Forex Terminology

As a novice to Forex trade, it really becomes hard to understand the terminology used by traders in regular course of business. This article deals in explaining simply the most common terms in Forex trading
Arbitrage – Purchase and sale of same currency or instrument, simultaneously in different markets to gain by price difference.
Base Currency - The reference currency against which other currencies are compared or quoted. The primary base currency used is the United States Dollar (USD).

Best Effort – An executable order at the best price possible at the dealers or traders discretion.

Bid - The price at which a buyer is willing to close the purchase.

Broker - An individual or a company who matches and executes buying and selling orders for commission. The prices are quoted by the owners and not by the brokers.

Cable - British Pound Sterling or the GBP (Great Britain Pound) is sometimes referred to as the Cable in market parlance.

Cross Rate – This is the exchange rate between two currencies not involving the base currency.

Direct Dealing – A process through which dealers deal direct with each other without a broker.

Daylight Position Limit – Limits imposed currency wise for position that can be carried out by a trader during regular trading hours.

Exotic Currency - Major nor a minor currency which has little liquidity and limited dealing.

Forward Outright - A foreign exchange deal that matures after the spot delivery date.

Kiwi - New Zealand Dollar in market parlance

Libor - London Interbank Offered Rate. The arte at which one bank lends to another, normally set on a daily basis at 11:00 a.m. GMT.

Major Currency - Euro, Deutsche Mark, Swiss Franc, British Pound, and Japanese Yen.

Market Maker – A trader who consistently offers two way prices, both a bid and an offer.

Offer - The price for which a seller will sell.

Pip - Term used in the Over the Counter currency markets to denote the smallest incremental move an exchange rate can make.

Quotation American Terms - A quotation that reflects the number of United States Dollar units per currency.

Quotation European Terms - A quotation that reflects the number of currency units per United States Dollar.

Spot Deal - A forex deal whereby a party will deliver a certain currency against receiving a certain amount of another currency based on an agreed rate from another party usually within 2 business days

Spot Next - A forex deal which matures one business day past the spot date.

Swap Deal - A forex deal consisting of a simultaneous purchase and sale for different maturity dates with the same party.

Tom Next - Tomorrow next, a forex deal which maturing one day prior to a regular spot deal, thus maturity becomes the next day.