Here are some of the most common terms used in FOREX trading.
Ask Price — The price at which a trader will buy a currency. Also known as the offer, it’s the price a seller is willing to sell at.
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 — The currency used as the base to quote a pair. For instance in the EURUSD pair, the EUR is the base currency, in the USDJPY, the USD is the base.
Bid Price — is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote 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 — An agent who handles investors’ orders to buy and sell currency. In the FX business, no commission is charged as the broker makes money through the spread.
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.
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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