FOREX Glossary - FAQs
Here are some of the most common terms used in FOREX trading.
What is '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.
What is '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.
What is '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.
What is '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.
What is '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.
What is '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.
What is '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.
What is 'Cross Currency' ? – A currency pair that does not include US dollars – e.g. EUR/GBP.
What is 'Currency Pair' ? – Two currencies involved in a FOREX transaction – e.g. EUR/USD.
What is 'Economic Indicator' ? – A statistical report issued by governments or academic institutions indicating economic conditions within a country.
What is '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.
What is 'Foreign Exchange (FOREX, FX)' ? – Simultaneously buying one currency and selling another.
What is 'Fundamental Analysis' ? – Analysis of political and economic conditions that can affect currency prices.
What is '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.
What is 'Limit Order' ? – An order to buy or sell when the price reaches a specified level.
What is 'Lot' ? – The size of a FOREX transaction. Standard lots are worth about 100,000 US dollars.
What is 'Major Currency' ? – The euro, German mark, Swiss franc, British pound, and the Japanese yen are the major currencies.
What is 'Minor Currency' ? – The Canadian dollar, the Australian dollar, and the New Zealand dollar are the minor currencies.
What is 'One Cancels the Other (OCO)' ? – Two orders placed simultaneously with instructions to cancel the second order on execution of the first.
What is 'Open Position' ? – An active trade that has not been closed.
What is 'Pips or Points' ? – The smallest unit a currency can be traded in.
What is 'Quote Currency' ? – The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.
What is '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.
What is 'Technical Analysis' ? – Analysis of historical market data to predict future movements in the market.
What is 'Tick' ? – The minimum change in price.
What is 'Transaction Cost' ? – The cost of a FOREX transaction – typically the spread between bid and ask prices.
What is 'Volatility' ? – A statistical measure indicating the tendency of sharp price movements within a period of time.