Terminology Used in FOREX Trading
There are 24 entries in this glossary.All
| Term | Definition |
|---|---|
| Ask |
It is the price which the seller of the currency pair is asking, (i.e. as a buyer, it is the price at which you will buy the currency). Therefore, it is also the price at which the seller is willing to sell the currency. |
| Base Currency |
Base currency is that one currency of the currency pair in which the terms are quoted. Therefore, in the USD/EUR pair, the USD is the base currency and in JPY/GBP, JPY is the base currency. When representing the currency pair, the base currency is always written first. |
| Convertible currency |
Any currency of a nation that can be exchanged freely for other currencies or with gold without requiring any special authorization from the central bank of that nation is termed a convertible currency. |
| Cross rate |
The earlier term used for the exchange rate between two currencies, neither of them being in USD, was cross rate. It was obtained by calculating it from the valuation of each currency against the USD. |
| Currency risk |
The risk resulting from a drastic change in currency exchange rates is known as currency risk. |
| Federal Reserve (Fed) |
It is the central bank of the United States. |
| Fixed Exchange Rate |
For the currencies that are not fully convertible and free, fixed exchange rate refers to the official rate that the central bank sets for that currency. In reality, the fixed exchange rate is not really fixed but has fluctuations, though within limits set by the country. |
| Flat |
In Forex lingo, going flat means going neither long nor short (i.e. if there is no position or if the positions cancel each other out through various combinations of currencies). |
| Good till Cancelled (GTC) |
It is an order that is left with a broker by a customer to either sell or buy a currency at a fixed given price. This order is valid at all times, until the client cancels it himself. |
| Interbank rates |
The Forex rate between large multinational banks is the Interbank rate. |
| Limit Order |
A limit order is an order placed by a client with a broker that states to buy at or below a specific price or to sell at or above a specific value |
| Maturity |
The date of settlement is called the maturity. |
| Open position |
A deal that is yet to be settled is said to be in open position. |
| Pip |
A pip is the smallest change in value of a currency pair that is possible (e.g. it is 0.0001 for EUR/USD). We will discuss pips in detail later on. |
| Political Risk |
It is the risk involved in the currency of a nation due to political actions in that nation. It can lead to price change in the currency that can be in the opposite direction to what you expected, which would result in you losing money. |
| Resistance |
It is the price level of the currency at which it the selling is generally expected to take place, making the price of the currency come down. |
| Risk Capital |
This term is used to determine how much the individual should put into the Forex market, according to his financial capacity. It is the amount of money that he can afford to lose, without affecting his lifestyle. |
| Settlement |
It is the real physical transfer and exchange of the currencies according to the currencies that you possess. |
| Short: |
Going short refers to selling the currency that you hold. |
| Spread |
Spread is the difference between the bid price and the ask price, which makes the trader get his share of money. It also reflects on the liquidity of the market. The lesser the spread, the higher the liquidity |
| Stop loss Order |
It is a market order to buy or sell when the price of the currency reaches a certain fixed level in the market. |
| Support level |
It is the opposite of resistance and refers to the price level at which the buying of the currency generally takes place, thus making the currency gain in its value. |
| Two way price |
Two way prices are used when both the bid price and ask price are quoted, showing that the trader expects the currency to remain in a band of price only. |
| Variation Margin |
It is the additional amount of margin that the broker will request from the client because there may be fluctuations in the market. |
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