You Can be a Successful Forex Trader

Forex Trading Terminology

"if you are going to trade currency, the first thing you must to do is leaern and understand the basic terminology.....you gotta know the lingo.

Common Forex Terms

It is important to understand the basic terminology used in Forex trading. Listed below are brief descriptions of the most common Forex terms that must be understood before you even think about getting involved in currency trading.
Appreciation - When the value of a currency goes up.

Ask - The price that a trader is willing to pay. Normally this is the lowest price a seller will accept in order to sell.

Base currency - The currency that is being bought or sold. An example in a trade of USDJPY the base currency is the USD.

Bear - Trader that expects that a given currency price will go down. Bears are sellers.

Bid - The price that a trader is willing to buy at. Normally is the highest price a purchaser is willing to pay.

Bid/Ask - The Bid is the price that you can sell at. The Ask is the price that you can buy at.

Bull - A trader that believes that a market will rise in value. Bulls are buyers.

Cross - Currencies are traded by buying one currency with another. These two currencies result in a cross such as, GDPUSD. Where GDP is purchased with USD.

Cross rate - The price which is calculated from the two other exchange rates. The trade rate price between two currencies which are not the official currencies of the country that the exchange was quoted in. Cross rates most often do not involve the U.S. dollar.

Depreciation/decline - When the value of a currency goes down against other currencies.

Exchange rate - Value of one currency in relation to another, as an example the Canadian dollar might be worth 0.98 USD or 0.64 GDP.

EURUSD - Represents that you trade the EUR against dollars. So if you buy EUR you pay in USD or if you are selling EUR you receive USD.

FX, Forex, Foreign Exchange - These are the common names for the exchange of one currency for another.

Interbank - Short-term, mostly overnight borrowing and lending between banks.

Interest rate differential - The yield spread of two different debt instruments with value determined in different currencies.

Leverage or Gearing - The buyer only pays for part of the transaction and borriows the balance.

Long - When one buys a currency of a particular country.

Long position - A position that will go up in value if the market price increases.

Liquidity - The ability to get out of a trade with a minimum loss. There is enough activity to complete the orders of buyers and sellers.

Margin - The amount of cash in ones account required when entering into a position in order to cover possible losses.

Open position - A position in a currency trade that has been bought but has not yet been sold. The position is closed when the currency is sold.

Over the counter - Transactions that takes place directly between two entities versus thru an exchange.

Pips - A pip is the smallest unit that a Forex cross price varies. When a GBPUSD bid is at 1.4267 and it moves up 2 pips, the quoted price will be 1.4269.

Position - The act of buying or selling currency cross.

Risk - The utilization of a trading strategy to control gains or losses within an acceptable range.

Secondary currency - The currency that the buyer trades the base currency against. Example is that GBP is the base currency in EURGBP.

Short position - A position that goes up in value when the market goes down.

Short - When one sells a currency of a particular country.

Speculative - Buying or selling hoping to make a profit instead of trading for a business related need.

Spot rate - The current price of a currency.

Spread - The difference between the price of the bid and the price of the ask.