AvA Fx terms and Forex terminology are very useful once understand. This short form dictionary attempts to explain what terms like leverage, currency pairs, margin, stop limit and call mean as an aid to learning about this industry and business of trading currencies, commodities and indices.

1. AVA FX Terms Explained, Quick Reference Forex Dictionary

2. Foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest financial market in the world trading 3-4 Trillion Dollars each day.

3. Currency Pairs - Currencies are traded against one another. Each pair of currencies thus are individual products and are denoted in the following format XXX/YYY, meaning the price of one unit of XXX (called the base currency) is expressed in terms of YYY (called the secondary currency).

4. For example, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.3045 dollar. Out of convention, the first currency in the pair which is the base currency, was the stronger currency at the creation of the pair.

5. Spot Priceor the spot rate of a currency is the price that is quoted for immediate (spot) settlement (payment and delivery). Spot settlement is normally one or two business days from trade date.

6. FX Buy – when you buy the primary currency you sell the secondary currency. When the price goes up you profit, and when it goes down you make a trading loss. When you buy the EUR/USD, you buy the euro and you sell the dollar.

7. FX Sell – when you sell the primary currency you buy the secondary currency. When the price goes up you lose, and when it goes down you gain. When you buy the EUR/USD, you sell the euro and you buy the dollar.

8. FX Spread is the difference between the price available for an immediate sale (bid) and for an immediate buy (ask). The exchange rate between the South African rand and the United States dollar might be 6.50 rand to the dollar. Someone planning to convert rand into dollars might have to pay 6.55 rand for each dollar, while a person looking to convert dollars to rand might receive only 6.45 rand for each dollar he converts. It is written as USDAR 6.45.55, or simply 6.455.

9. FX Rollovers / Premium - On the Ava Trader platform, all open positions are automatically rolled over or swapped to the next business day at 22:00 GMT. A premium is then either added or subtracted based on the interest rate differential between the two currencies being traded.

10. FX Balance & Equity – Balance represents the cash available in your account, while equity represents the current value of your account. For example: you deposited $10,000 and opened a position EUR/USD that gains $800. Your balance is still $10,000, and your equity is $10,800. Once you close your position both your balance and equity will be $10,800.

11. FX Leverage– Most retail forex market makers permit 100:1 leverage but also, crucially, require you to have a certain amount of spare money in your account to protect against a critical loss point. If a $100,000 position is held in EUR/USD on 100:1 leverage, the trader has to put up $1,000 to control the position. However, in the event of a declining value of the position, most forex brokers will close out your position when your margin goes below 1%,. This requires the trader to always keep more than the 1% spare margin.

12. FX Trading Marginis the amount of money that must be available in order to support the open positions in an account. If there are not enough funds in the account, a margin call will be automatically issued.

13. FX Margin Call – When the margin posted in the margin account is below the minimum margin requirement, the broker or exchange issues a margin call. The investor now either has to increase the margin that he has deposited or close out his position. This is done by selling the open positions if he is long and by buying them back if he is short.

14. Forex PIP A percentage in point (pip) = 0.0001 (or 0.01 in Japanese Yen) is the smallest measure of price move used in forex trading. If the currency pair EUR/USD is currently trading at 1.3000 and then the exchange rate changes to 1.3010, the pair moved by 10 pips. The pip is the smallest currency measurement regardless of the fractional representation of the currency exchange rate. Therefore, 1.3000 to 1.3010 is the same move in pip terms as 110.00 to 110.10. Pips are sometimes called points.

15. Forex Interestis compensation paid to a lender for foregoing other investments that could have been made with the loaned money. Instead of the lender using the assets directly, they are advanced to the borrower as a loan. The borrower then has the benefit of using the borrowed assets prior to the effort needed to obtain them, while the lender enjoys the benefit of the fee paid by the borrower for the privilege.

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