Forex Terms and Definitions
Ask: The price at which a currency pair is offered for sale. This is also known as the 'offer', 'ask price', and 'ask rate'.
Base Currency: Currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency and normally has a value of 1. For example, EUR/USD, the EURO is the base currency.
Bear Market: An extended period of general price decline in an individual security, an asset, or a market.
Bid: The price at which an investor can place an order to buy a currency pair. This is also known as the 'bid price' and 'bid rate'.
Bid/Ask Spread: The point difference between the bid and offer (ask) price.
Broker: An agent, who executes orders to buy and sell currencies either for a commission or on a spread.
Bull Market: A market which is on a consistent upward trend.
Buy Limit Order: An order to execute a transaction at a specified price (the limit) or lower.
Buy On Margin: The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.
Cable: The British pound/US Dollar exchange rate GBP/USD.
Candlestick Chart: A chart that displays the daily trading price range (open, high, low and close). A narrow line (shadow) shows the day's price range. A wider body marks the area between the open and the close. If the close is above the open, the body is white (not filled); if the close is below the open, the body is black (filled).
Chartist: A person who attempts to predict prices by analyzing past price movements as recorded on a chart.
Closing Market Rate: The rate at which a position can be closed based on the market price at end of the day.
Commission: The fee that a broker may charge clients.
Day Order: A buy or sell order that will expire automatically at the end of the trading day it is entered.
Day Trade: A trade opened and closed on the same trading day.
Day Trader: A trader who buys and sells on the basis of small short-term price movements.
Day Trading: Refers to a style or type of trading where trade positions are opened and closed during the same day.
Dealer: An individual or firm that buys and sells assets from their portfolio, acting as a principal or counterpart to a transaction.
Fundamental Analysis: Analysis of economic and political information with the objective of determining future movements in a financial market.
Good Till Cancelled Order (GTC): A buy or sell order which remains open until it is filled or canceled.
Hedge: A transaction that reduces the risk on an existing investment position.
Limit Order: An order to execute a transaction at a specified price (the limit) or better. A limit order to buy would be at the limit or lower, and a limit order to sell would be at the limit or higher.
Long Position: In foreign exchange, when a currency pair is bought, it is understood that the primary currency in the pair is 'long', and the secondary currency is 'short'.
Pip: The smallest increment of change in a foreign currency price, either up or down.
Quote: A simultaneous bid and offer in a currency pair.
Risk Management: The employment of financial analysis and use of trading techniques to reduce and/or control exposure to financial risk.
Sell Limit Order: An order to execute a transaction only at a specified price (the limit) or higher.
Selling Short: A situation where a currency has been sold with the intent of buying back the position at a lower price to make a profit.
Short position: In foreign exchange, when a currency pair is sold, the position is said to be short. It is understood that the primary currency in the pair is 'short', and the secondary currency is 'long'.
Slippage: It's the experience of not getting filled at your expected price when you place a market order or stop loss. This can happen because either: market price is simply moving too fast, the market is not liquid or you're talking to an unmotivated broker.
Spot Price: The current market price of a currency that normally settles in 2 business days (1 day for Dollar/Canada).
Spread: This point or pip difference between the bid and ask price of a currency pair.
Stop Order (or stop loss or stop): An order to buy or to sell a currency when the currency's price reaches or passes a specified level.
Take Profit Order: A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on said position.
Technical Analysis: An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.
