Forex Terminologies

Forex Terminologies

united kingdom

A technique lets a trader define the position that is considered as a loss. Once you have reached that position, the order is closed automatically. The tool may come in handy in case of an unpredictable price movement.

foreign exchange market

The spread can severely cut into your trading profit or loss depending on a number of factors. These include the market you are trading and the type of strategy you are using. Moreover, the lot size has a direct relationship between the pips or movement. If you take 0.01 lot of EURUSD buy trade and make 20 pips of gain, you actually made 2$ profit. For the same trade, if the lot size is 0.10, then the profit will be $20 and for a 1.0 lot size, the profit will be $200. The Ask price is the lowest available price when a trader tries to buy a currency pair.

Option spread definition

This is the indicator that reflects changes in prices at the consumer level. As a beginner trader, it’s important that you get to grips with this terminology as quickly as possible. This is because having a firm understanding of forex jargon can actually make a difference between making and losing money. As price moves up and down price action traders are constantly analyzing the prices movements.

This is always a little higher and has the ‘’ from your broker added into the price. Broker with small spreads, then you can often be paying far too much just to make your trades. This is crucial for you to understand because each market and Forex pair will have hugely varying spreads. This difference is the spread you will pay when making your trades. Pending order means taking a trade on a specific price from where the trade will be executed automatically after hitting the price level. If you open a website of a forex broker, you would see the spread as 1.2 or 1.5.

Share price definition

Contrary to popular belief that a spike can only describe an upward trend, in the world of forex, it has also been used to describe a downward trend. “Rally” references a currency’s recovery in price after a period of either short-term or long-term decline. If an investor has a set price in mind for a forex transaction, he or she can choose to implement a fill or kill order. What this means is that if the order isn’t fulfilled at the exact predetermined price, it is terminated. Closing a position means bringing a transaction to an end, incurring any related profits or losses as a result.

The forex trading and the stock trading, are two of the most popular markets for traders of assets. There is a plethora of terms to keep up with, and you need to understand what they mean in order to trade successfully. In this article, we’ll go over the basic forex trading terminologies that every trader should know. The Forex market is a worldwide market that enables anyone to trade various currencies with the objective of making profits. The basic terminologies of forex can be a tough task to handle for beginners.

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It is an order that closes your trade as soon as it has reached a certain level of profit. When you enter and exit your position, you must always watch the spread in the bid/ask quote. Firstly, it depends on what type of account you open, what the leverage for that particular account type is, and how much leverage you need. Leverage can be used to maximize gains – but also losses, if you are too greedy. Access the global markets instantly with the XM MT4 or MT5 trading platforms. At XM we offer Ultra Low Micro and Ultra Low Standard Accounts that can match the needs of novice and experienced traders with flexible trading conditions.

current market price

When an investor buys a contract for difference, they are betting on the appreciation of one currency against the other. This is a type of trade where the trader agrees to buy and sell the same amount at different prices. This type of trade is based on fluctuations in prices for a certain currency.

Stockbroking definition

If you are enthusiastic about forex trading or you want to take forex trading as a career, you must know all forex terms. Otherwise, it will be hard for you to catch information from the trading platform or indicator. If you choose the EUR/USD pair again, but this time you expect the EUR to weaken as compared to the USD, you will sell the EUR and profit from its decrease in value. Because currency rates change all the time, and you want to know when to buy one currency and when to sell another to make a profitable deal.

Forex (FX): Definition, How to Trade Currencies, and Examples – Investopedia

Forex (FX): Definition, How to Trade Currencies, and Examples.

Posted: Sat, 22 Jul 2017 13:41:44 GMT [source]

If you’re ready to dive into the detail, head over to our other articles to understand more about economic and technical indicators. Also known as a buy stop order, a pending buy order placed above current market price, or sell order below current market price. An advanced trading strategy aimed at profiting from the difference in interest rates on two currencies. For example, a trader will go long on a high interest currency and go short on a lower interest currency to capture the difference in yields. The Bank of International Settlements, located in Basel, Switzerland. The BIS acts as an intermediary for central banks around the world and markets, and can buy currency on behalf of a country in order to avoid direct governmental intervention.

Cable definition

To get this right, the holder of the option pays a premium to the seller (known as the option’s writer). Cross rate – The currency exchange rate between two currencies, both of which are not the official currencies of the country in which the exchange rate quote is given in. This phrase is also sometimes used to refer to currency quotes which do not involve the U.S. dollar, regardless of which country the quote is provided in. Overnight positions refer to open trades that have not been liquidated by the end of the normal trading day and are often found in currency markets. A forex or currency futures contract is an agreement between two parties to deliver a set amount of currency at a set date, called the expiry, in the future. Futures contracts are traded on an exchange for set values of currency and with set expiry dates.


The situations when it goes in the opposite direction to the trade are common. Unlike the bid, Ask is the best possible price tag to sell an asset. As a result, when we say “the ask price”, we mean the lowest cost of the asset a broker is aimed to sell. It is actually the first terminology you will be introduced to when trading for the first time. It means that a trader buys and sells one currency about another. The Forex market is open around the clock and offers traders to profit not only on rising prices, but also on falling ones.

  • Forex — the foreign exchange market is the biggest and the most liquid financial market in the world.
  • It is calculated by taking away the above figures from a company’s total revenue, to give an idea of the profit made before tax and other financial factors are taken into account.
  • DISCLAIMER– Carlos & company is not an investment advisor and can neither advice you on your financial goals nor can it access your risk profile.
  • Currency pairs consist of two currencies – the first one is the base currency and the second one the counter-currency.

Stockbroking is a service which gives retail and institutional investors the opportunity to trade shares. In trading, a rollover is the process of keeping a position open beyond its expiry. Risk management is the process of identifying potential risks in your investment portfolio, and taking steps to mitigate accordingly. PMI stands for purchasing managers index, a useful indicator of health in a particular sector within an economy. In the UK, Markit produce a PMI for the manufacturing, services and construction industries.