Forex Key Terms

Learn Forex vocabulary before you invest your money

By Shannon Tani

Many find the idea of trading currencies on the foreign exchange market to be an enticing way to invest money. It's important, though, for people to make sure that they fully understand the vocabulary that goes along with the trade. For those new to Forex, learning all of the new terms can seem daunting, but you should make an effort to understand the concepts so that you can be successful in trading on the foreign exchange market. You may want to learn about pips or The Majors. If you don't want to lose a lot of money in the market, you should consider currency hedging.

Currency hedging

Currency hedging is a way that Forex investors attempt to minimize the risk of losses when trading. Hedging does not produce the highest returns, but it is a safer gamble.
Try: You can learn more about currency hedging at ForexTheory.

The Majors

The Majors is a term that Forex traders use to describe the most important currencies on the market. The Majors include the U.S. dollar, the Euro, the Japanese yen, the British pound sterling, the Swiss franc, the Canadian dollar, the New Zealand dollar and the Australian dollar.
Try: Action Forex goes into detail about each of The Majors.

USD/JPY

When people trade currencies, they always do it in pairs. Pairs are written like USD/JPY, which symbolizes the U.S. dollar in relation to the Japanese yen. The first currency listed is the base currency and the second is the quote currency.
Try: ForexFloor.com discusses trading pairs.

U.S. Commodity Futures Trading Commission (CFTC)

The U.S. Commodity Future Trading Commission regulates the futures market and protects consumers from fraud and other illegal practices.
Try: Learn more about the CFTC and what it does.

Bid and ask

The bid price of a currency is the amount that someone will "bid" on it, or offer to pay, while the ask price is the price that a seller wants to get for the currency. The difference in these two prices is called the bid-ask spread.
Try: Check out FX Info for examples of a bid price, ask price and the bid-ask spread.

Pip

A pip is the smallest difference that there can be between currency pairs. This varies between the two currencies, but whether it is .01 or .001, it is always a decimal.
Try: To learn more about pips and how to calculate them, visit Forex-Training.com.