FOREX GLOSSARY

Arbitrage

The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms.

Ask

Ask is the price at which the dealer will sell the base currency in exchange for the quote currency signifies the 'Ask' is the price at which you will pay for.

Base Currency

The first currency quoted in a currency pair on forex. It is also typically considered the domestic currency or accounting currency. It is sometimes referred to as the "primary currency".

Bid

Bid is the price in which the dealer is willing to pay for the base currency in exchange for the quote currency signifies the 'Bid' is the price at which you will sell.

Broker

An agent who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account.

Currency

A generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade.

Currency Pairs

Two currencies with exchange rates that are traded in the retail forex market. The rates of exchange between foreign currency pairs are calculated as the factor by which a base currency is multiplied to yield an equivalent value or purchasing power of foreign currency.

Decentralized Market

A market structure that consists of a network of various technical devices that enables investors to create a marketplace without a centralized location.

Demo Account

A demo account is typically "funded" with simulated money, which allows the investor to conduct fictitious trades in order to become familiar with the ins and outs of the platform. A trading account that allows an investor to review and test the features of a trading platform before funding the account or placing trades.

Electronic Currency Trading

A method of trading currencies through an online brokerage account. Electronic currency trading involves converting base currency to a foreign currency at the market exchange rates through an online brokerage account

Exchange Rate

The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another.

Foreign Exchange Market

The market in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The forex market is considered to be the largest financial market in the world.

Forex

The market in which currencies are traded. The forex market is the largest, most liquid market in the world with an average traded value that exceeds $4 trillion per day and includes all of the currencies in the world.

Forex Broker

Firms that provide currency traders with access to a trading platform that allows them to buy and sell foreign currencies. A currency trading broker, also known as a retail forex broker, or forex broker, handles a very small portion of the volume of the overall foreign exchange market.

Forex Market Hours

The hours during which forex market participants are able to buy, sell, exchange and speculate on currencies. The forex market is open 24 hours a day, five days a week.

Inflation

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

ISO

The world's largest developer and published of international standards. The ISO is a network of the national standards institutes of 163 countries, coordinated by a Central Secretariat in Geneva.

ISO Currency Code

The internationally standardized three-letter abbreviation for a country's currency.

Micro Account

Micro accounts are one of three common types of accounts in forex market trading that investors use when trading currencies; the other two are mini accounts and standard accounts. This type of account is usually used by beginner traders.

Micro Lot

The equivalent to a contract for 1,000 units of the base currency in a forex trade. The base currency is the first currency in a pair, or the currency that the investors buys or sells. Trading in micro-lots enables traders to trade in small increments.

Mini Lot

A currency trading lot size that is 1/10 the size of the standard lot of 100,000 units. One pip of a currency pair based in U.S. dollars is equal to $1 when trading a mini-lot, compared to $10 for a standard-lot trade. Mini-lots are available to trade if you open a mini-account with a forex dealer.

Monetary Policy

The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates.

Money Supply

The entire quantity of bills, coins, loans, credit and other liquid instruments in a country's economy.

Pips

The smallest price change that a given exchange rate can make.

Quote Currency

The second currency quoted in a currency pair in forex. Also known as the "secondary currency" or "counter currency".

Rollover

A rollover is when you do the following:

  1. Reinvest funds from a mature security into a new issue of the same or a similar security.
  2. Transfer the holdings of one retirement plan to another without suffering tax consequences.
  3. Move a forex position to the following delivery date, in which case the rollover incurs a charge.

Rollover Rate

The net interest return on a currency position held by a trader. In forex, a rollover means that a position is extended at the end of the trading day without settling.

Standard Lot

The equivalent to 100,000 units of the quote currency in a forex trade. A standard lot is similar to trade size. It is one of the three commonly known lot sizes; the other two are mini-lot and micro-lot.

Transaction

The buying or selling of securities resulting from the execution of an order.

Volatility

A measure of the amount by which an asset price is expected to fluctuate over a given period. Normally measured by the annual standard deviation of daily price changes (historic). Can be implied from futures pricing, implied volatility

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