Forex Trading Basics
The global foreign exchange market is the biggest market in the world. The 3.2 trillion USD daily turnover dwarfs the combined turnover of all the world's stock and bond markets. The following is an introduction to some basic terms, definitions and concepts used in forex trading. It is designed to be read in chronological order, starting with the most simplest terms and moving through to some more advanced terms used in the forex market, or you can click on any individual term if you want an explanation of a specific term.

Automatic Execution:
The order is executed automatically without dealer intervention or involvement.

Base Currency:
The first currency in the pair. Also the currency your account is denominated in.

Sell Quote / Bid Price:
The sell quote is displayed on the left and is the price at which you can sell the base currency. It is also referred to as the market maker's bid price. For example, if the EUR/USD quotes 1.3200/03, you can sell 1 Euro at the bid price of US$1.3200.

Buy Quote / Offer Price:
The buy quote is displayed on the right and is the price at which you can buy the base currency. It is also referred to as the market maker's ask or offer price. For example, if the EUR/USD quotes 1.3200/03, you can buy 1 Euro at the offer price of US$1.3203.

Counter Currency:
The second currency in the pair. Also known as the terms currency.

Counterparty:
One of the participants in a transaction.

Currency Pair:
The two currencies that make up an exchange rate. When one is bought, the other is sold, and vice versa.

Currency Pair Terminology:
EUR/USD = "Euro"
USD/JPY = "Dollar Yen"
GBP/USD = "Cable" or "Sterling"
USD/CHF = "Swissy"
USD/CAD = "Dollar Canada" (CAD referred to as the "Loonie")
AUD/USD = "Aussie Dollar"
NZD/USD = "Kiwi"

Dealing Desk:
A dealing desk provides pricing, liquidity and execution of trades.

Drawdown:
The decline in account balance from peak to valley, until the account surpasses the previous high, usually measured in percentage terms.

Exchange Rate:
The value of one currency expressed in terms of another. For example, if EUR/USD is 1.3200, 1 Euro is worth US$1.3200.

Foreign Exchange:
The simultaneous transaction of one currency for another.

Foreign Exchange Market:
The Foreign exchange market is a large, growing and liquid financial market that operates 24 hours a day. It is not a market in the traditional sense because there is no central trading location or "exchange". Most of the trading is conducted by telephone or through electronic trading networks. The primary market for currencies is the "interbank market" where banks, insurance companies, large corporations and other large financial institutions manage the risks associated with fluctuations in currency rates.

ISO Currency Codes:
USD = US Dollar
EUR = Euro
JPY = Japanese Yen
GBP = British Pound
CHF = Swiss Franc
CAD = Canadian Dollar
AUD = Australian Dollar
NZD = New Zealand Dollar

Market Maker:
A market maker provides pricing and liquidity for a particular currency pair and stands ready to buy or sell that currency at the quoted price. A market maker takes the opposite side of your trade and has the option of either holding that position or partially or fully offsetting it with other market participants, managing their aggregate exposure to their clients. If a market maker chooses to keep the trader's position without offsetting it in the market, the trader's profit is the market maker's loss and vice versa, leading to a possible conflict of interest between the trader and his market maker. A market maker earns their commission from the spread between the bid and offer price.

Resistance:
Resistance is a technical price level where sellers outweigh buyers, causing prices to bounce off a temporary price ceiling.

Standard Account:
Trading with standard lot sizes, generally 100,000 units of the base currency. e.g. The pip value is $10 for EUR/USD.

Sell Quote / Bid Price:
The sell quote is displayed on the left and is the price at which you can sell the base currency. It is also referred to as the market maker's bid price. For example, if the EUR/USD quotes 1.3200/03, you can sell 1 Euro at the bid price of US$1.3200.

Long Position:
A position in which the trader attempts to profit from an increase in price. i.e. Buy low, sell high.

Short Position:
A position in which the trader attempts to profit from a decrease in price. i.e. Sell high, buy low.

Spot Market:
The market for buying and selling currencies at the current market rate.

Rollover:
A spot transaction is generally due for settlement within two business days (the value date). The cost of rolling over a transaction is based on the interest rate differential between the two currencies in a transaction. If you are long (bought) the currency with a higher rate of interest you will earn interest. If you are short (sold) the currency with a higher rate of interest you will pay interest. Most brokers will automatically roll over your open positions allowing you to hold your position indefinitely.