Forex Terminology

Ask: The price at which a broker or a dealer is willing to sell. For example, if GBP/USD is quoted at 1.9679/1.9681, the 1.9681 is the "Ask" or "Offered" price.

Base Currency: For foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. For example, in a USD/JPY currency pair, the US dollar is the base currency. Also may be referred to as the primary currency.

Bid: Price at which broker/dealer is willing to buy. For example, if GBP/USD is quoted at 1.9679/1.9681, the 1.9679 is the "Bid" price.

Bid/Ask Spread: The point difference between the bid and ask (offer) price.

Cost of Carry (also "Interest" or "Premium"): The cost, often quoted in terms of dollars or pips per day, of holding an open position.

Leverage: The amount, expressed as a multiple, by which the notional amount traded exceeds the margin required to trade. For example, if the notional amount traded (also referred to as "lot size" or "contract value") is $100,000 dollars and the required margin is $2,000, the trader can trade with 50 times leverage ($100,000/$2,000).

Limit Order: An order given which has restrictions upon its execution, where the client may specify a price and the order can be executed only if the market reaches that price.

Long: A market position that has been bought. It will generate profits as the market moves up and losses as the market moves down. For example, if you bought Euros, you will be "long" Euros.

Margin: Is a deposit that opens a position i.e. a 1% margin gives you the right to open a $100,000 position with a $1,000 deposit.

Margin Call: A demand for additional funds. A requirement by a clearing house that a clearing member (or by a brokerage firm that a client) brings margin deposits up to a required minimum level to cover an adverse movement in price in the market.

Market Order: Is an order at the current market price.

Offer: Price at which broker/dealer is willing to sell. Same as "Ask".

Pip: The smallest price increment in a currency. Often referred to as "ticks" in the futures markets. For example, in GBP/USD, a move from 1.9015 to 1.9016 is one pip. In USDJPY, a move from 128.51 to 128.52 is one pip.

Premium: Is the amount of points added to the spot price to determine a forward or futures price.

Spot Foreign Exchange: Often referred to as the "interbank" market. Refers to currencies traded between two counterparties, often major banks. Spot Foreign Exchange is generally traded on margin and is the primary market that this website is focused on. Generally more liquid and widely traded than currency futures, particularly by institutions and professional money managers.

Stop-Entry Order: Orders that buy above the market and/or sell below the market at a pre-specified level.

Stop-Loss Order: Orders that try to limit losses at a pre-specified level

Short: A market position where the Client has sold a currency he does not already own.

Technical Analysis: Analysis based on market action through chart study, moving averages, volume, open interest, formations, and other technical indicators.

Volatility: A measure of price fluctuations.

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