The following is an introduction to some of the basic terms and concepts used in forex trading.
Foreign Exchange : The simultaneous buying of one currency and selling of another.
Foreign Exchange Market : An informal network of trading relationships between the world's major banks and other market participants, sometimes referred to as the 'interbank' market. The foreign exchange market has no central clearinghouse or exchange, and is considered an over-the-counter (OTC) market.
Spot Market : Market for buying and selling currencies for settlement within two business days (the value date). USD/CAD = 1 day. Most dealers will automatically roll over your open positions, allowing you to hold a position for an indefinite period of time.
Rollover : The process whereby the settlement of a transaction is rolled forward to the next value date. The cost of this process is based on the interest rate differential between two currencies.
Exchange Rate : The value of one currency expressed in terms of another. For example, if the exchange rate for EUR/USD is 1.3200, 1 Euro is worth US$1.3200.
Currency Pair : The two currencies that make up an exchange rate. When one is bought, the other is sold, and vice versa.
Base Currency : The first currency in the pair.
Counter Currency : The second currency in the pair. Also known as the terms currenc
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