Glossary

A

Ask

  • The ask is the best possible price at which the trader can sell the instrument being tracked at the current time.
  • In the forex market, the ask price is the lowest price that the broker will sell the instrument to you.

Aussie

Refers to the AUD/USD (Australlian Dollar/U.S. Dollar) pair. Also “OZ” or “Ozzie”.

B

Bid

  • The bid is the best possible price at which the trader can buy the instrument being traded at the current time.
  • In the forex market, the bid price is the highest price the broker will pay to purchase the instrument off of you.

C

Cable

  • The GBP/USD (Great British Pound/U.S. Dollar) pair.
  • Cable earned its nickname because the rate was originally transmitted to the US via a transatlantic cable beginning in the mid 1800s when the GBP was the currency of international trade.

D

E

F

Fundamental Analysis

The study of economic releases and news events

G

H

I

J

K

L

Lot

  • It is technically possible to trade in any amount of currency you want in foreign exchange, but to simplify the process the standard lot size was developed to make things faster and simpler
    • Lot = $100,000
    • Mini Lot = $10,000
    • Micro Lot = $1,000
  • So, one lot of an FX based currency pair is equal to 100,000 of the first-named base currency
  • This can then be further divided into mini and micro lots
  • You can trade 1000, 2000, 3000 or 150,000, just so long as it’s in multiples of 1000. Each 1000 is referred to as a micro lot.
  • Of course the actual value of a lot can vary depending on the currency pair being traded
    • 100k GBP/USD @ 1.5100 = $151,000
    • 100k EUR/USD @ 1.3000 = $130,000
    • 100k USD/JPY @ 100.00 = $100,000

  • If a trader places an order to buy ten lots of USD/JPY then they would be buying $1,000,000 and selling the equivalent amount of Japanese Yen

    M

N

O

P

PIP

  • stands for Point In Percentage.
  • More simply though, a pip is what FX traders consider a point for calculating profits and losses.
  • When trading a mini lot (10k units of currency), each pip is worth roughly one unit of the currency in which your account is denominated.
  • If your account is denominated in USD, for example, each pip (depending on the currency pair) is worth about $1.
  • In all pairs involving the Japanese Yen (JPY), a pip is the 1⁄100 place – two places to the right of the decimal point.
  • In all other currency pairs, a pip is the 1⁄10000 place – four places to the right of the decimal point.
  • Additional transparency is provided through most electronic platforms as each currency pair is quoted to 1⁄10 of a pip (a tick).
  • This fraction of a pip allows price providers to bring spreads down even further as they are not restricted to quoting in full pip increments.
  • This is beneficial to the trader because the spread is a component of the transaction costs.

Q

R

S

Speculative Sentiment Index (SSI)

  • This powerful tool reveals the sentiment of the broader retail forex market, i.e. how many traders bought or sold a currency pair, and is best used as a contrarian indicator when markets are trending strongly.

Spread

  • Difference between the bid and ask prices in pips.
  • The transaction costs in Forex are known as the spread
  • All things being considered, the lower the spread, the quicker you will realize a profit should the market move in the direction of your analysis.

T

Technical Analysis

The Study of price action through charts

Tick

  • 1⁄10 of a pip
  • five places to the right of the decimal point in all non-Yen currency pairs
  • 1⁄1000 place in pairs involving JPY

U

V

W

X

Y

Z