The Element of Forex

Some of the most important terms related to Forex trading are presented in this glossary:

• Bank Rate — the percentage rate at which central bank of a country lends money to the country's commercial banks.
• Bid — price of the demand, the price you sell for.
• Broker — the market participating body which serves as the middleman between retail traders and larger commercial institutions.
• Carry Trade — in Forex, holding a position with a positive overnight interest return in hope of gaining profits, without closing the position, just for the central banks interest rates difference.
• Commission — broker commissions for operation handling.
• CPI — consumer price index the statistical measure of inflation based upon changes of prices of a specified set of goods.
• EA (Expert Advisor) — an automated script which is used by the trading platform software to manage positions and orders automatically without (or with little) manual control.
• Elliott Waves — a set of principles for chart analysis based on 5-wave and 3-wave patterns.
• Fibonacci Retracements — the levels with a high probability of trend break or bounce, calculated as the 23.6%, 32.8%, 50% and 61.8% of the trend range.
• Gap — a difference between the previous period's close price and the next period's open price. In Forex usually only occurs during weekends — between the Friday's close and the Monday's open price.
• Hedging — maintaining a market position which secures the existing open positions in the opposite direction.
• Limit Order — order for a broker to buy the lot for fixed or lesser price or sell the lot for fixed or better price. Such price is called limit price.
• Long — the position which is in a Buy direction. In Forex, the primary currency when bought is long and another is short.
• Loss — the loss from closing long position at lower rate than opening or short position with higher rate than opening, or if the profit from a position closing was lower than broker commission on it.
• Lot — definite amount of units or amount of money accepted for operations handling (usually it is a multiple of 100).
• Margin — money, the investor needs to keep at broker account to execute trades. It supplies the possible losses which may occur in margin trading.
• Margin Account — account which is used to hold investor's deposited money for FOREX trading.
• Margin Call — demand of a broker to deposit more margin money to the margin account when the amount in it falls below certain minimum.
• Market Order — order to buy or sell a lot for a current market price.
• Market Price — the current price for which the currency is traded for on the market.
• Momentum — the measure of the currency's ability to move in the given direction.
• Moving Average (MA) — one of the most basic technical indicators. It shows the average rate calculated over a series of time periods. Exponential Moving Average (EMA), Weighted Moving Average (WMA) etc. are just the ways of weighing the rates and the periods.
• Open Position (Trade) — position on buying (long) or selling (short) for a currency pair.
• Order — order for a broker to buy or sell the currency with a certain rate.
• Pivot Point — the primary support/resistance point calculated basing on the previous trend's High, Low and Close prices.
• Pip (Point) — the last digit in the rate (e.g. for EUR/USD 1 point = 0.0001).
• Profit (Gain) — positive amount of money gained for closing the position.
• Scalping — a style of trading notable by many positions that are opened for extremely small and short-term profits.
• SL — see Stop-Loss Order.
• Spread — difference between ask and bid prices for a currency pair.
• Stop-Limit Order — an order to sell or buy a lot for a certain price or worse.
• Stop-Loss Order — an order to sell or buy a lot when the market reaches certain price. It is used to avoid extra losses when market moves in the opposite direction. Usually is a combination of stop-order and limit-order.
• Support — price level for which intensive buying can lead to the price decreasing (down-trend).
• Swap — overnight payment for holding your position. Since you are not physically receiving the currency you buy, your broker should pay you the interest rate difference between the two currencies of the pair. It can be negative or positive.
• Take-Profit Order — an order to sell or buy a lot when the market reaches certain price. It is used to fixate your profit. Usually is a combination of stop-order and limit-order.
• TP — see Take-Profit Order.
• Trend — direction of market which has been established with influence of different factors.
• Useable Margin — amount of money in the account that can be used for trading.
• Used Margin — amount of money in the account already used to hold open positions open.