Basic Forex Terms to help your Understanding for Trading.

Basic Forex Terms Terminology

Currency Quote:
The currencies are quoted in Pairs, e.g. GBP/USD, USD/CHF etc.
The first listed currency is called the "base" currency. Or the basis for the Buy or Sell transaction. The second listed currency is called the "counter" or "quote" currency.
If you place for example a Buy Order for the GBP/USD pair, what you have effectively done is sell USD and bought GBP.
For every Pair there are two quotes. The Bid or Sell quote. The Ask or Buy quote.

Bid or Sell Quote:
This is the price at which you can sell a Currency Pair. You can sell a Currency Pair you already own, this is called closing your Trade. Or you can sell a Currency Pair to open a new Trade, this is called a Trade in Short.
If for example, the Bid quote of the EUR/USD pair is 1.5320. This means you sell each EUR. for 1.5320 US$.

Ask or Buy Quote:
This is the price at which you can buy a Currency Pair. Again you can buy a Currency Pair to close an existing Short Position in a Trade or to open a new Long Position.
The Ask Quote is higher than the Sell Quote by a few Pips corresponding to the Execution Cost of your Trade or the Spread or commission the Broker makes for executing your Trade.
For example, when the Bid quote for the EUR/USD pair was 1.5320, the Ask quote was 1.5323. The 3 Pips between the Ask and the Bid quotes, are the Spread you pay your Broker.
You pay at the execution of the Buy part of your Trade: When you open your Trade in a Long Position, or when you close your Trade in a Short Position.

Lot
In general, any groups of goods or services making up a transaction.
In the Forex, this basic Forex term represent the Unit adopted for trading the currency Pairs. The value of a deal consists of a certain number of lots.
The Lot value varies according to your investment with the Broker.
A full or standard Lot is worth 100.000 US$.
A mini Lot is worth 10.000 US$.
A micro Lot is worth 1.000 US$.
A super micro Lot is worth 100 US$.

Pip
The smallest denomination that a Currency can make. In the Forex it changes from Currency Pair to another.
Lets take for example the EUR/USD Pair.
If the Sell Quote is 1.4565 and we are trading with a Mini Lot of 10.000 US$. This means that the price of 10.000 EUR is 14.565 US$. Or the value of 1 pip is 0.10 US$ for the Mini Lot.
For the Standard Lot of 100.000 US$, the value of 1 Pip is 1 US$.
For the Micro Lot of 1.000 US$, the value of 1 Pip is 0.01 US$.

Trade
The Buy or Sell of an asset. Frequently with only short intervals of ownership.
The Trade is open with the first action, either Buy or Sell.
The Trade is closed with the second action: Sell for the Buy, Buy for the Sell.

Long Position
This is when the first action of a Trade is the Buying of a number of Lots of a currency Pair.
This generally occurs in the Directional Trading when we expect the value of the Pair to swing up, anticipating to make profit from it on the closing of the Trade, when we Sell.

Short Position
This is when the first action of a Trade is the Selling of a number of Lots of a currency Pair.
This occurs in the Directional Trading when we expect the value of the Pair to swing down, anticipating to make profit from it on the closing of the Trade, when we Buy.

A Sell
This basic Forex term is used when a trader sells part or all of a Long Position.

A Buy to Cover
This basic Forex term is used when a trader buys to close part or all of a Short Position.

Swap or Carry Interest
Money the Broker swaps between traders. When we keep our position in the market open overnight, we are entitled for Swap or Interest on our investment.
The Swap for each currency is set by the central banks of the countries in question.
The trader is credited the value of the swap for the first currency of the pair if in a long position and debited the value of the swap for the second currency of the pair.
When in a short position, the trader is debited for the first currency and paid for the second.
The Broker calculates the total swap, deduces his commission and transfers the balance to the trader's account.
The balance can be positive or negative depending on the value of the swap for the specific currencies in the pair and the position of the trade.

Housing Project

The terminology about the Basic Forex Terms was gathered from various articles and the help of the FreeDictionary and Wikipedia.
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