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FOREX Dictionary

Ask: The price at which a currency pair or security is offered for sale; also known as the 'offer', 'ask price', and 'ask rate'.

Bank Rate: The rate at which a central bank is prepared to lend money to its domestic banking system.

Base Currency: In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; 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; the quoted price where an investor can sell a currency pair. This is also known as the 'bid price' and 'bid rate'.

Bull Market: A market which is on a consistent upward trend.

Cable: The British pound/US Dollar exchange rate GBP/USD.

Cross-Rate: The exchange rate between 2 currencies where neither of the currencies are USD.

Currency: Money issued by a government. Coins and paper money. It is a form of money used as a unit of exchange within a country.

Currency Pair: The two currencies in a foreign exchange transaction. The “EUR/USD” is an example of a currency pair.

Day Trade: A trade opened and closed on the same trading day.

Execution: The Process of completing an order or deal.

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.

Leading Indicators: Statistics that are considered to predict future economic activity.

Leverage:  The amount, expressed as a multiple, by which the notional amount traded exceeds the margin required to trade.  For example, if the notional amount traded (also referred to as "lot size" or "contract value") is $100,000 dollars and the required margin is $1,000, the trader can trade with 100 times leverage ($100,000/$1,000), or 1:100.

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.

Liquidity:  A function of volume and activity in a market.  It is the efficiency and cost effectiveness with which positions can be traded and orders executed.  A more liquid market will provide more frequent price quotes at a smaller bid/ask spread. 

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'.

Margin: The amount of money needed to maintain a position.

Margin Call:  A requirement by the broker to deposit more funds in order to maintain an open position.  Sometimes a "margin call" means that the position which does not have sufficient funds on deposit will simply be closed out by the broker.  This procedure allows the client to avoid further losses or a debit account balance.

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Market-Maker: A person or firm that provides liquidity making two-sided prices (bids and offers) in the market.

Market Order: A customer order for immediate execution at the best price available when the order reaches the marketplace.

Offer: The price at which a currency pair or security is for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'ask', 'ask price', and 'ask rate'.

Open Position: Any position (long or short) that is subject to market fluctuations and has not been closed out by a corresponding opposite transaction.

Order: A customer's instructions to buy or sell currencies.

Over The Counter (OTC): A market conducted directly between dealers and principals via a telephone and computer network rather than a regulated exchange trading floor. These markets have not been very popular because of the risks both the parties face in case the other party fails to honour the contract. They were never part of the Stock Exchange since they were seen as "unofficial".

Pip: The smallest increment of change in a foreign currency price, either up or down.

Price: The price at which the underlying currency can be bought or sold.

Rate: Price at which a currency can be purchased or sold against another currency.

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'.

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.

Sterling: Another term for the British currency, 'The Pound'.

Stop (loss) Order: Order to buy or sell when a given price is reached or passed to liquidate part or all of an existing position.

Stop Order (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.

Turnover: The total volume of all executed transactions in a given time period.

Used Margin: amount of money in the account already used to hold open positions open.

Volatility (VOL): Statistical measure of the change in price of a financial currency pair over a given time period.

Please note!
Trading foreign exchange (FOREX) on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You should not invest money that you cannot afford to lose.