Beginner Investing: FOREX Glossary

When I was a beginner investing in the stock market, I did as you’re doing right now. Reading investing blogs and sites, learning new things, trying some of them and discarding others.

I’ve learned quite a lot and still have more to learn. As I increase my knowledge in investing, I will share it here, with you.

FOREX, which stands for the Foreign Exchange, is relatively new to me. Like everything else that I want to invest in, I make it a point to learn all that I can about the opportunities that are out there for us to trade, invest and profit in.

In this post I will list some of the key words and terms that are used when trading currencies. Don’t worry, none of the words or terms will force you to learn another language to understand them-lol. In no particular order I will list some of the basic ones for now and in a later post I will go continue with others. If you have any to add, feel free to leave them in a comment and I’ll add them in a later post.

Commodity Futures Trading Commission (CFTC)
The Commission is a United States agency that Congress set up in 1974. The duties of the commission is to monitor trades in commodities, futures as well as options for any fraudulent practices. They have the power to fine and/or suspend and companies or traders who are in breech of any trading laws.

Currency Pairs
All FOREX trades are based on the pairing of currencies. One currency is traded against another (i.e. the US dollar/Japanese Yen. You would see it listed as US/JPY 115.95. How you would read that is the base currency is the US dollar and for every dollar that is traded, you will receive 115.95 yen in return.

Point
The minimum change that a price can move. Often referred to as a pip (price interest point).

Majors
When a trader or investor refer to “The Majors” it’s refers to the more popular traded currencies like the US dollar, Euro, Japanese Yen, the British Pound, Canadian Dollar, Swiss Franc and the Australian Dollar.

Fundamental Analysis
A method that is used by brokers and traders to predict price movement within a stock. It involves key data like earnings, dividend payouts as well as risk evaluation.

Base Unit/Currency
This is the first currency quoted in a pair, it is used to measure profit or loss. An example is EUR/US 1.32, which means that for every one Euro it will be traded for $1.32 of US currency. The base unit will always have a value of 1.

Convertible Currency
A convertible currency is one that does not require authorization from a central bank in order to be traded freely against other currencies in the FOREX market.

European Monetary Union (EMU)
A union consisting of eleven European countries, Germany, Italy, Luxembourg, France, Finland, the Netherlands, Austria, Belgium, Portugal, Spain and Ireland. The union is responsible for establishing the Euro which replaced the national currencies of the EMU members in 2002.

LIBOR
LIBOR is an Acronym which stands for London Interbank Offered Rate. They are the Federal Reserve funds rate of the UK. It refers to the interest rate that are charged by banks to other banks when exchanging monies.

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