– Overnight Position – This refers to the Forex trader’s position, either long or short, in a currency by the end of the trading day.

– Pip – smallest unit of price for all currencies. For almost all currency pairs, one pip is equivalent to 0.0001.

– Price Transparency – Refers to the market’s capability to deal or see at the same price.

– Principal Value – This refers to the original invested amount of a client.

– Quote convention – the convention in Forex markets is that the exchange rates can be expressed in the following format: base currency/quote currency; implies: bid price/ask price

– Quote currency – the second currency in any pair of currencies. Usually called “pip currency” or “counter currency.” Any profit or loss that is unrecognized is expressed in terms of quote currency

– Risk – The risk that the value of the exchange rate on a foreign currency will move against the investor’s position resulting in the reduction of the investment value. Also called “foreign exchange risk”

– Risk Management – the use of financial analysis and other trading strategies to lessen and/or control exposure to financial risk.

– Roll-Over – A term which refers to the process of moving the date of the settlement value from an open position forward to the next valid settlement value date.

– Short – In foreign exchange, this refers to the primary currency when a currency pair is sold.

– Sterling – Another term for the British Pound.

– Stop Order – order to buy or sell a currency when the currency’s given price has reached or passed a particular level to liquidate part or all of an existing position.

– Swap – Refers to a transaction, which changes the maturity date of an open position and moves it to a future date.

– Take Profit Order – A customer’s order to buy or sell a currency pair, which would result in the size of the existing position being reduced and display a profit on the said position when executed.

– Tick – refers to the smallest possible change in a price. Could either be up (called uptick) or down (called downtick).

– Tomorrow Next (Tom/Next) – Refers to the process wherein the date of an open position’s settlement value will be moved forward from one trading day after the date of the trade (referred to as “tomorrow”) to the next valid value date (referred to as “next”), which is now the spot value date. Also called T/N or T/N Roll

– Transaction cost – the bid/ask spread is also the transaction cost for a trade that is round-turn. Round-turn means both a buy trade and an offsetting sell trade or a sell trade and an offsetting buy trade of similar size in the same currency pair. Transaction cost can be calculated by the following formula: transaction cost = ask price – bid price

– Transaction Date – refers to the date on which a transaction occurs.

– Turnover – a term which describes the overall volume of all the transactions that have been carried out in a given period of time.

– Two-Way Price – a quote that indicates a bid price and an ask price.

– X – A Nasdaq stock symbol symbolizing that the said stock is a mutual fund.

– Yard – a slang term in Forex language and used in the currency industry to mean “billion.”

– Jobber – Refers to a Forex trader who engages in small, short-term transactions during the duration of a trading session. The transactions are severely short-term that a jobber rarely carries a position overnight.

– K – Nasdaq stock symbol, which symbolizes that the stock has no right to vote

– Kiwi – slang term referring to the New Zealand dollar.

– Leverage – it is the relative amount of the amount capital employed in an operation or transaction to the necessary margin or security amount deposit. It is the ability to direct great quantities of dollars while using up only a moderately small amount of capital. Leveraging ranges from 2:1 ratio to 400:1.

– Limit Order – Refers to an order to carry out a transaction at a limit or better. The limit is the specified price. A limit order to buy would begin at the limit or downward, while a limit order to sell would begin at the limit or upward.

– Liquidity – A term which describes the relationship between price movements and the size of a transaction. A market is said to be “liquid” if it can handle and execute large transactions by utilizing considerably small price changes only.

– Long – In Forex, this term refers to the primary currency when a currency pair is bought.

– Maintenance – refers to a set minimum margin

– Major currency – a currency included among the eight most traded currencies. These eight most traded currencies are:

USD – US Dollar

EUR – Euro

JPY – Japanese Yen

GBP – British Pound

CHF – Swiss Franc

CAD – Canadian Dollar

NZD – New Zealand Dollar

AUD – Australian Dollar

– Margin – the amount of money necessary to be in the margin account of the customer for him to be able to maintain a position. Opening a new margin account with a Forex agent or spot market broker implies a deposit of a particular minimum amount with that said broker. This minimum amount varies greatly, depending on the broker, and can range from 100 U.S. dollars to 100,000 U.S. dollars. Every time you implement a new trade, a specific percentage of the balance in the margin account will be reserved as the “initial margin requirement” for the newly-implemented trade established upon the original currency pair, the current price of that pair, and the lot size, which refers to the number of lots or units traded. The base currency is also the lot size.

– Margin Account – The customer’s account that allows borrowing on currencies already existing in the said account and leverage purchasing on credit. These privileges are subject to the standards set by the establishment carrying the account. An interest is imposed upon the customer for any borrowed funds and only when the loan is outstanding.

– Margin call – this is what all traders fear. This occurs when your Forex broker informs you that your margin deposits have dropped below the necessary minimum amount because an open position has shifted against you.

– Maturity – refers to the date when the payment of a financial commitment is already due.

– Minor currency – any other currency not included among the major currencies

– One Cancels the Other (OCO) Order – This refers to a combination of two orders wherein the execution of one of the orders will automatically trigger the cancellation of the other order.

– Current Account – the total sum of the net factor income, including interest and dividends, the balance of trade, which includes the export values minus import amounts of goods and services, and the net transfer payments, like foreign aid payments.

– Day Order – An order of buy or sell that would automatically expire as the trading day on which it was entered ends.

– Day Trade – A trade which was opened and closed on the same trading day.

– Day Trader – This is a trader who takes positions in articles of trade, which are then liquidated before the same trading day ends. A speculator who buys and sells on the basis of small short-term price movements.

– Dealer – Can either be a firm or an individual that buys and sells assets. Can either act as a principal or counterpart to a trade transaction?

– Depreciation – this is the decline in the value of a currency due to several market factors

– Devaluation – The government’s deliberate act to reduce the value of a currency. The calculated and intentional downward adjustment of the value of a currency, usually by official announcement.

– Euro – Effective as of January 1, 1999, this is the currency adopted by eleven European countries: France, Finland, Germany, Belgium, Ireland, Luxembourg, the Netherlands, Austria, Spain, Portugal and Italy.

– European Central Bank (ECB) – This is the official central bank for the new European Monetary Union.

– Federal Deposit Insurance Corporation (FDIC) – the agency in charge of regulating and administering insurance for bank deposits in the United States

– Federal Reserve (Fed) – The official central bank of the United States of America.

– Fill – It is the act of completing the order of a customer to buy or sell a currency pair.

– Fill Price – It is the price at which a buy or sell order from a customer was carried out.

– Financial Risk – The probability of a business to be incapable of complying with its financial obligations.

– Flat – Refers to a trading book that has zero market exposure.

– Forex – foreign exchange or FX. It is basically the buying of a currency and selling of another.

– Forward – Refers to a transaction that would be settled at a future date.

– Forward Points – The pips that are added to or subtracted from the current spot rate to calculate the forward rates to be used for a forward foreign exchange transaction. Forward points are based on the price differences between the two currency pairs’ interest rates.

– Forward Rate – The value of the pre-specified exchange rate, which resulted from computing the forward points and subtracting them from the existing exchange rate.

– Good Till Cancelled Order (GTC) – This refers to a buy or sell order, which would remain open unless it is canceled or until it is filled.

– Hedge – Refers to a transaction that lessens the financial risk on an existing investment position.

– Inflation – The condition of the economy when prices for consumer goods increase, grinding down the purchasing power of consumers.

– Initial Margin – Refers to the value or amount of deposit a customer has to make before being allotted a trading limit as guarantee in future performance.

– Initial Margin Requirement – The minimum amount of buying a new security, which must be paid for in cash by the investor.

– Bull market – typically a market which is on a consistent upward price movement and can be distinguished by its rising general prices.

– Buy limit – order to execute a transaction at a specified price (the limit) or lower.

– Buy on margin – the process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.

– Cable – the GBP/USD exchange rate. Was called so because starting from the mid 1800’s, the said exchange rate was originally transmitted by means of a transatlantic cable

– Candlestick Chart – A Forex trading chart, which displays the trading price range, which changes daily. Could either be open, close, low or high.

– Carry – It is the cost or the income coupled with maintaining overnight a foreign exchange position. It is derived when for only one period of time, the currency pairs in the position have unlike interest rates. Also called the “interest rate carry.”

– Carry trade – It is the concurrent selling of a currency pair with a low interest rate, while buying currency pairs with higher interest rates.

– Central Bank – A national government-administered bank that controls the movement and behavior of financial establishments within its periphery and executes fiscal policies.

– Chartist – Refers to an individual who utilizes technical analysis and tries to predict future price movements by studying and analyzing the historical price movements displayed and recorded on trading charts and graphs.

– Closed Position – exposures in foreign exchange currency pairs that are already closed or do not exist any longer. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will ‘square’ the position.

– Closing a Position – Process of selling or buying a specific amount of currency or a foreign exchange position to offset an equivalent amount of the open position. This will then “square” the position and result in its liquidation

– Closing Market Rate – It is the rate or amount at which a position can be closed. It would depend on the amount of market price at end of the day.

– Commission – The additional fee charged by an establishment or a broker to carry out a trade on behalf of a customer.

– Confirmation – written acknowledgment of a transaction, including all the significant details such as the size of the trade, the price, the date of transaction, the commission, if there is any, and the amount of money involved in the transaction. A written document that states the terms of a transaction. This is exchanged by the counterparts.

– Counterpart – A participant or partaker in a commercial transaction or financial trade cross currency. Any currency pair, which is neither the base currency nor the quote currency, is the U.S. dollar. These currency pairs demonstrate unpredictable price behavior in view of the fact that the trader has in fact instigated two USD trades. For example, instigating a buy GBP/AUD is equivalent to buying GBP/USD currency pair and selling an AUD/USD currency pair. In effect, cross currency pairs often has a greater amount of transaction cost.

– Currency – the money issued by a government.

– Currency Risk – The possibility of an adverse change in the value of exchange rates.

Learning forex trading would mean that you should also learn the language. Otherwise, there are a lot of things you will not understand. Below are some important forex terminologies that you should understand and know by heart for you will be using them daily when you are already doing your own trading. Knowing these words will not only help you understand forex trading properly but would also arm you with powerfu- terms that could easily impress your friends, relatives, colleagues and those that you specifically want to impress like your girlfriend or a date. Giving meaning to al- the important forex terminologies will already enable one to make a book. I will therefore just mention the more important terms and their basic meanings. Below are the words that I think you will need to know at this stage in your forex education.

– Aggressor – a Forex trader dealing on an unfilled price in the market.

– Appreciation – the increase in the price of an asset in response to the demand of the market

– Arbitrage – Buying or selling of an instrument and synchronized taking of an identica- and opposite position in an associated market, to be able to profit from the smal- differences in the price of one currency pair traded between more than one market.

– Ask – is the price at which the market is now ready to sel- a particular currency pair in the spot currency market. At the ask price, you can purchase the base currency (this could be seen at the right side of the quotation).

– For example, in the quote GBP/USD 1.5415/18, 1.5418 is the ask price. This quotation implies that you can buy one British pound for 1.5418 US dollars.

– Also called the “offer price,” “ask price,” or “ask rate”

– Asset – any item that has marketable or exchange value.

– Back office – the department or the location of the office where the financia- transactions are dispensed.

– Base currency – the first currency in any pair of currencies

– by measuring it against the second currency, the worth of the base currency will be shown (for example, if the EUR/CAD rate equals 1.8436, then one EUR is worth CAD 1.8436. In the Forex markets, the U.S. dollar is usually considered to be the base currency for al- quotes, with “quotes” being expressed as units of one U.S. dollar per whatever the other currency is in the currency pair. There are exceptions to this rule, with the Euro, the British pound being primary ones.)

– Bear market – comprehensive period of decline in the genera- price. A decline of a security, an asset, or a market.

– Basically a market that can be distinguished by its declining prices.

– Bid – is the price at which the market is now ready to purchase a particular currency pair in the spot currency market. At the bid price, the trader can sel- the base currency (this could be seen at the left side of the quotation).

– For example, in the quote EUR/USD 1.9912/45, 1.9945 is the bid price. This quotation implies that you sel- one Euro for 1.9945 US dollars.

– Also called the “bid price” or “bid rate”

– bid/ask spread – or simply “spread”

– is the difference between the bid price and the ask price

– Big figure quote – is the expression used by dealers to refer to the first few numbers of an exchange rate. These numbers, most of the time, are removed in dealer quotes. For example, the USD/CAD rate might be 176.20/176.28, but can equally be quoted verbally without the numbers “176” as “20/28”.