General Terminology Glossary

 

General Terminology

phrasemeaning
SYMBOLSare signs which are present in the markets. For example AAPL is symbol for Apple and EURUSD is used for EURO USDollar pair
PRICEshows the symbol current value
Bid PRICEis the price used for SELL a symbol
Ask PRICEis the price used to BUY a symbol
SPREADis the price difference between ask and bid
TRADEis the action of buying or selling a symbol in the Forex market
TRADERis the one who trade on the markets like CFDs, Futures, Forex
BUYis the option to purchase a symbol on the market
SELLis used to sell a symbol on the market *Consider that the term “sell” do not refer to sell a possessed asset or symbol, simply it is an option to take profite from decreasing a value of symbol
Closeis the option to exit from a position

Terminalogy of ORDER TYPE

phrasemeaning
SYMBOLSare signs which are present in the markets. For example AAPL is symbol for Apple and EURUSD is used for EURO USDollar pair
PRICEshows the symbol current value

Types of pending orders

phrasemeaning
Buy StopThis type is used when you want to buy a symbol at a higher price of the current value. For example, the current price of EURUSD is 1.1250 and you want to buy the symbol at 1.1300.
Buy LimitThis option is used when you want to buy a symbol at a lower price. For example, the price of oil is 60 USD and you want to buy when the price decreased to 55 USD.
Sell StopIf you want to sell a symbol on a lower price than current price you can set up this order.
Sell limitIf you want to sell a symbol on a higher price you can set up this order
phrasemeaning
Order priceThis is the price that you have to specify when the market reaches that price your order will be executed
PositionA forex position is the amount of a currency which is owned by an individual or entity who then has exposure to the movements of the currency against other currencies. The position can be either short or long.
VolumeVolume is the sum total of all your trades included in the exchange rate. A volume is an indicator that Forex brokers use to determine the size of a customer.
Stop LossStop-loss orders are placed by traders either to limit risk or to protect a portion of existing profits in a trading position.
Take profitThis is a type of pending order that is placed to close a profitable position once the market reaches a specific price.
MarginMargin is the amount of money that a trader needs to put forward in order to open a trade. When trading forex on margin, you only need to pay a percentage of the full value of the position to open a trade
EquityEquity refers to the amount of money a trader has in their trading account (i.e. their Balance) plus or minus any profit or loss from open positions.
Free MarginFree Margin is the money in a trading account that is available for trading. To calculate Free Margin, you must subtract the margin of your open positions from your Equity. In other words: Free margin = Equity – margin
Margin LevelIt is the ratio of your Equity to the Used Margin of your open positions, indicated as a percentage. (Equity/Used Margin) *100
Margin Call LevelIn forex trading, the Margin Call Level is when the Margin Level has reached a specific level or threshold. When this threshold is reached, you are in danger of the POSSIBILITY of having some or all of your positions forcibly closed.
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Glossary

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Currency Pairs

A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.

Currency pairs compare the value of one currency to another—the base currency (or the first one) versus the second or the quote currency. It indicates how much of the quote currency is needed to purchase one unit of the base currency. Currencies are identified by an ISO currency code, or the three-letter alphabetic code they are associated with on the international market. So, for the U.S. dollar, the ISO code would be USD.

Understanding Currency Pairs 

Trading currency pairs is conducted in the foreign exchange market, also known as the forex market. It is the largest and most liquid market in the financial world. This market allows for the buying, selling, exchanging, and speculation of currencies. It also enables the conversion of currencies for international trade and investment. The forex market is open 24 hours a day, five days a week (including most holidays), and sees a huge amount of trading volume.2

All forex trades involve the simultaneous purchase of one currency and sale of another, but the currency pair itself can be thought of as a single unit—an instrument that is bought or sold. When you buy a currency pair from a forex broker, you buy the base currency and sell the quote currency. Conversely, when you sell the currency pair, you sell the base currency and receive the quote currency.

Currency pairs are quoted based on their bid (buy) and ask prices (sell). The bid price is the price that the forex broker will buy the base currency from you in exchange for the quote or counter currency. The ask—also called the offer—is the price that the broker will sell you the base currency in exchange for the quote or counter currency.

When trading currencies, you’re selling one currency to buy another. Conversely, when trading commodities or stocks, you’re using cash to buy a unit of that commodity or a number of shares of a particular stock. Economic data relating to currency pairs, such as interest rates and economic growth or gross domestic product (GDP), affect the prices of a trading pair.

Major Currency Pairs

A widely traded currency pair is the euro against the U.S. dollar or shown as EUR/USD. In fact, it is the most liquid currency pair in the world because it is the most heavily traded.1 The quotation EUR/USD = 1.2500 means that one euro is exchanged for 1.2500 U.S. dollars. In this case, EUR is the base currency and USD is the quote currency (counter currency). This means that 1 euro can be exchanged for 1.25 U.S. dollars. Another way of looking at this is that it will cost you $125 to buy 100 euros.

There are as many currency pairs as there are currencies in the world. The total number of currency pairs that exist changes as currencies come and go. All currency pairs are categorized according to the volume that is traded on a daily basis for a pair.

The currencies that trade the most volume against the U.S. dollar are referred to as the major currencies, which include:

  • EUR/USD or the Euro vs. the U.S. dollar
  • USD/JPY or dollar vs. the Japanese yen
  • GBP/USD or the British pound vs. the dollar
  • USD/CHF or the Swiss franc vs. the dollar
  • AUD/USD or the Australian dollar vs. the U.S. dollar
  • USD/CAD or the Canadian dollar vs. the U.S. dollar

The final two currency pairs are known as commodity currencies because both Canada and Australia are rich in commodities and both countries are affected by their prices. The major currency pairs tend to have the most liquid markets and trade 24 hours a day Monday through Thursday. The currency markets open on Sunday night and close on Friday at 5 p.m. U.S. Eastern time.

Understanding Currency Pairs 

Currency pairs that are not associated with the U.S. dollar are referred to as minor currencies or crosses. These pairs have slightly wider spreads and are not as liquid as the majors, but they are sufficiently liquid markets nonetheless. The crosses that trade the most volume are among the currency pairs in which the individual currencies are also majors. Some examples of crosses include the EUR/GBP, GBP/JPY, and EUR/CHF.

Exotic currency pairs include currencies of emerging markets. These pairs are not as liquid, and the spreads are much wider. An example of an exotic currency pair is the USD/SGD (U.S. dollar/Singapore dollar).