Most Used Terms In Forex Markets
Ask Price or BUY PRICE or offer price
The ask price (right quote display) is the price at which traders can buy the base currency. If you think that the EUR value will increase then you can choose to buy it for USD at the price displayed in the ask quote. See also Bid Price
Base Currency
The base currency is the first currency listed in any currency pair. Its value is determined against the counter currency’s value. For example, if the rate of the EUR/USD pair is 1.3525, then the EUR is the base currency and it is worth 1.3525 USD. See also Counter Currency, Currency Pair, Rate
Bear
A Bear market is a pessimistic market with declining prices. See also Bull
Bid Price or Sell Price
The bid price (left quote display) is the price at which traders can sell the base currency. If you think that the EUR value will decrease then you can choose to sell it for USD at the price displayed in the bid quote. See also Ask Price
Bull
A Bull market is an optimistic market with rising prices. See also Bear
Cable
Also known as Sterling. Dealer slang for the GPB/USD currency pair. See also Currency Pair, Counter Currency
Counter Currency
The counter currency is the second currency in any currency pair. Its value is determined against the base currency’s value. For example, in the following currency pair EUR/USD, the counter currency is USD. See also Base Currency
Cross Rate
A price quote consisting of any currency quoted against a currency that is not the USD. The quote is made up of the individual exchange rates of the two currencies against the USD.
Currency Pair
The two currencies that the exchange rate is comprised of. One of the currencies is bought, and the other is sold at the same time. See also Base Currency, Counter Currency
Day Trading
The practice of opening and closing positions within the same trading day, so that at the end of the day the trader has no open positions.
Fed
The Fed is short for Federal Reserve, which is the central banking system of the United States. The Fed issues announcements regarding U.S. monetary policy which can have significant effect on the Forex market. See also Fundamental Analysis
Forex
Forex, or FX, stands for Foreign Exchange. Forex is the simultaneous buying of one currency and selling of another. Since you purchase money with money, there are two transactions (buying and selling) happening at the same time.
Fundamental Analysis
This type of analysis focuses on the macroeconomic factors that influence the value of a country’s currency. Traders open positions based on how they think changes in these factors are bound to affect different economies. See also Technical Analysis
Hedging
The practice of opening several positions at once where one position minimizes the risk of another position. See also Leverage, Margin
Investment Network
An online network that facilitates the sharing of information between private retail investors. Investment networks have varying features that mostly focus on enabling traders to analyze the shared information and to apply it to their own account. See also Social Trading
Leverage
Leverage is a loan from your broker, which enables you to trade with a small amount of capital. It can increase your potential profit, but it can also increase See also Margin
Long Position
Going long means opening a position in which the trader buys currency in hopes that this currency’s value will increase (buy low, sell high). See also Short Position
Lot
The standard unit of trading. One standard lot equals 100,000 units of the base currency, a mini lot equals 10,000 units, and a micro lot equals 1,000 units. eToro’s standard trade volume is the mini lot. See also Leverage
Margin
The minimal cash deposit that you have to put up for the transaction. Trading Forex on margin increases your buying power, but it can also increase your losses. See also Leverage
Mirror Trading
A form of trading made popular in the early 2000s, whereby an investor selects a trading strategy, based on either automated algorithms or human traders, and then has the broker set his/her account to copy or “mirror” the trades suggested by the algorithm or executed by the mirrored trader. See also Copy Trading
Oil Trading
The activity of buying or selling holdings in the oil commodity market, known for its volatility and close reflection of political events. Oil is traded in barrels against the USD currency. See also Silver Trading, Gold Trading
Pip or Point
Pip is the smallest price increment in the last digit in the rate – usually the fourth digit after the decimal point.
Price Trend
A consistent movement of currency prices in a certain direction. Traders try to spot trends in order to capitalize on their potential. See also Fundamental Analysis, Technical Analysis
Rate
Rate or quote, is the price of one currency in terms of another.
Risk Capital
The amount of money that a trader can afford to risk, the potential loss of which would not affect their lifestyle. See also Leverage, Margin, Hedging
Risk Management
A strategy aimed at minimizing the investor’s exposure to market volatility while still attempting to maximize profit potential. Risk management usually involves using low leverages, opening long term positions, and portfolio diversification.
Short Position
Going short means opening a position in which the trader sells currency in hopes that this currency’s value will decrease (sell high, buy low). See also Long Position
Spread
The spread is the difference between the bid price and the ask price. See also Bid Price, Ask Price
Stop Loss
A trade order which automatically closes an open position at a specific price in order to prevent losses in case the market moves against your position. See also Take Profit
Take Profit
A trade order which automatically closes an open position at a specific price realizing a specific amount of profit. Use this order to realize your gains. See also Stop Loss
Virtual Balance
Your current potential account balance that can be realized by closing all your open trades. For example, if your actual account balance is $525 and you have an open trade for $50 with a $25 profit, your virtual account balance will show $600.
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