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Forex Glossary

The following is a list of the most common and most important terms associated with forex trading, the so-called forex glossary.

API – Application Programming Interface; a piece of software which can be instructed by the trader to conduct trades automatically while the person is unable to access the market

Base currency – the first currency in a currency pair; example: USD/GBP is a currency pair and the base currency here is the USD

Brokers – agents who usually connect buyers and sellers on the market in exchange for some sort of comission charged to one or both parties

Candlestick chart – a type of chart which depicts trading price ranges on daily basis; the method was developed in Japan and uses lines to show the price ranges for the day

Commission – a broker’s payment for successfully completing a transaction or for some investment advice given to their client

Dealer – a person or a company which conducts trades with assets they own themselves

Foreign exchange – also known as forex or FX; the process of trading one currency against another

Gold standard – fixing the amount of gold needed to convert a currency into it and vice versa

Hard currency – an extremely stable and reliable currency (such as USD or EUR) which is very attractive to the investors because of its properties

Head and shoulders – three consecutive peaks of a price with the middle one being higher than the other two; this occurrence is often seen as the beginning of a reverse trend

Leverage – ratio by which your initial investment is increased in the foreign exchange market to increase total value of the trades; if you, for example, invest $5000 with a 100:1 leverage, this will allow you to maintain an open position of up to $500,000

Long – purchasing an asset hoping that it will rise in value

Margin – the minimum investment required to keep an open position; if you, for example, want to maintain an open position of $500,000 with a leverage of 100, your margin will be $5000

Pip – the lowest possible change of an exchange rate; usually expressed in 1/100 of a cent (0.0001) since currency pairs have four decimal places

Position – a still active trade; positions can be considered open or closed and long or short

Quote currency – the second currency in a currency pair; example: USD/GBP is a currency pair and the quote currency here is GBP

Regulated market – a type of market overseen by the government in order to protect investors trading there

Short – selling a borrowed asset (usually from a broker) in hope that its price will fall and the dealer will then be able to buy it back and thus make a profit before the asset is returned

Trading platform – a piece of software used to trade forex which allows access to trading via internet

Volatility – a measure showing how much a given price will fluctuate over a certain amount of time; if the volatility is high you can expect big changes in an asset’s price and if it’s low the price is not expected to fluctuate much

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