Forex Terminology

Ask (Offer)
The price at which a broker/dealer is willing to sell.

Bid
The price at which a broker/dealer is willing to buy.

Bid/Ask Spread (Spread)
The distance (usually in pips) between the Bid and Ask price. A narrower spread is better for the trader.

Currency correlation
The measure of the linear relationship of 2 currency pairs. This is used to show the value of the currency pair.

Fundamental Analysis
The detailed analysis of economic and political data used to determine future movements in a financial market. This includes a country’s economic condition, monetary policy, and financial figures.

Leverage
Leverage is the use of borrowed capital or financial instruments to increase the potential return of an investment. This is a benefit of the Forex market, but also a risky financial maneuver.

Limit
A limit order is an order to sell at a specified price when the market moves up to that price, or buy at a specified price when the market moves down to that price. Most commonly used to ensure a profit.

Liquidity
Liquidity is the efficiency and cost effectiveness related to trade in a financial market. A more liquid market provides more frequent price quotes at a smaller bid/ask spread. The Forex market is the most liquid market in the world, because of its volume, its use of currencies, and its instantaneous trading capabilities.

Margin
Margin is the amount of funds required in a trading account in order to open a position or to keep an open position. For example, 1% margin means that $2,000 of funds on deposit are required for a $200,000 position.

Margin Call
A Margin Call is the requirement from a broker or dealer for additional funds to raise the margin up to the required level in an account to guarantee performance on a position that has moved against the client.

Market Order
A Market Order is an order to buy or sell a currency pair at the current market price.

Pip (Points)
Pips represent the smallest incremental move an exchange rate can make.

Premium (also called Interest)
The Premium is the amount of points added to the spot price to determine a forward or futures price.

Speculation
Speculation is the process of selecting investments with higher risk in order to profit from an anticipated price movement.
Speculation is a controversial topic among Forex professionals.

Spot
A transaction that occurs immediately, where the funds usually change hands within two days after the deal is struck.

Stop
A Stop Order is an order to sell at the market only when the market moves down to a specific price, or to buy at the market only when the market moves up to a specific price. Most commonly used to prevent a loss.

Technical Analysis
The tools of analysis used to forecast future market activity by analyzing market data such as charts, price trends, and volume.