Definitions of Forex Trading Terms

In a simple line charts price is displayed as a point in the map and draws a line from one closing price to the next closing price. When strung together with a line, we can see the general price movement of a currency pair over a period of time.

This type of chart is characteristic of the trend of the price of the currency, but provides little supplemental information.

Pip is an increment unit of currencies. The Pip is also a measurement of profit or loss. When the EUR/USD moves from 1.3250 to 1.3251, there is an increment in ONE (1) PIP. A pip is the last decimal place of a quotation. It is important to learn how to calculate the value of a pip for a particular currency, because each currency has its unique value.

1. In the case of USD/JPY, ONE (1) pip would be .01.
Let’s take USD/JPY rate at 120.00.
.01 divided by exchange rate = ONE (1) pip value

A typical spot Forex is traded in lots.

• Standard lot size is $100,000; and
• Mini lot size is $10,000.

As currencies are measured in pips, a Forex trader needs to trade large amounts of a particular currency in order to see any significant profit or loss (ONE (1) Pip is the smallest increment of a currency).

Margin trading simply means trading with borrowed capital. Anyone can open $10,000 or $100,000 positions with as little as $50 or $1,000! A ordinary Forex trader can conduct large transactions very quickly and cheaply, with only a small amount of setup capital.

Margin trading in the Forex market is quantified in “lots”. In Forex, "lots" are normally measured in $10,000 or $100,000 depending on the type of account.

All Forex quotes always include a two-way price -the bid and ask. The bid is always lower than the ask price. The bid is the price at which a Forex trader will sell, while the ask is the price at which the Forex trader will buy.

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

For example:

Interest rollover rates are part of forex trading; there will be a daily rollover interest rate that a Forex trader either pays or earns for every position open at the broker's "cut-off time" usually 5pm EST, depending on the closing time of the market. Interest is paid on the currency that is borrowed, and earned on the one that is bought.

If the Forex trader does not want to earn or pay interest on his/her positions, he/she must ensure that these positions are all closed before 5pm EST, the established end of the market day.

MONEY, MONEY, MONEY! Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the Euro dollar and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).

In general, the eight most traded currencies (in no specific order) are the U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY).

The most popular currencies that are being traded are displayed below:

The Forex market is unique within the world markets. It is open 24-hours a day. At any time, somewhere around the world, a financial center is open for trading.

Banks and financial institutions exchange currencies every hour of the day and night.

Trading only stops during weekends and public holidays.

The Forex markets follow the sun around the world, so you can trade late at night or in the morning. The following markets timing are based on New York time.

Tokyo 7:00 pm - 4:00 am
London 3:00 am - 12:00 pm
New York 8:00 am - 5:00 pm