pair that does not include US dollars – e.g. EUR/GBP.

Currency Pair – Two currencies involved in a Forex transaction – e.g. EUR/USD.

Economic Indicator – A statistical report issued by governments or academic institutions indicating economic conditions within a country.

First In First Out (FIFO) – This refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.

Foreign Exchange (FOREX, FX) – This is the process where a trader simultaneously buy one currency and sell another.

Fundamental Analysis – This is the analysis of political and economic conditions in a country, that can affect currency prices.

Leverage or Margin – This is the ratio of the value of a transaction to the required deposit. A common margin for Forex trading is 100:1 – Thsi means that you can trade currency worth 100 times the amount of your deposit.

Limit Order – This an order to buy or sell when the price reaches a specified level.

Lot – This is the size of a Forex transaction. Standard lots are worth about 100,000 US dollars.

Major Currencies – The euro, German mark, Swiss franc, British pound, and the Japanese yen are the major currencies.

Minor Currency – The Canadian dollar, the Australian dollar, and the New Zealand dollar are the minor currencies.

One Cancels the Other (OCO) – Two orders placed simultaneously with instructions to cancel the second order on execution of the first.

Open Position – This is an active trade that has not been closed.

Pips or Points – This is the smallest unit that a currency can be traded in.

Quote Currency – The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.

Rollover – Extending the settlement time of spot deals to the current delivery date. The cost of rollover is calculated using swap points based on interest rate differentials.

Technical Analysis – This is the analysis of historical market data in order to predict future movements in the market.

Tick – This is the minimum change in price.

Transaction Cost – This is the cost of a Forex transaction – this is normally the spread between bid and ask prices.

Volatility – This is a statistical measure indicating the tendency of sharp price movements within a period of time.