Forex Glossary
Common terms used in FOREX trading are defined below.
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 1.3133 / 36 means that one euro can be bought for 1.3136 USD dollars.
Bar Chart A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar. The top of the bar indicates the high price. The bottom of the bar indicates the low price. A horizontal line on the left of the bar indicates the opening price and a horizontal line on the right of bar indicates 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 quoted (second) currency. For example, in the quote - USD/JPY 111.35 US dollars are the base currency, with 1 US dollar being worth 111.35 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 1.3133 / 36 means that one euro can be sold for 1.3133 USD dollars.
Bid/Ask Spread is the difference between the bid price and the ask price in any currency quotation. The spread provides the broker's fee for the transaction. The spread varies between brokers so it pays to shop around for the lowest spreads.
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 (shadows) above and below the candlestick body. The top of the shadow shows the highest price for the chart division and the bottom of the shadow shows the lowest price. Red or black candlesticks indicate a lower closing price than opening price (falling prices) with the top of the colored part indicating the opening price and the bottom of the colored part indicating the closing price. Green or white candlesticks indicate a higher closing price than opening price (rising prices) with the bottom of the colored part indicating the opening price and the top of the colored part indicating the closing price.
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, 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. For example, where prices are quoted to four decimal points, 1 pip is 0.0001.
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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