Online FOREX Trading
FOREX Terms To Know
There are many common terms used in FOREX trading, and you need to understand
what they mean.
Here are the most common:
Spread or Bid/Ask Spread
The difference between the bid price and the ask price of a currency. This
is the broker's fee, or the broker may get a percentage of that spread.
Currency Pair
When two currencies are involved in one FOREX transaction. For instance,
if you are buying American currency (USD), with European money (EUR).
Quote Currency
The Quote Currency is the second currency in a currency pair. In a currency
pair of EUR/USD, the US Dollar is the quote currency.
Base Currency
The base currency is the first currency in a currency pair. In a currency
pair of EUR/USD, the Euro is the base currency.
Cross Currency
A cross currency is the same as a Currency pair, but it does not involve
US dollars (USD) at all.
Pips/Points
The smallest possible unit a FOREX currency can be traded in.
Tick
The absolute minimum change in the price of a currency.
Volatility
Indicates the sharpness of price changes within a given period of time.
Bar Chart
A chart used in analysis where items that are to be analyzed are measured
with graphical bars. The top of the bar may show the high price, while the
bottom of the bar shows the low price. There is typically a horizontal line
that will show the opening price, and a horizontal bar that shows the closing
price. The bars are displayed in the vertical direction.
Candlestick Chart
A chart used in analysis where items that are to be analyzed are measured
with graphical candlesticks. There will be extensions above and below the
candlestick, with the upper extension showing the highest price, and the
lower extension showing the lowest price. If the candlestick is red, this
is an indication that the closing price is lower than the opening price,
and if it is green, it is the opposite, or the price is rising.
Economic Indicator
A report that is issued by governments and/or academic institutions that
give statistics regarding the economic conditions of a country.
Technical Analysis
Historical market data that is used to predict what will happen in the market
in the future.
Fundamental Analysis
Data of political or economical conditions that may have an affect on the
FOREX market and currency prices.
Ask Price
This is the price that is being asked for a currency. An ask price of USD/EUR
1.234 / 36 means that one US dollar can be purchased for 1.236 Euros. It
is the price that is being asked for a currency, when it is being sold.
Bid Price
This is the price at which you can sell currencies. If a Bid price is USD/EUR
1.234 / 36, this means that one US dollar can be sold for 1.234 Euro dollars.
This is the price that you can sell your currency at.
Limit Order
This is an order that is given to your broker to buy or sell a currency only
when it reaches or falls to a specified bid or ask price.
Transaction Cost
The amount of money the entire transaction costs.
Major Currency
A group of currencies that consists of the German Mark, the Swiss Franc,
the Yen, the Euro, and the Pound. The USD would also be a major currency.
Minor Currency
The Canadian dollar, the New Zealand dollar, and the Australian dollar are
minor currencies.
Foreign Exchange
Buying one currency while selling another at the same time. In other words,
if you buy Euro currency and pay with USD, you are exchanging American currency
for European currency.
Broker
A professional who buys and sells currency for a client, as directed by the
client. A FOREX broker is typically in business with a large financial
institution. They receive commissions based on spreads.
Rollover
Based on interest rate differentials, the cost of a rollover is calculated
using swap points, and it refers to the extension of a settlement time to
the current delivery date.
Open Position
A trade that is in progress, but has not been closed, or finalized.
Margin or Leverage
The most common margin for FOREX trading is 100:1, which means that you can
trade currency up to 100 times the amount that you deposit. So, if you deposited
$100 on a trade, you would actually control $100,000 in currency.
One Cancels the Other (OCO)
This occurs when two orders are placed at the same time, where instructions
are given to cancel the second order when the first one is executed.
Lot
The size of a transaction.
First In First Out (FIFO)
In FOREX trading, this refers to the liquidation of orders. The first orders
executed are the first ones liquidated.
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