Forex Glossary
Bid - The price at which a trader is willing to buy a currency and the price at which he can sell a currency.
Bid and ask price - The bid refers to the price you can sell at while the ask is the price you can buy at.
Broker - A company that matches buyers and sellers in the Forex market.
Buy Order - An order to buy the first or base currency according to its price or quote.
Currency Pairs - In Forex trading, currency pairs are always used with one currency priced based on another currency''s rate. The first currency in the pair is known as the base while the second is known as the pricing or quote currency.
Daily Range - The difference between the high and the low price during one day''s trading.
Day Trading - This takes place when a trader buys and sells his lots or stocks on that same day. A certain position is not allowed to be carried overnight.
Dealer - An individual or brokerage firm that offers buy and sell quotes in a currency market as well as provides bids and offers.
Exchange Rate - The value or price of a certain currency quoted in terms of another currency''s rate.
Fixed Exchange Rate - Also known as the pegged rate, an exchange rate set by a country''s central bank against one or more currencies.
Forex - This is the short term for foreign exchange.
Fundamental Analysis - Looks into the economic, social and political events and their effect on the currency prices.
Gap - An empty space on a bar chart showing no price overlap between two adjacent bars. This means that the current day''s love is above the previous day''s high or vice versa. Normally, this occurs as a result of overnight news developments.
Long Position - This refers to a market position that appreciates in value if the market price goes up. In each open Forex position, a trader is long in one currency and short in the other.
Lots - A standard trading contract. 1 Lot is equivalent to 100,000 units of the base while 2 Lots are equal to 200,000 units and so on.
Market maker - A Forex dealer or brokerage firm that buys and sells quotes in a currency market.
Margin - This is the collateral required to facilitate a Forex deal. This is normally a very small portion of the whole deal such as 1 percent.
Margin Account - This is a bond account which serves as a savings account. When a trader gains profit, his gains are deposited in this account. The existence of this account ensures that a trader is capable of paying other traders if and when he loses.
Pip - This means percentage in point. In the Forex market, prices are quoted in the fourth decimal point. As an example, a can of corned beef in the grocery store was priced at $1.20, this same product will be quoted as 1.2000 in the Forex market. This change into that fourth decimal point is called 1 pip which is equal to 1/100th of 1 percent.
Segregate Account - A separate trading account where the money of a broker''s client is deposited. Many firms, though, do not offer segregated accounts for their Forex clients.
Short Position - This is a market position that appreciates in value if the market price goes down.
Spread - Spread pertains to the distance between the bid and ask prices which is expressed in pips.
Stop-Loss Order - This is a market order to close a Forex position when losses reach a certain preset threshold.
Take-Profit Order - This is a market order to close a Forex position when profits or gains reach a certain threshold.
Trading System - This involves a set of rules that enable a trader to organize his actions in currency trading and control his or her emotional states.