Forex Trading Glossary

The Foreign Exchange Market – better known as Forex — is a worldwide market for buying and selling currencies. The Forex market has grown rapidly over the past few years and a lot of new traders join the Forex market every day.

In this article we will explain the most common terms used in Forex trading.

Broker – the intermediary between the seller and the buyer. Forex brokers usually earn money by setting a spread between the Bid and Ask prices.

Foreign Exchange – Simultaneously buying a currency and selling another currency.

Ask Price – also called the Offer Price, is the market price to buy a certain currency.

Bid Price – the market price to sell a certain currency.

Bid/Ask Spread – the difference between the bid price and the ask price in any currency quotation. The spread represents the broker’s fee and therefore varies from broker to broker.

Currency Pair – Two currencies involved in a Forex transaction — e.g. USD/GBP.

Major Currency – The following currencies are called Major Currencies: The USD, Euro, British pound, Swiss franc, German mark, and the Japanese yen are the major currencies.

Minor Currency – The New Zealand dollar, the Australian dollar, and the Canadian dollar are the minor currencies.

Base Currency – The first currency in a currency pair.

Quote Currency – The second currency in a currency pair.

Cross Currency – A currency pair that doesn’t include USD.

Economic Indicator – a statistical report issued by academic or government institution showing economic conditions within a country.

Technical Analysis — Analysis of historical market data primarily price and volume, in order to predict future market movements.

Fundamental Analysis – Analysis of economic and political conditions that may affect currency prices.

Bar Chart – a type of chart that is used in technical analysis. Each time division is displayed as a vertical bar that shows the following information: the top of the bar is the high price, while the bottom of the bar is the low price. The left horizontal line shows the opening price and the right horizontal line shows the closing price.

Candlestick Chart – another type of chart that is used in technical analysis. Each time division on the chart is displayed as a red or green vertical bar with extensions above and below. The top of the extension indicates the highest price for the chart division and the bottom of the extension indicates the lowest price. Red candlesticks mark a lower closing price than opening price and green candlesticks indicate that the price is rising.

First In First Out (FIFO) – The order in which orders are liquidated. The first orders to be liquidated are the first that were opened.

Margin or Leverage – The ratio of the transaction value to the required deposit.

Tick – The minimum price change.

Limit Order – An order to buy or sell when the price reaches a pre-specified level.

Lot – the size of a Forex transaction.

Open Position – any active trade that has been established, that hasn’t been closed with an opposing trade.

One Cancels the Other (OCO) – A pair of orders in which it is specified that if one order is executed, then the other order is automatically canceled.

Pips or Points – The smallest unit a currency can be traded in.

Quote Currency – The second currency in a currency pair.

Rollover – The process of extending the settlement date of an open position.

Volatility – A statistical measure indicating the tendency of sharp price movements within a period of time.


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