Glossary of Terms Using in Forex Trading

• Ask Price (Offer): Ask is the market selling price, the price at which the market is prepared to sell a specified Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation, for instance 1.4527-1.4532
• Back-Test: A comparison of historical data to see what results might have been using a specific trading strategy. Since historical data is limited to high, low, open and close on each bar, actual results may differ from back-test results. Profitable back-test results do not guarantee future success.
• Base Currency: The first currency in a Currency Pair. A currency against which the exchange rate is applied. Usually, it stands first in the codes of currency rates. It shows how much the base currency is worth against the second one. For instance, if the USD/CHF rate equals 1.6215, then one USD is worth CHF1.6215.
• Bid Price: Bid is the market buying price, the price at which the market is prepared to buy a specified Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can sell foreign exchange. It is shown in the left side of the quotation, for example:1.4527- 1.4532
• Bid Figure Quote: A currency rate without the last two digits. Examples: USD/JPY rate of 122.05/122.10, the big figure is 122. EUR/USD rate of 0.9325/0.9330, the big figure is 0.93.
• Buy Limit: An order set to execute a buy if the Ask price comes down to or below the entry price.
• Buy Stop: An order set to execute a buy if the Ask price comes up to or above the entry price.
• Cash Settled: The closing out of currency contracts with the exchange of cash based upon the difference in the value of when the position was opened and the value of when it is closed, rather than the delivery of currency.
• Closed Position: Exposures in Foreign Currencies that no longer exist. The process of closing a position is the selling or buying a certain amount of currency to offset an equal amount of open positions. This will "square" the open position.
• Commission: The fee levied by an institution to undertake a trade.
• Contract: An Over The Counter (OTC) agreement between the broker and Customer to buy or sell Currency.
• Counter Currency: The second listed Currency in a Currency Pair.
• Cross Currency Pairs: A foreign exchange transaction in which one Foreign Currency is traded against a second Foreign Currency.
• Cross Rate: An exchange rate between two non-US currencies.
• Currency symbols: AUD - Australian Dollar, CAD - Canadian Dollar,EUR– Euro,
• JPY - Japanese Yen, GBP - British Pound, and CHF - Swiss Franc.
• Currency Trading: The act of exchanging the legal tender of one country for another.
• Currency Pair: The two currencies that make up a foreign exchange rate. IE: USD/CHF.
• Daily Cut-Off: The point in time for each Business Day selected by a broker to signify the End of the Business Day.
• Delivery Cut-Off: The point in time that signifies the end of the Trade Date. The Trade Date of any Contract entered into after the Daily Cut-off shall be the next Business Day. The Daily Cut-off will occur at 5 p.m. Eastern time (2 p.m. Pacific time).
• Demo Trading: Free interactive online demonstration sub-system of the actual broker system available to potential customers.
• Equity: The amount currently held in a customer's account calculated as if all the opened positions will be closed at the current market quotes. The account is comprised of Unrealized gains, less Unrealized Losses and plus or minus storage.
• Expert Advisor: The Expert Advisor allows traders to automate their trading strategies. Once the strategy is programmed, traders can either use it as a prompt to initiate the trade or can set it to trade automatically.
• Fair Market Value: The price for a financial instrument that is determined in an open market environment between a willing buyer and seller.
• Filled Trade: A trade that is fully executed on behalf of a Customer's Account pursuant to an Order. Once filled, an Order cannot be cancelled, amended or waived by Customer.
• Floating Profit/Loss: Unrealized profit (loss) in an open position.
• Foreign Exchange Contract: A Spot Contract for the purchase or sale of a Foreign Currency.
• Foreign Exchange Rate: The price relationships between two currencies that are freely determined by the forces of supply and demand.
• Fundamental Analysis: Analysis based on economic and political factors (see Technical Analysis).
• Initial Margin Requirement: Also known as 'Opening Margin Requirement'. The minimum Margin required to establish a new Open Position.
• Leverage: The ratio of the amount used in a transaction to the required security deposit (margin).
• Limit Order: An order to buy or sell Foreign Currency, or pairs of Currencies, at a specified price or exchange rate. A Limit Order to buy generally will be executed when the ask price equals or falls below the price or exchange rate specified in the Limit Order. A Limit Order to sell generally will be executed when the bid price equals or exceeds the price or exchange rate specified in the Limit Order. Customers should note, however, that market conditions may often prevent execution of an individual Customer's Limit Order despite other dealing activity at that price level.
• Long Position: In foreign exchange trading, when the base currency in the pair is bought, the position is said to be long in that currency. It is understood that when the base currency in the pair is 'long', the second currency will be 'short'.
• Lot: A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.
• Margin: The amount of cash or other Eligible Collateral that a broker requires a Customer to deposit or maintain in the Customer's Account in connection with the Customer's trading activity.
• Margin Call: A demand for the deposit of additional Margin as described in Customer Agreement.
• Market Order: An order to buy or sell the identified currency, or pairs of currencies, at the current market price. An order to buy is executed at the ask price; and order to sell is executed at the bid price.
• Market Quote: The current quote of a currency pair.
• Open Position: Any deal that has not been offset by an equal and opposite deal.
• Overnight Position: Trader's open long or short position that is not closed by the end of a trading day.
• Order: Generally, an instruction by a Customer (or Customer's authorized agent) to a broker to attempt to execute a trade for Customer's Account.
• Over the Counter: OTC: Off-exchange markets in which market participants, such as a broker and the customer, enter into privately negotiated Contracts or other transactions directly with each other.
• PIP/Point: The smallest unit of price for any Foreign Currency (e.g., for USD/CHF one point (or pip) equals .0001 Swiss Francs and for USD/JPY one point (or pip) equals 0.01 Japanese Yen).
• Posted Margin: That part of the Margin Balance that is posted to the brokerage account in support of the Customer's Open Position and Unrealized Losses.
• Profit/Loss: P/L or Gain/Loss: The actual gain or loss in U.S. Dollars resulting from trading activities on Closed Positions, plus the theoretical gain or loss on Open Positions that have been Marked to Market.
• Quote: A simultaneous bid and offer in a currency pair.
• Realized Gain/Loss: The actual gain or loss resulting from closing an Open Position.
• Required Margin: A sum equal to the greater of the Initial Margin Requirement or the Initial Margin Requirement less Unrealized Losses and storage, plus Unrealized Gains, provided it is not less than 30% of the Initial Margin Required.
• Sell Limit: An order set to execute a sell if the Bid price comes up to or above the entry price.
• Sell Stop: An order set to execute a sell if the Bid price comes down to or below the entry price.
• Short Position: Selling a currency in which you have no position in anticipation of it falling in value. At that point you will be able to 'cover' your short by buying back the currency at a lower price. (If physical delivery of the currency is involved, the short seller will need to borrow the currency in order to make the delivery to the buyer). In foreign exchange, when the base currency in the pair is sold, the position is said to be short in that currency. It is understood that when the base currency in the pair is 'short', the second currency will be 'long'.
• Rollovers: The process of extending an existing market position through one or more Spot Settlements.
• Spread: The difference between the ask (offer) and bid price in a market quote. The spread is the reason why a newly opened position's mark to market, or valuation, will likely be negative. If a trader buys a particular currency she will pay the ask (offer) price, but the current mark to market will be based upon what the marketplace is presently paying for this currency. That price would be found on the bid side of the market quote, Competitive lower than where she just bought the currency.
• Stop/Loss Order: An order to buy or sell at a specified Foreign Exchange Rate away from the current market for the purpose of liquidating an Open Position during market conditions in which the Open Position has declined in value. Execution of such an order can occur at rates below (or above) the specified Foreign Exchange Rate.
• Take Profit: The level at which you wish to close a position in order to realize profits.
• Technical Analysis: Analysis of market price action. Technical analysis studies historical price changes with the aim to forecast future price movements. By studying price charts and a host of supporting technical indicators, we in effect let the market tell us which way it is most likely to trend. The whole purpose of charting the price action of a market is to identify trends in the early stages of their development and then trade in the direction of those trends. One of the two types of analysis used to analyze the currency market (see Fundamental Analysis).
• Trailing Stop: A complex stop-loss order in which the stop loss price is set at some fixed percentage below the market price. If the market price rises, the stop loss price rises proportionately, but if the stock price falls, the stop loss price doesn't change. This technique allows an investor to set a limit on the maximum possible loss without setting a limit on the maximum possible gain, and without requiring paying attention to the investment on an ongoing basis.
• Used Margin: The amount in the client's account required to support all the current positions.
• Volume: The number of times the price changed on a previous bar or the number of times the price has changed on the current bar.

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