- BID/ASK Spread
- Leverage and Margin
- Pip(percentage in Point)
- Stop- Limit Order
- Rollover/Carry Trader
- Bear Market
- Bull Market
- Open Order
- Stop Order
- Market Makers
- Whipsaw
BID/ASK Spread- Bid/Ask Spread is the quote of the price at which the part is involved are willing to buy or sale. The bid price is the price that a party is willing to purchase, while the ask or offer price is the price at which the party is willing to sell the same. The difference between the two prices is considered the spread. If the spread cannot be closed, then no deal can be made. The forward price (or agreed upon price) and all details involved in the transaction are written in a contract and referred to as forward points. Most of the time it is outlined as available until a certain date and if this transaction isn’t completed by that date (transaction date), and then at that time it must be renegotiated.
Currency Pair – since the value of one currency is only relevant when put in terms of another, forex traders will always deal in currency pairs. As I mentioned before, the first currency in the pair is considered the ‘base’ currency. The second currency in the pair is the ‘counter’ currency.
Leverage & Margin – Margin is a good faith deposit that a trader puts up as collateral to hold a position. The amount of margin that a trader puts up determines his leverage.
In other words, when a trader opens a position larger than the amount of funds required opening it, the trader has put down margin to receive leverage. While margin refers to the amount of funds a trader has put down as collateral, leverage refers to the amount of money he controls relative to the margin.
Pip – (Percentage in Point)- refers to the very last digit of a currency price. Just for illustrative purposes let’s take the Euro/USD at 1.2635. If the sell price was 1.2638 then we have a 3 pip increase. Should the Euro/USD sell at
1.3635 then we have a 100 pip increase.
Stop – Limit Order – An order to buy or sell a certain quantity of a certain security at a specified price or better, but only after a specified price has been reached. A stop limit order is essentially a combination of a stop order and a limit order.
Rollover/ Carry Trade – A popular trading strategy used in the forex market. It guarantees traders at least some return on their medium and longer term positions. In the carry trade, speculators buy high interest currencies and sell currencies with low interest rates. These positions ensure that each trading day rollover interest will be posted to the traders account. It has the potential to significantly enhance a return. Rollover is also sometimes referred to reinvesting any earnings in additional stock or currencies.
Bear Market – Refers to a strong trend of downward movement in several areas of the market.
Bull Market – Refers to a strong upward trend in several areas of the market.
Open Order – Your order remains pending until it is either executed or cancelled.
Stop Order – Cancels any pending orders that are placed with the broker.
Market Makers/Jobbers – Stockbrokers who hold or purchase securities at low prices for the purpose of selling them to traders in a higher priced market so that the trader can turn around and resell them for a profit… essentially creating a separate market are called market makers.
Whipsaw – A term for what happens when the market trends point toward a specific direction, causing a buy or sell and then the opposite effect occurs. These will happen occasionally and you realistically cannot expect to win with every purchase. My best advice when it happens is to wait it out. The market will rebound and you can still make a profit or at least break even, if you are patient. Those are just some of the most commonly used terms that I wanted you to be familiar with. It should help you to understand a bit about the market lingo before we get into the meat of the course, where you will learn the details of many of the terms above.
