What are Definitions of the Most Common terms Used in the Forex Markets?
Ask – the price at which you are willing to sell your currency at.
Bid – the price at which you are willing to buy at currency at.
Broker – a person or company that helps buy/ sell currencies for their customers
Cost of Carry – the amount, in dollars or pips that a person quotes you at in order to hold an open position.
Fundamental Analysis – the act of analysing different economic factors in order to help oneself in the market.
Leverage – is like buying a good on margin. Occurs when you buy a larger percentage of currency then you hold in your hand. For example, if you deposit $100 then wager $5,000. It would be said that you have 50 times leverage since you are wagering 50 times what you actually deposited.
Liquidity – shows how active and functional the market has become. If the market is more liquid then people will receive more prices and smaller spreads.
Margin – funds that must be deposited by users in order to cover the chance that funds could be lost during a transaction. For example, a 2% margin means a person would need $200 if they had $10,000 in the market.
Market Order – buying/ordering currency at a current ask price.
Offer – the rate at which the dealer will sell the currency at. Also known as the Ask.
Pip – the smallest unit in trading currency. For example, if you bought currency at 1.5567 then sold it at 1.5570, you would have increased you value by 3 pips.
Spread – the difference between the bid and the ask price. This distance is measured in pips and on a normal day would only change by about 3 pips.
Stop Loss Order – occurs when there is an order to either buy or sell at the market when there is a specific market price.
Volatility – price changes within the market.