Forex Glossary

This Forex glossary is a collection of Forex terms you should know and understand...

Ask Price: The price at which a currency pair or security is offered for sale, also known as the Offer price.

Bank Rate: The rate at which a central bank lends money to its domestic banks.

Base Currency: The first currency shown in the pair is the base currency. eg: Euro is the base currency of EUR/USD.

Bid Price: The price at which an investor can buy a currency pair.

Big Figure: Also know as the Handle, is the whole dollar price of a quote - ie: before the decimal place.

Broker: A firm that charges a fee or commission to an investor for executing buy and sell orders.

Cable: Slang term for the British pound.

Candlestick Chart: A price chart that displays the high, low, open and close prices of a currency for a specific time period.

Carry Trade: A strategy where an investor sells a currency with a relatively low interest rate and buys a different currency yielding a higher interest rate, such as buying EUR/JPY.

Central Bank: A country's national bank which functions as the government's bank. These banks manage currency reserves and oversee the commercial banks.

Counter Currency: Also called the quote currency, is the second currency of a pair. The price of the pair shows how much of the counter currency is needed to purchase 1 unit of the first, or base, currency.

Currency Pair: The method used in Forex to describe the value of a currency as determined by its comparison to another currency. It includes the base and quote currency. eg. EUR/USD

Day Trade: A trade which is opened and closed within the same trading day.

Euro: The official currency of the European Union (EU). It is the official currency of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

FOMC: (Federal Open Market Committee) is the branch of the US Federal Reserve Board that determines the nation's monetary policy.

Fundamental Analysis: A way of determining the value of a security by studying economic and financial information.

Hedge Fund: a private investment partnership of high net worth investors.

Leading Indicator: An economic factor that changes before a country's economy starts to follow a particular pattern. They are predictive, but not always accurate.

Leverage: Using borrowed money to increase the potential return of an investment.

LIBOR: The London Interbank Offered Rate is the interest rate at which banks will loan unsecured funds to other banks within the interbank market.

Liquidity: The extent to which an investment can be bought or sold in the market without affecting its price.

Margin: money that is borrowed from a dealer to purchase currencies.

Market Close: The time of day that the market closes. The Forex market has no official market close, but 5:00pm EST is usually understood as the market close time.

Market Maker: A broker / dealer that accepts the risk of being the counter party for their customer's Forex trades.

Momentum: The rate of change of a currency's price.

Offer Price: The price at which an investor can buy a currency pair, also known as the ask price.

Option: A contract giving the option buyer the right, but not the obligation to purchase a currency contract at a specific price up to a certain date and time.

Pip: Short for Price Interest Point is the smallest price change that a given currency pair can make.

Quote: The prices at which the currency pair can be bought or sold.

Quote Currency: The second currency quoted in a currency pair. The price represents how much of the quote currency is needed to purchase one unit of the base (first) currency.

Revaluation: The adjustment to a country's official exchange rate relative to the price of gold, another currency or any other chosen baseline.

Rollover: The process of reinvesting your funds rather than taking delivery of the currency.

Short Squeeze: A situation in which high demand and low supply force the price against a position.

Spread: The difference between the bid and the ask price of a currency pair.

Sterling: Another slang term for the British pound.

Technical Analysis: A way of analyzing market data, such as past prices, in an effort to predict future movements.

Value Date: The settlement date for a currency trade, usually two business days.

Vanilla: A plain option contract with no special or exotic features.

Volatility: The statistical measure of the amount of risk relative to the changes in a security's value.

Yard: A slang word used to express one billion units of currency.

Living with Forex Risk

Understanding Forex Risk is of extreme importance to a trader. Here are the facts you need to know...

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