About Forex

Forex Glossary

Leverage. Leverage is essentially a loan from you broker which allows you to open large positions for a fraction of the cost. It can increase your potential profit but also creates the risk of losing more money than you initially invested.

Long Position. Going long means opening a position in which you expect a currency's value to increase (buy low, sell high).

Lot. A lot is the standard unit of trading. One standard lot equals 100,000 units of the base currency, a mini lot equals 10,000 units, and a micro lot equals 1,000 units.

Margin. The minimal cash deposit that you have to put up to open a position. Trading Forex on margin increases your buying power, but can also increase your losses.

Offer Price. See Ask Price

Pip. Pip is the smallest price increment in the last digit in the rate – usually the fourth digit after the decimal point (with the exception of the USD/JPY).

Rate. Rate is the price of one currency in terms of another.

Sell Price. See bid price

Short position. Going short means opening a position in which you expect a currency's value to decrease (sell high, buy low).

Spread. The spread is the difference between the bid price and the ask price.

Stop Loss. A trade order which automatically closes an open position at a specific price in order to prevent excessive losses.

Take Profit. A trade order which automatically closes an open position at a specific price realizing a specific amount of profit.

Ask price. The ask price is the price at which traders can buy the base currency.

Base Currency. The base currency is the first currency listed in any currency pair. Its value is determined against the counter currency's value. For example, if the rate of the GBP/USD pair is 1.5525, then the GBP is the base currency and it is worth 1.5525 USD.

Bid Price. The bid price is the price at which traders can sell the base currency.

Counter Currency. The counter currency is the second currency in any currency pair. Its value is determined against the base currency's value. For example, in GBP/USD, the counter currency is USD.

Cross Rate. A price quote consisting of any currency quoted against any other currency that is not the USD. The quote is made up of the individual exchange rates of the two currencies against the USD.

Currency Pair. The two currencies that the exchange rate is comprised of. One of the currencies is bought, and the other is sold at the same time.

Day Trading. The practice of opening and closing all positions within the same trading day.

Forex. Forex, or FX, stands for Foreign Exchange. Forex is the simultaneous buying of one currency and selling of another.

Hedging. The practice of opening a number of positions at once where one position minimizes the risk of another open position.