Forex Terms

Especially if you wish to win your love’s heart. You, the newbie, must know certain terms like the back of your hand before making your first trade. Some of these terms you’ve already learned, but it never hurts to do a little review.
Forex Lingo
  • Bid/Ask The Bid or the selling price is the exchange rate at which a currency is offered for sale. The Ask or buying price is the exchange rate at which a currency can be bought.
  • Lot A lot is the standard unit size of a transaction. It represents the minimum quantity which can be traded in any given instrument.
  • Pip This is the smallest value in a currency quote and can be different for different currencies. For most currency pairs a pip is the 1/10,000 (0.0001) fraction of the quoted currency. However, in Japanese yen pairs, a pip refers to a 1/100 (0.01) fraction of the quoted currency.
  • Pipette
    One-tenth of a pip. Some brokers quote fractional pips, or pipettes, for added precision in quoting rates. For example, if EUR/USD moved from 1.32156 to 1.32158, it moved 2 pipettes.
  • Spread This is the difference between the bid price and the ask price. For example: If the quote for the EUR/USD pair is 1.5034/1.5037 (in other words the bid price is 1.5034 and the ask price is 1.5037), then the spread for the EUR/USD in this case is 3 pips. Low spreads ensure that traders can get in and out of their trades at very low slippage.
  • Margin The amount of funds required to open or maintain a position. It is usually expressed as a percentage of the open position. You may have a margin requirement of 0.5%, which would mean that in order to hold a position of 100,000 EUR/USD, an equity level of 500 euros or more must be maintained.
  • Leverage This is the use of borrowed capital to increase potential return. Trading on leveraged capital means that you can trade amounts significantly higher than the balance of your funds, which only serves as the margin. High leverage can significantly increase the potential return, but it can also significantly increase potential losses. The leverage is specified as a ratio, such as 200:1. This means that the trader can trade amounts 200 times higher than the sum in his or her margin account. If the trader has $1,000 in his account, it means that he can now open trades worth $200,000.
  • Long (Buy)A trader going long expects the price to go up when buying a currency pair or a CFD.
  • Short (Sell)A trader going short expects the price to go down when selling a currency pair or a CFD.
  • Rollover Process where the settlement of a deal is rolled forward to another value date and a charge is levied based on the difference in rates of interest of the two currencies. Every day, at 21:00GMT, open positions are rolled over to the next day and the positions gain or lose interest based on the interest differential between the bought and sold currencies.