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Forex Glossary
By: Norman Fleming
Here are some of the most common
terms used in currency
trading.
Ask
Price - Sometimes called the Offer Price, this is the
market price for traders to buy currencies. Ask Prices are shown on
the right side of a quote - e.g. EUR/USD 1.1965 / 68 - means that one
euro can be bought for 1.1968 UD dollars.
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Bar Chart
- A type of chart used in Technical Analysis. Each time division on
the chart is displayed as a vertical bar which show the following
information - the top of the bar is the high price, the bottom of the
bar is the low price, the horizontal line on the left of the bar shows
the opening price and the horizontal line on the right of bar shows
the closing price.
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Base Currency
- is the first currency in a currency pair. A quote shows how much the
base currency is worth in the quote (second) currency. For example, in the
quote - USD/JPY 112.13 - US dollars are the base currency, with 1 US
dollar being worth 112.13 Japanese yen.
Bid Price - is the price a trader can
sell currencies. The Bid Price is shown on the left side of a quote - e.g.
EUR/USD 1.1965 / 68 - means that one euro can be sold for 1.1965 UD
dollars.
Bid/Ask Spread - is the difference
between the bid price and the ask price in any currency quotation. The
spread represents the broker's fee, and varies from broker to broker.
Broker - the intermediary between
buyer and seller. Most FOREX brokers are associated with large financial
institutions and earn money by setting a spread between bid and ask
prices.
Candlestick Chart - A type of chart
used in Technical Analysis. Each time division on the chart is displayed
as a candlestick - a red or green vertical bar with extensions above and
below the candlestick body. The top of the extension shows the highest
price for the chart division and the bottom of the extension shows the
lowest price. Red candlesticks indicate a lower closing price than opening
price, and green candlesticks indicate the price is rising.
Cross Currency - A currency pair that
does not include US dollars - e.g. EUR/GBP.
Currency Pair - Two currencies
involved in a FOREX transaction - e.g. EUR/USD.
Economic Indicator - A statistical
report issued by governments or academic institutions indicating economic
conditions within a country.
First In First Out (FIFO) - refers to
the order open orders are liquidated. The first orders to be liquidated
are the first that were opened.
Foreign Exchange (FOREX, FX) -
Simultaneously buying one currency and selling another.
Fundamental Analysis - Analysis of
political and economic conditions that can affect currency prices.
Leverage or Margin - The ratio of the
value of a transaction to the required deposit. A common margin for FOREX
trading is 100:1 - you can trade currency worth 100 times the amount of
your deposit.
Limit Order - An order to buy or sell
when the price reaches a specified level.
Lot - The size of a FOREX transaction.
Standard lots are worth about 100,000 US dollars.
Major Currency - The euro, German
mark, Swiss franc, British pound, and the Japanese yen are the major
currencies.
Minor Currency - The Canadian dollar,
the Australian dollar, and the New Zealand dollar are the minor
currencies.
One Cancels the Other (OCO) - Two
orders placed simultaneously with instructions to cancel the second order
on execution of the first.
Open Position - An active trade that
has not been closed.
Pips or Points - The smallest unit a
currency can be traded in.
Quote Currency - The second currency
in a currency pair. In the currency pair USD/EUR the euro is the quote
currency.
Rollover - Extending the settlement
time of spot deals to the current delivery date. The cost of rollover is
calculated using swap points based on interest rate differentials.
Technical Analysis - Analysis of
historical market data to predict future movements in the market.
Tick - The minimum change in price.
Transaction Cost - The cost of a FOREX
transaction - typically the spread between bid and ask prices.
Volatility - A statistical measure
indicating the tendency of sharp price movements within a period of time. |
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