Frequent Forex Terms

Long

Long position is the buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value. In the context of options, the buying of an options contract. Opposite of “short” (or

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Short

Short position is the sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value. In the context of options, it is the sale (also known as “writing”) of an options contract.

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Put

PUT is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option estimates that the

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Call

CALL is an option contract giving the owner the right (but not the obligation) to buy a specified amount of an underlying security at a specified price within a specified time.

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Option

An Option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond,

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Spot Foreign Exchange

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

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Premium

Premium (also “Swap” or “Cost of Carry”): The cost, often quoted in terms of dollars or pips per day, of holding an open position.

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Pip

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

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Liquidity

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

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FOREX

Forex: Short for “Foreign Exchange”.  Refers generally to the Foreign Exchange trading industry and/or to the currencies themselves.

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