When you begin a new hobby or even profession, you are certain to come across terminology that you do not comprehend. The problem with not understanding the terminology of the industry, is that it hinders your progress in your chosen field.
I know many people, especially older people, who think that they will never be able to grasp computers, because the terminology sounds like a foreign language. The same can be said for Forex, so I am going to explain my top 20 terms to trade Forex that I think you have to be aware of.
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 normally be the USD, but some set-ups allow the trader to decide
Bear – someone who thinks that the market or position will fall
Bull – someone who thinks that the market or position will rise
Broker – the person who places and deals with the trade for the trader. In FX there are no charges 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 adverse 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-set 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 collateral 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 stated 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 often 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 forecast 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 subjects, but is presently concerned with Forex dealing. If you are interested in dealing with an FX Trading Account, please visit to our web site.