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Written by Admin
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Tuesday, 14 July 2009 16:15 |
Forex Definitions and TermsAsk: Price at which broker/dealer is willing to sell. Same
as "Offer".
Bid: Price at which broker/dealer is willing to buy.
Bid/Ask Spread (or "Spread"): The distance, usually in
pips, between the Bid and Ask price. A tighter spread is
better for the trader.
Take Profit: Position at which your trade will close at a
profit.
Stop Loss: Position at which your trade will close at a Loss
(Protect your account from further losses)
Trailing Stop: A moving Stop that trails your winning
position. (e.g. trade is +50 pips Trailing Stop is set to “40”
+10 pips profit is locked in)
Cost of Carry (also "Interest" or "Premium"): The cost,
often quoted in terms of dollars or pips per day, of holding
an open position.
Currency Futures: Futures contracts traded on an
exchange, most typically the Chicago Mercantile Exchange
("CME"). Always quoted in terms of the currency value with
respect to the US Dollar. Parameters of the futures contract
are standardized by the exchange.
Drawdown: The magnitude of a decline in account value,
either in percentage or dollar terms, as measured from peak
to subsequent trough. For example, if a trader's account
increased in value from $10,000 to $20,000, then dropped
to $15,000, then increased again to $25,000, that trader
would have had a maximum drawdown of $5,000 (incurred
when the account declined from $20,000 to $15,000) even
though that trader's account was never in a loss position
from inception.
Fundamental Analysis: Macro or strategic assessments of
where a currency should be trading based on any criteria
but the price action itself. These criteria often include the
economic condition of the country that the currency
represents, monetary policy, and other "fundamental"
elements.
Leverage: The amount, expressed as a multiple, by which
the notional amount traded exceeds the margin required to
trade. For example, if the notional amount traded (also
referred to as "lot size" or "contract value") is $100,000
dollars and the required margin is $2,000, the trader can
trade with 50 times leverage ($100,000/$2,000).
Limit: An order to buy at a specified price when the market
moves down to that price, or to sell at a specified price
when the market moves up to that price.
Liquidity: A function of volume and activity in a market. It
is the efficiency and cost effectiveness with which positions
can be traded and orders executed. A more liquid market
will provide more frequent price quotes at a smaller bid/ask
spread.
Margin: The amount of funds required in a clients account
in order to open a position or to maintain an open position.
For example, 1% margin means that $1,000 of funds on
deposit are required for a $100,000 position.
Margin Call: A requirement by the broker to deposit more
funds in order to maintain an open position. Sometimes a
"margin call" means that the position which does not have
sufficient funds on deposit will simply be closed out by the
broker. This procedure allows the client to avoid further
losses or a debit account balance.
Market Order: An order to buy at the current Ask price.
Offer: Price at which broker/dealer is willing to sell. Same
as "Ask".
Pip: The smallest price increment in a currency. Often
referred to as "ticks" in the futures markets. For example,
in EURUSD, a move from .9015 to .9016 is one pip. In
USDJPY, a move from 128.51 to 128.52 is one pip.
Premium (also "Interest" or "Cost of Carry"): The cost,
often quoted in terms of dollars or pips per day, of holding
an open position.
Spot Foreign Exchange: Often referred to as the
"interbank" market. Refers to currencies traded between
two counterparties, often major banks. Spot Foreign
Exchange is generally traded on margin and is the primary
market that this website is focused on. Generally more
liquid and widely traded than currency futures, particularly
by institutions and professional money managers.
Stop: An order to buy at the market only when the market
moves up to a specific price, or to sell at the market only
when the market moves down to a specific price.
Technical Analysis: Analysis applied to the price action of
the market to develop trading decisions, irrespective of
fundamental factors.
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Last Updated on Tuesday, 14 July 2009 16:16 |
Forex Glossary
