Forex glossary: Terms you need to know to trade forex

ForexNewsNow | Published on November 28, 2010 at 4:30 am

ForexNewsNow – Getting into online forex trading can be confusing at first.  There are a ton of terms and definitions floating around in the currency market trading community, and almost all of them are what traders should understand and use in their own trading.

To help you learn these terms and what they mean, we have created a glossary of key forex terms.

Appreciation
The increase in value of a currency’s fx rate

Ask
The price at which the market sells a currency.  Also known as the ‘offer’. This is the price at which you can buy the currency.

Base Currency
In a currency pair, this is the currency that the other currency is being compared to.  For example, in EUR/USD, the base currency is the euro.  Thus, a rate of 1.500 for EUR/USD means a euro is worth 1.5 dollars.

Bear
Symbol of a down market.  Negative expectations for a market or currency’s value are “bearish”.

Bid
The price at which the market buys a currency. This is the price at which you can sell the currency.

Bull
Symbol of an up market.  Positive expectations for a market or currency’s value or “bullish”.

Carry
How much it costs a trader to hold onto a currency position overnight, due to the difference in interest rates between the two currencies in a pair.  Can also lead to profits.

Chart
The basic, fundamental tool of technical analysis.  A chart tracks the movements of a currency’s value over a period of time.  Types of charts include candlestick, bar, and line, each with its own advantages and disadvantages.

Currency Pair
One base currency and a currency it is being compared to. EUR/USD is the most commonly traded currency pair.

Currency Symbols
The international, three-letter system of identifying a currency. The main symbols are:
EUR: Euro
USD: U.S. Dollar
GBP: U.K. Pound (“Sterling”)
JPY: Japanese Yen
CAD: Canadian Dollar (“Loonie”)
AUS: Australian Dollar (“Aussie”)
NZD: New Zealand Dollar (“Kiwi”)
CHF: Swiss Franc (“Swissy”)

Depreciation
Fall in the value of a currency

Devaluation
Move by a government central bank to lower the value of its currency

ECB
European Central Bank. Central Bank of the European Monetary Union

Federal Reserve
Central bank of the United States. Also known as “The Fed”

Leverage
The ability to control larger amounts of currency than what is invested.  Commonly referred to by ratios, such as 50:1 (50 units of currency for every unit invested)

Margin
Borrowing funds from a broker to buy more currency and gain leverage

Pip
Smallest common unit of change in a currency’s value.  One pip is equal to 1/100th of one percent (at the fourth decimal point).  If a currency is at 1.5000 and moves up to 1.5001, the gain is one pip.  A pip with the yen is at the second decimal place, not the fourth.

Principal
The amount of money invested in a trading account

Range
The difference between the highest point and lowest point of value reached in a trading session by a currency.

Resistance
A technical point at which a currency is expected to receive selling pressure (i.e. the upper limits of a currency’s expected gains)

Spot Price
The current price at which a currency trade is fulfilled within two days

Spread
The difference between the ask and bid price for a currency

Support
A technical point at which a currency is expected to receive buying pressure (i.e. the lower limits of a currency’s expected losses)

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