Forex Glossary, Special Code Abbreviations
In banking practice there are special code abbreviations: for example, the exchange rate for dollar against yen refers to USD/JPY, British pound against US Dollar to GBP/USD. The first currency is referred to as the base currency and the second as quote currency:
USD / JPY = 120.25
Base currency Quote currency Rate
This abbreviation specifies how much you have to pay in quote currency to obtain one unit of the base currency (in this example, 120.25 Japanese Yen for one US Dollar). The minimum rate fluctuation is called points or pips.
Most currencies except USD/JPY, EUR/JPY and GBP/JPY where pip is 0.01 has 4th decimal system as 0.0001.
The currency pairs on Forex are quoted as bid and ask (or offer) prices:
Bid Ask
USD / JPY = 120.25 / 120.30
Bid is the rate at which you can sell the base currency, in our case it’s dollar, and buy the quote currency, i.e. Japanese Yen.
Ask (or offer) is the rate at which you can buy the base currency, in our case dollars, and sell the quote currency, i.e. Japanese Yen.
Spread is the difference between the bid and the ask price.
Margin trading assumes that Forex dealing is based on the margin, the collateral, and the provided leverage.
This means that a client places minimal cash deposit, much smaller than the underlying value of the contract, but can operate with larger amounts sufficient to enter the real market. Such credits are provided by the brokerage companies besides their informational services and make it possible for a trader to enter into positions larger than his/her account balance. This collateral is typically referred to as margin.
Leverage is the term used to describe margin requirements: the ratio between the collateral and borrowed funds 1:20, 1:40, 1:50, 1:100. Leverage 1:100 means then when you wish to open a new position, then you must have 100 times less then the contract size.
Currency Rate is the ratio of one currency valued against another value of a currency of one country. It whether depends on the demand and supply on free market or restricted by a government or by central bank.
Lot is a fixed standard currency amount for trading provided on the collateral — margin. Sometimes it is called the contract size. The 1.0 lot contract size for each currency pair is listed in Contract Specification.
Storage is the charge to rollover the position overnight. It can be both positive (credited to your account balance!) or negative (debited from you account balance) depending on the interests rate in the countries which currencies you trade.
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http://www.ac-markets.com/forex-education/forex-terminology.aspx
Regards
HEY!
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Regards!