Sunday, 6 October 2013

Forex Terminology

If any one has to understand any subject, he must know the terminology of the subject. So let us know the basic terms related to Forex.
  1. Base Currency: - Base currency is the first currency quoted in the currency pair. For example if the currency pair is shown as USD/EUR, USD is the base currency.  Base currency is also known as primary currency.
  2. Bear: - An investor who anticipates that a currency pair will decline in value is known as bear.
  3. Bid, Asks & Spread: - Bid is the price at which you can sell the primary currency.  Ask is the price at which you can buy the base currency. The difference between the bid and ask is known as the spread.
  4. Bull: - An investor who anticipates that a currency pair will appreciate in value is known as bull.
  5. Currency Pair: - In the foreign exchange market currencies are always quoted in pairs. This is known as currency pair. For example USD/INR.
  6. Cross Exchange Rate: - Cross exchange rate is the exchange rate between two currencies traded in the Forex market that does not include the US dollar. For example INR/EUR.
  7. Exchange rate: - The rate which indicates the worth of one currency against another currency is known as exchange rate.
  8. Forex: - Forex is the market where currencies are bought and sold.
  9. Forward Outright: - A foreign exchange forward transaction, commonly referred to as forward outright, is a contract between two counter-parties to exchange one currency for another on a specified future date.
  10. Forward Margin: - The difference between spot rate and forward rate is called as "forward margin".
  11. Hedging: - A strategy design to reduce investment risk by investing in alternative instrument that offsets the risk of base portfolio is known as hedging.
  12. Initial Margin: - The minimum amount of cash deposit that is required to trade a currency pair is known as initial margin.
  13. Leverage: - Leverage is the amount of cash one can borrow from his broker to increase the potential return of his investment.
  14. Limit Order: - It is an order to buy or sell a currency pair when it reaches a specified price level.
  15. Long Position: - If a currency pair is bought with the expectation that it will be appreciated, this act is known as long position.
  16. Market Order: - It is an order to buy or sell a currency pair at the price immediately available.
  17. Open Position: - Any activity either buying or selling but not has been settled is known as open position.
  18. PIP: - A PIP is the smallest price unit of a Forex currency pair that can be bought or sold.
  19. Short Position: - If a currency pair is sold with the expectation that it will decline in its value, known as short position.
  20. Spot: - A foreign exchange spot trading, commonly referred to as Spot, is buying of currency with a different currency for immediate delivery.
  21. Swaps: - The simultaneous purchase and sale, or vice verse, of identical amounts of one currency for another with two different value dates is known as a foreign exchange swap.
  22. Technical Analysis: - Technical Analysis is the method to evaluate the currency pair by analysing statics generated by historical market activity such as past price and volume. Technical analysis uses charts to identify patterns that can suggest future activity.

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