When you begin a new hobby or even profession, you are certain to come across terminology that you do not understand. The problem with not understanding the terminology of the sector, is that it hinders your development in your chosen field.
I know many individuals, especially older people, who think that they will never be able to understand computers, because the terminology sounds like a foreign language. The same can be said for Forex, so I am going to clarify my top 20 terms to trade Forex that I think you have to know.
Ask, Offer – the price at which a trader will buy a currency; it is the seller’s price
Base Currency – the currency that all trades are quoted in. This will usually be the USD, but some systems allow the trader to choose
Bear – someone who thinks that the market or position will fall
Bull – someone who thinks that the market or position will go up
Broker – the person who places and deals with the trade for the trader. In FX there are no fees as such, as they are dealt with by the spread.
Cable – dealers’ slang for the USD/GBP exchange rate
Currency Risk – the risk of incurring losses resulting from an unfavorable change in exchange rates.
Day Trading – refers to opening and closing the same position or positions within one day’s trading (day trader)
ECB – the European Central Bank
Forex, FX or Foreign Exchange – the concurrent buying of one currency and selling of another. The currencies are written in pairs such as USD/GBP.
GTC – ‘good till cancelled’ – this means that an order is left with the dealer to buy or sell at a price pre-established by the trader. When the price is met the trade will be automatically carried out.
Initial Margin – this is the initial deposit of collateral necessary in order to enter into a position. It is a guarantee on future performance
Margin – clients must deposit funds as security to cover any potential losses from unfavorable movements in currency prices
Market Maker – is a dealer who offers prices and is prepared to buy or sell at those declared bid and ask (offer) prices. A market maker keeps a trading book
Open Position – this refers to any deal which has not been sorted out by monetary payment or reversed by an equal and opposite deal for the same value date.
Pip or Points – in currency markets refer to the smallest move an exchange rate can make. This could be 0.0001 in the case of EUR/USD, GBD/USD, USD/CHF or 0.01 in the case of USD/JPY
Resistance – is the level at which charts suggest that selling will take place
Spread – this is the difference between the bid and offer (ask) prices. It is used to measure market liquidity, narrower spreads usually indicate higher liquidity
Stop Loss Order – an order to buy or sell when a particular price is reached, either above or below the price that prevailed when the order was given
Technical Analysis – is an attempt to predict future market activity by analyzing historical market data. It is typically represented in the form of charts, price trends and volume graphs.
Owen Jones, the writer of this article, writes on many topics, but is presently concerned with Forex dealing. If you are interested in dealing with an FX Trading Account, please visit to our web site.
