The forex trading market is a very complex beast and deters many potential investors who are afraid to get started in currency trading. But with this handy list of basic terms of
forex resources, you can begin to get your toes wet. These definitions will allow you to understand the vocabulary so that you can move up to strategy articles and begin investing with a forex broker in no time.
Exchange Rate: This is the value of one currency when compared to another. For example, in EUR/USD 1.4004, one Euro is worth 1.4004 US dollars.
Currency Pair: The two currency units that make up an exchange rate. These currencies will typically be written in ISO form.
Base Currency: The first currency listed in a currency pair. This term also is used to demark the currency that an account trades in.
Counter Currency: The second currency in the currency pair.
ISO Currency Codes: The common abbreviations used to denote a specific countrys currency. The most common examples and the chief currencies used in
forex trading are listed below:
AUD = Australian Dollar
CAD = Canadian Dollar
CHF = Swiss Franc
EUR = Euro
GBP = British Pound
JPY = Japanese Yen
NZD = New Zealand Dollar
USD = United States Dollar
Order: The command by an investor for money to be transferred to another currency through a forex broker.
Automatic Execution: An order that is carried out without needing a dealer.
Manual Execution: An order that is implemented with dealer intervention.
Forex ECN Broker: Short for Electronic Communications Network of the forex broker. Like the stock market, this network has bankers, traders, and market makers that allow a forex trading platform to operate.
Lot: The amount of currency per transaction. Standard Lots are measured in 100,000 units of the base currency. A Mini Lot is 10,000 units and sometimes Micro Lots are typically 1,000 units. Some forex brokers deal in lots as small as one unit.
Pip: A currencys smallest increment, usually a ten thousandth of one unit (1/10,000) or four decimal places. Also known as points.
Spread: The difference between the sell quote and the buy quote.
These basic definitions should help create the basis of understanding the forex trading market and will help moving towards becoming an expert. The next step is to begin using a
forex practice account to learn the market tricks.
