Best Forex Brokers for Online Currency Trading

Study Materials

Glossary

Ask: Price at which broker/dealer is willing to sell, and the price at which you can buy. Same as "Offer".

Balance: The value of your account not including unrealized gains or losses on open positions.

Bid: Price at which broker/dealer is willing to buy, and the price at which you can sell.

Bid/Ask Spread (or "Spread"): The distance, usually in pips, between the Bid and Ask price. A tighter spread is better for the trader.

Drawdown:

The magnitude of a decline in account value, either in percentage or dollar terms, as measured from peak to subsequent trough. For example, if a trader's account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5,000 (incurred when the account declined from $20,000 to $15,000) even though that trader's account was never in a loss position from inception.

Equity: This represents the current market value of your account. Equity = Balance + (unrealized profit/loss on open positions).

Free Margin: The amount in your account available as margin for new positions. Free Margin = Equity – Margin. Forex: Short for "Foreign Exchange". Refers generally to the Foreign Exchange trading industry and/or to the currencies themselves.

Fundamental Analysis: Macro or strategic assessments of where a currency should be trading based on any criteria but the price action itself. These criteria often include the economic condition of the country that the currency represents, monetary policy, and other "fundamental" elements.

Leverage: The amount, expressed as a multiple, by which the notional amount traded exceeds the margin required to trade. For example, if the notional amount traded (also referred to as "lot size" or "contract value") is $100,000 dollars and the required margin is $250, the trader can trade with 400 times leverage ($100,000/$250).

Limit: An order to buy at a specified price when the market moves down to that price, or to sell at a specified price when the market moves up to that price. In MetaTrader, this order type opens a new position.

Liquidity: A function of volume and activity in a market. It is the efficiency and cost effectiveness with which positions can be traded and orders executed. A more liquid market will provide more frequent price quotes at a smaller bid/ask spread.

Margin: The amount that is needed in your account as margin for open positions. Margin requirements on MetaTrader are $250 per lot. For example, if you have 3 lots of open positions, your Used Margin is 3 x $250 = $750. Note that margin is not a "charge" and is not deducted from your account in any way.

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 Guide to Online Forex Trading 24 deposit will simply be closed out by the broker. This procedure allows the client to avoid further losses or a debit account balance.

Market Order: An order to buy at the current Ask price or sell at the Current bid price. Offer: Price at which broker/dealer is willing to sell. Same as "Ask". Pip: The smallest price increment in a currency. Often referred to as "ticks" in the futures markets. For example, in EURUSD, a move from .9015 to .9016 is one pip. In USDJPY, a move from 128.51 to 128.52 is one pip.

Roll over: Is the changing of futures when they expire to the new contract. Spot Foreign Exchange: Often referred to as the "interbank" market. Refers to currencies traded between two counterparties, often major banks. Spot Foreign Exchange is generally traded on margin and is the primary market that this website is focused on. Generally more liquid and widely traded than currency futures, particularly by institutions and professional money managers.

Stop: Also called “Stop Loss” or “S/L”. An order to buy at the market only when the market moves up to a specific price, or to sell at the market only when the market moves down to a specific price.

Swap rate (also called "Premium" or "Cost of Carry"): The cost, often quoted in terms of dollars or pips per day, of holding an open position.

Take Profit: An order to buy at a specified price when the market moves down to that price, or to sell at a specified price when the market moves up to that price. In MetaTrader, this order type closes an existing position.

Technical Analysis: Analysis applied to the price action of the market to develop trading decisions, irrespective of fundamental factors.

Tick: The smallest price increment in a futures or CFD price. Often referred to as a "pip" in the currency markets. For example, in Down Jones Industrials, a move from 8845 to 8846 is one tick. In S&P 500, a move from 902.50 to 902.51 is one tick. Perfect Capital Markets Financial www.perfectcapitalmarkets.com email: [email protected] tel: +44 151 329 2721