Ask: Price at which broker/dealer is willing to sell.  Same as "Offer".  For example, if EUR/USD is quoted at 1.1850/1.1854, the 1.1854 is the "Ask" or "Offered" price.

Bid:  Price at which broker/dealer is willing to buy.  For example, if EUR/USD is quoted at 1.1850/1.1854, the 1.1850 is the "Bid" price.

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

Cost of Carry (also "Interest" or "Premium"): The cost, often quoted in terms of dollars or pips per day, of holding an open position.  See "Interest" for further information.

Currency Futures:  Futures contracts traded on an exchange, most typically the Chicago Mercantile Exchange ("CME").  Always quoted in terms of the currency value with respect to the US Dollar.  Parameters of the futures contract are standardized by the exchange. 

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.

EBS:  "Electronic Brokerage System", the electronic system on which major banks trade with each other.  This is considered to be the most definitive indicator of prices at which currencies are "really" trading, at least for EUR/USD and USD/JPY.

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.  See "Fundamental Analysis" for further information.

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 $2,000, the trader can trade with 50 times leverage ($100,000/$2,000).

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.

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. 

Long:  A market position that has been bought.  It will generate profits as the market moves up and losses as the market moves down.  For example, if you bought Euros, you will be "long" Euros.

Margin:  The amount of funds required in a clients account in order to open a position or to maintain an open position.  See "Margin" for further information.

Margin Call:  A requirement by the broker to deposit more funds in order to maintain an open position.

Market Order:  An order to buy at the current Ask 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.

Premium (also "Interest" or "Cost of Carry"): The cost, often quoted in terms of dollars or pips per day, of holding an open position.  See "Interest" for further information.

Short:  A market position that has been sold.  It will generate losses as the market moves up and profits as the market moves down.  For example, if you sold Euros, you will be "short" Euros.

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: 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.  For example, if EUR/USD is trading at around 1.1850, you could place a stop order to buy at 1.1870.  This order would be filled only if the market moved up to 1.1870 or higher. 

Technical Analysis:   Analysis applied to the price action of the market to develop trading decisions, irrespective of fundamental factors.  Click here for detailed definitions of technical analysis terms and studies, or see "Technical Analysis" for further information.

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