| | 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 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.
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.
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