Forex Terminology

This is some forex trading terminology. This is very important if you want to learn forex trading.

Ask: Price at which forex broker/dealer is willing to sell. Same as "Offer".

Bid: Price at which forex broker/dealer is willing to buy.

Pip: The smallest price increment in a currency. Often referred to as "ticks" in the futures markets. For example, in EURUSD, a move from .9020 to .9019 is one pip. In USDJPY, a move from 127.65 to 127.66 is one pip.

Spread: The difference, in pips, between the Bid and Ask price. A tighter spread is better for the trader.

Margin: The amount of funds required in a clients account in order to open a position or to maintain an open position. For example, 1% margin means that $1,000 of funds on deposit are required for a $100,000 position.

Margin Call: A requirement by the broker to deposit more funds in order to maintain an open position. Sometimes a "margin call" means that the position which does not have sufficient funds on deposit will simply be closed out by the broker. This procedure allows the client to avoid further losses or a debit account balance.

Leverage: The ratio of margin to the maximum position size. With a deposit of $5000 and a leverage of 50, a trader could enter a position with a face value of $250,000. Leveraging allows you to profit quickly, but lose money just as fast.

Liability: The obligation to deliver currency as part of a spot transaction. In speculative forex trading, currency is not delivered. All profits and losses are subtracted from margin deposits.

Equity: Total assets minus total liabilities; also called net worth.