Key terms list

General forex terms:

 

Ask - BUY price for required volume of the Base Currency (standing in the first place) per the Quoted Currency. This is the price of the currency offered by the provider in the market at a certain time.

Bid - SELL price for required volume of the Base Currency per the Quoted Currency, i.e. we buy the currency that on the second place. This is the price of demand in the market at a certain time.

Spread - the difference between Ask and Bid price. The width of the spread can be different for different instruments, also there are accounts with a non-fixed spread, where its width can vary with each quote.

Quote - information about the actual currency rate of the financial instrument in the form of Ask and Bid prices. The quote shows the price change, without being tied to the time axis.

The currency is denoted by the coding proposed by the International Organization for Standardization (ISO): the first two letters denote the country, and the last one is the currency of that country. For example, USD: US – United States (United States), D – Dollar (Dollar).

The base currency is on the first place in the currency pair. The volume of the order is expressed in the base currency.

The quoted currency stands on the second place in the currency pair.

Volatility – an indicator of market activity, which includes the amplitude of fluctuations in the market and the frequency of price changes.

Long Position (Long, Buy) - Buying the Base Currency per Quoted Currency in expectation of a price increase.

Short position (Sell) - sale of the base currency for Quoted currency in expectation of a drop price.

Indirect quote - the ratio of two currencies, where USD is the first place (f.ex.: USD/JPY) Direct quote of currency shows the amount of national currency per item of foreign.

Direct quote - the ratio of the two currencies, where USD is on second place (f. ex.: EUR / USD). The Indirect quote of the currency shows the amount of foreign currency per national item.

Cross rate - the ratio of two currencies, flowing from their rate to the third currency (traditionally to USD). Currency pair where there is no USD (Example: EUR / GBP).

Indicator is a mathematical calculation based on the price and/or volume of securities. The result is used to predict future prices.

MACD indicator - an indicator based on the divergence of the two moving average lines. If the short moving average exceeds the long one and the MACD rises above zero, then it means investors’ expectations are on growing trend.

Moving average - the average price of a financial instrument for a specified period. If the current price is higher than the moving average, then the investors’ expectations are higher than the average level of their expectations. Long-term tendencies are usually monitored using slow moving averages. The disadvantage of MA is some delay in signaling.

Pips (point) - the value of the minimum step when the price changes. The value of one point of a transaction with volume 1 lot is determined by the currency instrument. For example, for an indirect quote the cost per pips is 10USD.

Lot - an item characterizing the volume of the contract for the transaction. One standard lot is considered to be 100,000 items of the Base Currency.

Lock, Hedge is the opening of two opposite positions of the same volume by one financial instrument.

Liquidity - Availability of sellers and buyers (supply and demand). The level of liquidity characterizes the activity of trades.

The leverage - the ratio between borrowed and own funds. Expressed as 1:50, 1:100, 1:200 and 1:500. The 1:100 leverage means you need to have an amount 100 times less than the transaction amount on a broker’s trading account to complete the transaction.

Margin - the amount of hypothecation when a broker provides a loan for trading transactions. The calculation of the margin in USD is made using the form:

(quote × volume) / leverage = margin (USD)

Trendline - refers to analytical data that can characterize the market. The trend line is a straight line that is built around the points of peaks for the bearish trend and minimums points for the bull trend. The visualization of the trend line gives the opportunity to determine the direction and force of the market movement. If the price breaks the trend line, it can serve as a signal for changing the market movement.

Support (Support Level) - the price levels that can influence the future market formation. The support level acts as an obstacle to the further market movement. Support levels indicate the price when most investors count on raising it. A successfully broken support level becomes the resistance one.

Resistance (Resistance Level) - the levels of prices that can influence the future market formation. The support level acts as an obstacle to the further market movement. Resistance levels indicate the price when most investors think it will decline. If the resistance level is successfully broken, it becomes supportive one.

Flat - lateral price movement.

Margin-call - a warning signal notifies the trader that the margin level has fallen to a certain level of 60% (AccentForex).

Stop out - forced closure of the loss-making position by the broker when the margin level drops below 50% (AccentForex).

Equity - the remaining balance on the account, assuming its liquidation at the current market price.

Order - order to broker to open or close a trader’s trades.

Swap - payment for the position transfer next day (prolongation). A swap can be either positive (i.e. added to a trading account) or negative (debited from a trading account). There are triple swaps on Wednesday night.

Stop-loss – a pending order to close a position at the specified price, used to limit losses.

Take Profit - a pending order to close a position at the specified price, used to fix profits.

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