Forex Terms

In this little glossary you can find explanations for some of the most used terms in Forex.

Term	Explenation
Ask	The price at which a broker is willing to sell (same as Offer) a currency pair. This is the price the trader pays when buying a currency. If the quote for EUR/USD is 1.4000/1.4003, 1.4003 is the Ask price.
Bid	The price at which broker is willing to buy a currency pair. This is the price the trader receives when selling a currency. If the quote for EUR/USD is 1.4000/1.4003, 1.4000 is the Bid price.
Bid/Ask Spread	Or simply Spread. The spread is the difference between the Bid and Ask price. If the quote for EUR/USD is 1.4000/1.4003, the spread is 0.0003 USD (3 pips).
Broker	An individual or firm who handles trader's orders to sell or to buy currency, and charges the customer a commission for the service.
Closing rate	The rate of the last transaction completed of the considered period.
Currency Pairs	Foreign Exchange traders buy one currency while simultaneously selling another. Therefore, Foreign Exchange quotes are expressed in currency pairs. The four major currency pairs are the EUR/USD, GBP/USD, USD/CHF, and USD/JPY. The first currency in the currency pair is the "base currency", while the second is the "quote currency" or "counter currency". For example, in the pair EUR/USD the EUR is the base currency, and the USD is the quote currency.
Currency Pair Price	The price of a currency pair is usually a five digit number, with four digits to the right of the decimal point. In some instances, most usually with the Japanese Yen, currency pairs have only four digits. When, for example, EUR/USD is listed at 1.4000, it means that it takes 1.4000 units of the quote currency (USD) to buy a unit of the base currency (EUR). If the price of the currency pair rises to 1.4050, a trader with a long position (buying EUR against USD) makes a profit, while a trader with a short position (selling EUR against USD) takes a loss.

Term	Explenation
Day Trading	Refers to opening and closing the same position within same day.
Leverage	The ratios between the contract value and the deposit required from trader (margin) to trade. For example, if the trader must deposit $500 to have a $100,000 position (to buy a full Lot), the leverage is 200:1 ($100,000/$500). The inverse value is the percentage margin requirement: in this example 0.5% (0,005 = $500/$100,000).
Long	When a trader buys a currency pair it is called going long. The trader's position will appreciate if the price of the currency pair increases.
Margin	The initial investment needed to open one position, used as collateral to cover the credit risk of the broker/dealer. The percentage of the required margin is inversely related to the leverage.
Opening rate	The rate of the first transaction completed of the considered period.
Pip	An abbreviatian of Percentage In Point. The smallest measure of price move that a given exchange rate can make in Forex trading. For most major currency pairs, one pip equals 1/100th of 1 percent (0.0001). A notable exception is the USD/JPY, in which each pip is 0.01. For instance, if pair EUR/USD moves from 1.4000 to 1.4007, the pair has appreciated seven pips.
Short	When a trader sells a currency pair it is called going short. The trader's position will appreciate if the price of the currency pair decreases.