Forex

Forex Glossary

Here are some of the most common terms used in FOREX trading.

Ask Price

Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quote ¨C e.g. EUR/USD 1.1965 / 68. This means that one euro can be bought for 1.1968 UD dollars.

Bar Chart

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, and 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.

Forex

Base Currency

Base Currency is the first currency in a currency pair. A quote shows how much the base currency is worth in the quote (second) currency. For example, in the quote - USD/JPY 112.13, US dollars are the base currency, with 1 US dollar being worth 112.13 Japanese yen.

Bid Price

Bid Price is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote - e.g. EUR/USD 1.1965 / 68. This means that one euro can be sold for 1.1965 UD dollars.

Bid/Ask Spread

Bid/Ask Spread 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

A Broker is the intermediary between buyer and seller. Most FOREX brokers are associated with large financial institutions and earn money by setting a spread between bid and ask prices.

Candlestick Chart

A type of chart used in Technical Analysis. Each time division on the chart is displayed as a candlestick. A candlestick chart is 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, such as EUR/GBP.

Currency Pair

Two currencies involved in a FOREX transaction, such as EUR/USD.

Economic Indicator

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

First In First Out (FIFO)

FIFO refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.

Foreign Exchange (FOREX, FX)

Simultaneously buying one currency and selling another.

Fundamental Analysis

Analysis of political and economic conditions that can affect currency prices.

Leverage or Margin

The ratio of the value of a transaction to the required deposit. A common margin for FOREX trading is 100:1. This means you can trade currency worth 100 times the amount of your deposit.

Limit Order

An order to buy or sell when the price reaches a specified level.

Lot

The size of a FOREX transaction. Standard lots are worth about 100,000 US dollars.

Major Currency

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

An active trade that has not been closed.

Pips or Points

The smallest unit 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.