FOREX
Glossary/Terms
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 – e.g. EUR/USD 1.1965 / 68 – 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 show 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
– 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
– 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 – means that one Euro can be sold for 1.1965 UD
dollars.
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
– 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 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)
– 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 – 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 US Dollar, the Euro, the Swiss
franc, the 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.
Technical Analysis
– Analysis of
historical market data to predict future movements in the market.
Tick
– The minimum change in price.
Transaction Cost
– The cost of a FOREX transaction –
typically the spread between bid and ask prices.
Volatility
– A statistical
measure indicating the tendency of sharp price movements within a period of
time.
