There are numerous terms and acronyms used in Forex every single day to describe the movements in the market. On the other hand, other terms are used to describe the basic concepts of Forex trading. No matter what, by understanding the most important Forex trading terms, you can become a better trader.

To help you get started in the market and learn different types of Forex trading terms, we have prepared quick yet very detailed guides on Forex trading terms. Below, you can take a look at some of the most important Forex trading terms every trader should know. When it comes to the most important Forex trading terms, one of the first that comes to mind is Pip. Standing for the Percentage in Point, Forex pip is the smallest possible movement in the price of a currency pair.

For the majority of the currency pairs around the world, pip is the fourth number after the decimal point, meaning 0. However, for the JPY currency pairs, the pip stands for the second number after the decimal point, 0. There also are nano pips available in the market. Nano pip for the majority of pairs equals the fifth number after the decimal point, 0. It means that the price of the currency pair has become 1.

If the price decreased by 2 pips, it would be 1. Understanding how pips in Forex work can be a huge help for every trader. Another very important term in Forex trading is a lot. Simply put, a lot is the size of the position that you open in Forex trading. The standard lot in Forex trading equals , units of a currency pair. In general, there are three types of lots available in Forex trading. They are known to be the most commonly used ones in the market.

There is a standard lot, mini lot, and micro lot in Forex trading. However, in modern Forex trading, there are many different types of lots available. Because of the increased competition in the market, brokers around the world offer traders multiple forms and types of lot sizes. When you are saying that you are trading one lot of a currency, it means that you are trading , units of that currency pair.

Mini lot equals 0. When you are trading Forex, you might have already noticed that there always are two different prices displayed on the trading platform. One of these prices is used to show how much money you would have to pay to buy the asset, while the other indicates the money needed to sell the currency.

In Forex trading, a bid refers to the price that is offered by a buyer for a certain asset. The bid usually represents the maximum amount of money that a trader is willing to pay to buy a certain currency. On the other hand, you have the ask price. The ask price represents the amount of money offered to the buyer of the asset.

The bid is the minimum amount of money that the buyer is willing to take for the currency. Simply put, a bid is a buy price in the Forex trading market, while the ask is the selling price. Spread in Forex trading stands for the difference between the bid and the ask price of a currency pair. Commission The fees that a broker can charge to his clients to take care of the management of their financial wealth on their behalf.

Closed Position A transaction that leaves the trade with a net zero commitment in the market with respect to a particular currency. Day Trading A daily foreign exchange transaction which is a foreign exchange transaction that automatically renews every night at GMT time starting on the day the position was taken until the time it is closed. The transaction ends in one of the following events : 1. Exposure The total amount of money loaned to a borrower or country.

Exotic A currency much less traded on the Forex market. Exchange Rate Risk The potential loss that could be incurred from an unfavorable movement in the exchange rate. Economic Indicator Statistics that shows current economic growth rates and trends like retail sales and employment. FX — Foreign Exchange Foreign currency exchange, Forex. Fundamental Analysis Analysis based on economic and political factors. Forward Rate The rate at which a foreign currency contract is finalized today for settlement of a future specified date and which is decided at the time of entry into the contract.

Forex — Foreign Exchange The abbreviation for foreign currency. Foreign Exchange — Foreign currency exchange The buying or selling of one currency against the sale or purchase of another. Intra Day Position Open positions are used by a dealer during the day.

Interest Rate Risk The potential for losses resulting from changes in interest rates. Inflation Continuous rise in the level of general prices, together with a relative decline in purchasing power. Long A market position where the client has bought a currency that they have not previously owned by betting on the positive rise in the rate against the opposing currency of the pair.

Liquidity The ability of a market to accept large transactions without having a major impact on interest rates. Liquidation — Position closing Any transaction that offsets or closes a previously established position. Limit Order — Reserved Day Trading Deal An order to execute a Day Trading at a rate predefined by the client, when and if such a rate is reached in real market time. Liability In terms of foreign currency, an obligation to provide a counterparty with a quantity of money with respect to a balance sheet standing at a specified future date or with respect to a positively unmatured transaction or position.

Margin Call A request for additional funds to cover positions. Margin 1 Difference between buy and sell rates, also used to indicate the discount or premium between buy or close position.

Marginal Risk The fact that a client loses his position after entering into a futures contract. Market Value The market price of a Forex position is at all times valued on the amount of national currency that could be bought at market rate in exchange for the amount of foreign currency to be delivered under a Forex contract. Offer The rate at which a dealer is willing to sell the currency. Open Position Any transaction that has not been finalized by a physical payment or has not been reversed by an equal and opposite transaction for the same value date.

Option A contract conferring the right but not the obligation to buy call or sell offer a specified quantity of a value at a specified price within a predetermined period of time.

Overnight Limit Long or short position in one or more currencies that a dealer can carry forward to the next business day.

Parities The value of a currency in terms of other currencies. Pip Get the point. Point 1 parts of one percent, normally 10, of any position rate.

Position The total exposure in a given currency. Profit Taking The unfolding of a position for profit. Put Option A placed option confers the right but not the obligation to sell currencies, instruments or futures at the strike price of the option during a predetermined period of time.

Quote An indicative price. The quoted price for the information but not for the transaction. Range The difference between the highest and the lowest price of a futures contract recorded during a given trading session. Rate The price of one currency against others.

It has the same meaning as the limit parities. Resistance A price level at which the sale is expected to occur. Retail Price Index A measure of monthly changes in the average level of retail prices, normally of a defined group of commodities. Revaluation Increase in the exchange rate of a currency due to official action. Risk management Identifying and accepting risks threatening the profitability or existence of a trading account.

Spot Next When a trade made on a given day continues in its position to the next business day. Spot 1 The most common of transactions on the exchange of foreign currencies. Short A market position where the client has sold a currency they do not yet own.

Settlement Date It means the business day indicated for the delivery of currencies bought and sold under a Forex contract. Settlement Actual physical exchange of one currency for other currencies. Selling Rate The rate at which a bank is willing to sell the foreign currency. Spread 1 The difference between supply and demand on the price of a currency. Stop Loss Order Order made to ensure that when a currency weakens to a certain percentage that a short position will be hedged even though this involves taking a loss.

Strike Price Also called strike price. Support Levels A price level at which purchases are expected to take place. Swap Simultaneous buying and selling of the same amount of a given currency on two different dates, versus selling and buying the others.

Technical Analysis The study of the price which reflects the factors of supply and demand of a currency. Technical Correction A price adjustment not based on market movement but on technical factors such as volume and charts.

Tick A minimum change in the price, up or down. Trade Date The date on which a transaction is agreed. Transaction The purchase or sale of securities resulting from the execution of an order. Transaction Date The date on which a transaction is agreed. Transaction Exposure The potential profits and losses generated by current foreign exchange transactions.

Value Date For foreign exchange contracts, the day on which the two contracting parties exchange the currencies that are sold or bought. You can use it to measure the value between two currencies. The minimum pip for the majority of currency pairs is 0.

Another very important term that you should definitely know is a lot , which can be defined as a unit of measurement which is used in Forex to determine the size of the trade.

In Forex, you will most commonly come across three major types of lots, they are standard, mini, and macro lots. A standard lot in Forex equals , USD, a mini lot equals 10, USD, and a macro lot equals 1, USD. Leverage represents one of the biggest and most important parts of Forex trading. There are millions of people who are using leverage every day, but one thing that not many of them understand is that leverage can be very risky.

While it is true that leverage can increase your profits, it also increases the risks of trading. In a sense, leverage is a type of credit that the broker gives you to trade with larger quantities.

If you are using a leverage of , it means that for every 1 dollar, you can trade dollars worth of positions. If you want to access leverage, you will have to first make an initial deposit. This minimum deposit requirement in Forex is shown as a percentage of the entire trading position, it is sometimes also referred to as a margin.

Trade with competitive leverage — XM. We have already discussed the basic Forex terminology that is vital for beginner traders to know. However, there is much more that one should know to be more comfortable while trading Forex. Now, we will move on to explaining the terms that are used to describe the processes within the financial markets. One that every trader should know is the long and short positions. So, say that you have decided to buy a currency pair, it means that you are expecting the currency pair to go up in the near future.

In this case, you will be taking a long position. However, if you choose to sell a currency pair because you are expecting it to decrease in value in the near future, it means that you are taking a short position. Then there are bullish, bearish, and dovish, which are the terms that sometimes confuse some traders. Forex words dictionary frequently refers to the trading strategy that you choose to use. If the market goes bullish, you are more likely to take a long position on a certain currency pair.

On the other hand, if the market is going in a bearish direction, you might prefer to take a short position. To put it simply, a bullish currency pair in Forex refers to the one that is increasing in value, while bearish currency pair refers to the one that is decreasing in value. Bullish markets are upward-moving, whereas bearish markets are downward-moving. If you want to become a successful Forex trader, it is vital for you to understand the way finance works in general.

Learning more about the economic indicators can make the job much easier for you. Below, we will provide you with some of the key economic terms that you, as a trader, should know and remember very well.

Gross Domestic Product, simply known as GDP, is a term that shows the total amount of goods and services produced in the country in a one-year period of time. While this concept is not used to predict market movements in Forex, it is rather important to assess an overall economic climate of a certain country.

This, in turn, could possibly have an impact on the currency that you are planning to trade. Another one that you might come across in Forex market terminology is inflation.

In the world of finance, it is a term that describes the environment where the prices for goods and services increase and the consumer purchasing power decreases.

It is very important to follow this trend because it makes decision-making a little easier. There actually is a special way to track inflation. The Consumer Price Index, also known as CPI, determines the change in the prices that the consumers pay for a variety of goods and services.

This can be used to track the changes in inflation. Even if you are a total Forex beginner, you might have already heard the term interest rate. In Forex vocabulary, you will find currency interest rate as one of the most important factors influencing the Forex market. The interest rate largely depends on inflation. If the inflation goes up, the central bank of the country will decide to increase the interest rates to slow down the growth, if the inflation nears zero and gets to the point of becoming negative, the central bank will decide to lower the interest rates, to keep the market stable.

Understanding Forex definitions can be very important for traders. There are hundreds of terms that can be used to describe different types of movements in the market, while others are used to describe financial events.

Although it is not required to know every single Forex term, it is vital to know the meaning of the most important ones. As a trader, you should take your time to learn more about Forex and build on your existing knowledge.

Many of the terms used are English speaking. As a result, some people may not understand the words used by brokers and others in relation to the Forex market. This lexicon will try to clarify some of your questions about Forex. An agent, who executes orders to buy and sell currencies and related tools for a commission or on a trade. Brokers are agents who work on commission, not directors or agents acting on their own account.

In the foreign exchange market the broker tries to act as an intermediary between banks bringing together buyers and sellers for a commission paid by the originator or by both parties. There are four or five main brokerage operations, by subsidiaries and associates of subsidiaries in many countries. The price of a financial value at which the option buyer recoups his stake, meaning that he is making neither a loss nor a gain. In the case of a call option, the breakeven point is the strike price plus the stake.

The bid is the highest price the seller offers for a particular currency at a specific time. The difference between demand and supply is the spread. Together the two prices constitute a quote, the difference between the two is the spread. The supply-demand spread is reported as a percentage cost to deal in currency exchange Forex. A market in which a price reduction suddenly appears against a background of widespread pessimism opposite of the bull market.

The type of money a country uses. It can be exchanged for other currencies in the forex market, so each currency has a relative value to others. A transaction where the purchase of one security and the sale of another are the same, or the purchase of a security and its sale belong to the same trader.

An agreement to buy or sell for a specified quantity of a particular currency or option during a specified month at a future date see the futures contract. The date by which a change must be provided to fulfill the contractual clauses. For options, the last day on which the option holder can exercise his right to buy or sell a trade value or currency.

The fees that a broker can charge to his clients to take care of the management of their financial wealth on their behalf. A transaction that leaves the trade with a net zero commitment in the market with respect to a particular currency.

The act of taking profits or losing money when stopping a transaction in the Forex market. A daily foreign exchange transaction which is a foreign exchange transaction that automatically renews every night at GMT time starting on the day the position was taken until the time it is closed. The transaction ends in one of the following events :. Fence initiated by you. The daily exchange rate has reached your preset Stop-Loss rate.

On the date of the end of the transaction chosen by you. As long as the transaction is open, it is charged with renewal commissions every night at GMT. The total amount of money loaned to a borrower or country. Banks have placed rules to prevent overexposure to any single borrower.

In trading operations, it is the potential to run a profit or a loss from fluctuations in market prices. The rate at which a foreign currency contract is finalized today for settlement of a future specified date and which is decided at the time of entry into the contract.

The decision to subtract or add points is determined by the difference between the security deposit rate for the two currencies involved in the transaction. The base currency with a higher interest rate will be deducted from the quoted currency by a lower interest rate in the market at its term. At the end of the transaction, the forward points are subtracted from the purchase rate.

Likewise, the currency on purchase with a lower interest rate will be calculated, and the forward points are added to the starting rate to obtain the forward rate. Open positions are used by a dealer during the day. Usually closed at the end of the day in the Forex market. There is no financial exchange of the amount invested at the base.

The principal amount is notional as at the end of the tenure finance only gross margins related to the interest payments whether paid or received are exchanged. Continuous rise in the level of general prices, together with a relative decline in purchasing power. Sometimes referred to as excessive movement in such price points. A market position where the client has bought a currency that they have not previously owned by betting on the positive rise in the rate against the opposing currency of the pair.

The ability of a market to accept large transactions without having a major impact on interest rates. An order to execute a Day Trading at a rate predefined by the client, when and if such a rate is reached in real market time. The limit rate is higher than the rate existing at the time of booking. The reservation order lasts for a period defined by the customer, and is associated by the collateral values necessary to facilitate the potential monetary transaction of the day, when and if activated, under the predefined conditions.

In terms of foreign currency, an obligation to provide a counterparty with a quantity of money with respect to a balance sheet standing at a specified future date or with respect to a positively unmatured transaction or position. The fact that a client loses his position after entering into a futures contract. In such an event the issuer must close the commitment running the risk of having to pay the movement of the margin on the contract. The market price of a Forex position is at all times valued on the amount of national currency that could be bought at market rate in exchange for the amount of foreign currency to be delivered under a Forex contract.

Any transaction that has not been finalized by a physical payment or has not been reversed by an equal and opposite transaction for the same value date. It can be termed as high risk and high return proposition. A contract conferring the right but not the obligation to buy call or sell offer a specified quantity of a value at a specified price within a predetermined period of time. Long or short position in one or more currencies that a dealer can carry forward to the next business day.

Exceeding the next business day time zone reserve reduces the need for dealers to maintain these exposures unchecked. The movement of exchange rates are usually in terms of points. The total exposure in a given currency. A position can be flat or at right angles no exposure , long, more money bought than sold , or short more money sold than bought.

A placed option confers the right but not the obligation to sell currencies, instruments or futures at the strike price of the option during a predetermined period of time. The difference between the highest and the lowest price of a futures contract recorded during a given trading session. A measure of monthly changes in the average level of retail prices, normally of a defined group of commodities.

Identifying and accepting risks threatening the profitability or existence of a trading account. With regard to foreign currencies this involves consideration between the market, the manager, the country, the transfers, the delivery, the credit, and the risk of the counterparty.

A market position where the client has sold a currency they do not yet own. Usually expressed in basic currency terms. It means the business day indicated for the delivery of currencies bought and sold under a Forex contract.

Order made to ensure that when a currency weakens to a certain percentage that a short position will be hedged even though this involves taking a loss. Profit-taking orders are less common. Also called strike price.

The price at which an option holder can buy or sell the base instrument. Simultaneous buying and selling of the same amount of a given currency on two different dates, versus selling and buying the others. An exchange can be an exchange for a better currency. Essentially, swapping is somewhat similar to borrowing one currency and lending another for the same period. However, any rate of return or cost of funds is expressed as the price differential between the two transactions.

The study of the price which reflects the factors of supply and demand of a currency. Common methods are flags, trend lines, dips, rises, pennants, patterns, and dips. A price adjustment not based on market movement but on technical factors such as volume and charts. For foreign exchange contracts, the day on which the two contracting parties exchange the currencies that are sold or bought.

For a spot transaction, this is two forward days in the country of the bank providing the odds that determine the date of the spot value. The only exception to this general rule is the quotation center spot day coinciding with a bank holiday in the country or countries of the currency s. The value date then moves one day longer. The claimant is the party who must ensure that their spot day coincides with the day applied by the respondent.

The term months must fall on the corresponding date of the relevant calendar month. If the date of a month falls on a non-working day in one of the centers, the operational date will then be postponed to the next working day common to both centers. Adjusting the due date for a particular month does not affect other due dates which will continue to fall on the original corresponding date if they meet the open day condition.

If the last spot date falls on the last business day of a month, the forward dates will correspond to that date, expiring on the last business day. Also called due date. Funds required to be deposited by a client when a price movement has caused funds to fall below the stipulated percentage of the contract value.

A measure of the amount by which an asset price is expected to fluctuate over a period of time. In principle measured by the annual standard deviation of daily historical price changes.

It can be implied in the pricing of futures contracts, implied volatility. A day when the banks of a major currency financial center are open. For FX transactions, a business day only occurs if the bank of both centers All relevant currency centers in the case of a crossover is open. Or, from Sunday p. to Friday p. Paris time. Find an answer to these questions here by simply locating the first letter of the word you are looking for.

Simultaneous buying and selling of the same amount of a given currency on two different dates, versus selling and buying the others. On the date of the end of the transaction chosen by you. Swaps can be be negative or positive. When you are using leverage, you are borrowing a certain amount of money to open your positions. RECENT ARTICLES. There are many terms in Forex that are absolutely vital to know so that you can understand the ongoing events in the market better. The interest rate largely depends on inflation.

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