Forex FAQ - Terms & Definitions

We'll define some of the most commonly used terms in the FX trading world.


An Ask, also known as an Offer, is the lowest price that a market participant is willing to sell the currency pair (or any other financial instrument).

Base Currency

The currency on the left side of a currency pair is the Base Currency. For example: On the GBP/USD pair (British Pound vs US Dollar), the British Pound (GBP) is the base currency. Also see Quote Currency.

Best Ask

The Best Ask is the lowest price, among all displayed orders in a particular market, that a liquidity provider is willing to sell (or short sell) a currency pair (or any other financial instrument). The significance of this price is that this is the best price that a trader, who places a market order to buy immediately, can buy the currency pair (or other asset) for at any given moment in time. Considering that Forex is a decentralised market, this applies only to the liquidity providers participating within a particular market. In the case of an ECN or STP brokerage feed, this is only the best price among the connected liquidity providers on the brokerage firm's liquidity pool, which is not necessarily a national or global best price.

Best Bid

The Best Bid is the highest price, among all displayed orders in a particular market, that a liquidity provider is willing to buy a currency pair (or any other financial instrument). The significance of this price is that this is the best price that a trader, who places a market order to sell immediately, can sell (or short sell) the currency pair (or other asset) for at any given moment in time. Considering that Forex is a decentralised market, this applies only to the liquidity providers participating within a particular market. In the case of an ECN or STP brokerage feed, this is only the best price among the connected liquidity providers on the brokerage firm's liquidity pool, which is not necessarily a national or global best price.


A Bid is the highest price that a market participant is willing to buy the currency pair (or any other financial instrument).

Currency Pair

Currency Pairs are the objects of trading in the foreign exchange market. Forex traders cannot trade a single currency by itself because every currency's value can only be found in relation to another currency. For example, the prices of the pair NZD/USD (New Zealand Dollar vs US Dollar) is effectively the price of the New Zealand Dollar in terms of US Dollars. If you buy One Standard Lot (100,000) of the NZD/USD at 0.7650 then you have purchased 100,000 New Zealand Dollars for the price of 0.7650 US Dollars each. (If you sell One Standard Lot of NZD/USD at the same price, then you have borrowed 100,000 New Zealand Dollars in order to sell it at the price of 0.7650 US Dollars each, for the purpose of buying back the same amount later on to close the position.) Please note that these transactions are not literal transactions as the interbank FX market consists entirely of banks and institutions who extend credit to each other. No funds will change hands until settlement. In retail foreign exchange, this process is virtualised using over-the-counter contracts to simplify the process for individual traders. Also see Base Currency, Quote Currency, and Short Sell.


An account's equity is the overall value of the account at the present moment in time. Your trading account's equity is calculated as: Current Balance + Unrealised Profits - Unrealised Losses + Positive Swap Credits - Negative Swap Charges - Commissions (if any). In effect, it is the net worth of your trading account if you were to close all open positions immediately. (Note: In financial markets, the term equity or equities also refers to stocks/shares which are fractions of ownership in a company. For example, the ASX is a major exchange in the Pacific region's equity markets. This use of the term equity has no direct relation to the term used in the context of an account's value especially when used in relation to margin calculations.)

Expert Advisor (EA)

Expert Advisors (or EAs) are automated trading systems which place trades in an account without human intervention, also known as Forex Robots, algorithms, or other combinations of the terms. Generally, the term Expert Advisor or EA refers specifically to such systems coded for the MetaTrader platform in the MQL (MetaQuotes Language) programming language.

Free Margin

Free Margin refers to the amount of equity remaining in a trader's account at the present time which may be used to open new positions. This is calculated using the current account equity (see Equity) minus the amount of margin required to support to currently open positions (if any).

Initial Margin

The amount of equity (see Equity) required to open a new position (long or short).


In the financial markets, instrument typically refers to any asset which can be traded. This includes over-the-counter contracts such as Currency Pair contracts as well as other instruments such as shares in a company or a government-issued bond.

Limit Order

A Limit Order is an order to buy or sell a Currency Pair (or any other financial instrument) with the condition that the order can only be filled at a price equal to or better than the attached limit price. For example, a Limit Buy order for 1 Lot of the AUD/USD with a limit price of 1.0150 attached to it will stipulate that the trader will only buy 1 Lot of AUD/USD at the price of 1.0150 or lower. If the current market has no participants willing to sell at 1.0150 or lower (in other words, the best Ask among connected market participants is higher than 1.0150) then this Limit Buy order will not be filled. Likewise, a Limit Sell order can be placed which would specify the price at which the trader is willing to sell (or short sell) at or better (higher, in the case of a seller) so if there are no buyers connected to the same network who is willing to buy at that price or higher (the Best Bid is lower than the Limit Price on the sell order) then such a Limit Sell order will not be filled. Also see Market Order.

Lot / Lot Size

In the currency market, a Standard Lot is typically recognised as 100,000 of the Base Currency when trading any particular Currency Pair. For example, one Standard Lot of EUR/USD is 100,000 EUR (which is typically not equal to 100,000 of the Quote Currency unless the price of the pair is traded at exactly 1.0000). Traditionally, many financial markets were traded based on a reference size of One Lot. (For instance, in the US, one Lot of company shares is 100 shares.) In the FX market, the standard lot was originally the smallest size that most of the interbank market participants were willing to transact on any given trade. Today, depending on the individual deals between brokerages and institutional liquidity providers, it is often possible to transact smaller sizes on a single trade. However, such a size remains relative to the original Standard Lot size. For example: One Mini Lot (10,000) is often referred to as 0.10 Lots (because 0.10 x 100,000 = 10,000). Likewise, five micro lots (5,000) is typically traded as 0.05 Lots. On the opposite end, an amount of 10,000,000 (ten million) of a Base Currency in a Currency Pair would be referred to as 100 Lots (because 100 x 100,000 = 10,000,000).

Long Position

A Long Position is the status that a trader is in after buying an asset to open a position. (This is different from the buying that a trader must perform to close an opened Short Position. See Short Sell.) Effectively, a long position is a trader's bet that the asset will rise in price.


The amount of collateral (whether in the form of cash or marked-to-market value of open positions) required to support an open position in a margin trading account. Currencies (FX) are typically traded on margin. In the interbank market, FX transactions are traded based on credit relationships between banks who are participating in the market.

Market Order

A market order is an order entered by a trader that specifies that he/she wishes to buy or sell (or short sell) at an immediately marketable price. Unlike a Limit Order, there is no limit to the price at which such a trader is willing to transact with this order. In practice, a Market Buy order is intended to buy immediately at the Best Ask price. Likewise, a Market Sell order is intended to sell (or short sell) at the Best Bid price. Also see Limit Order.

MetaTrader (MT4)

MetaTrader is the world's most popular retail FX trading software, developed by MetaQuotes Software Corp. MetaTrader 4 was originally designed for dealing desks at the early stage of the retail Forex industry. As the industry matured, various developers began to design bridge software to connect the MetaTrader platform to institutional liquidity providers. The implementation of MT4 available at BNFX is connected to custom MT4 Bridge software custom built for our cloud-based ECN aggregation system.


MQL stands for MetaQuotes Language. It is the programming language, designed by MetaQuotes Software Corp., used for coding automated trading systems (Expert Advisors) as well as custom indicators and scripts for the MetaTrader trading platform. MQL is similar in syntax to the C language and includes many functions designed specifically for automated FX trading and/or the display or calculation of FX data. MQ4 is the 4th version of the MQL language which is used for the popular MetaTrader 4 (MT4) software.

Open Position

If a trader has bought an amount of a Currency Pair (that he/she did not Short Sell previously) but has not yet sold the said amount of the Currency Pair; or, if a trader has short sold an amount of a Currency Pair (that she/she did not Buy previously) but has not yet bought the said amount of the Currency Pair to cover; then he/she is holding an Open Position. In effect, an Open Position refers to the condition when a trader remains economically exposed to the price changes in the market. When a trader has closed such a position (sold after taking a Long Position or bought to cover after taking a Short Position), he/she is said to be "Flat", meaning he/she is no longer economically exposed to any further price changes in the particular market.


Traditionally, a pip was defined as the smallest increment in the pricing of a Currency Pair. This definition is now obselete as institutional pricing has long moved down to an extra decimal place, commonly referred to as a "sub-pip" or fractional pips. In reality, the pip value is always the price as read up until the fourth (4th) digit after the decimal place on most Currency Pairs. The only exceptions are JPY-Quoted Currency Pairs (pairs which have the JPY on the right side of its name) because unlike most of the world's major currencies, the Japanese Yen is effectively used as an equivalent to a cent or pence in other currencies. (To further this perspective, keep in mind that a domestic music CD in Japan is priced in the range of 3000 JPY, which would be comparable to a $30.00 or 3000 cent CD in the domestic pricing of other majors.) For this reason, the pip value of JPY-Quoted pairs is actually the second (2nd) digit after the decimal place. Also see Sub-pip.


A quote on any given Currency Pair (or any other financial instrument) generally consists of the Best Bid price (the highest price at which a liquidity provider is willing to buy) together with a Best Ask price (the lowest price at which a liquidity provider is willing to sell). Not to be confused with a Quote Currency.

Quote Currency

The currency on the right side of a currency pair is the Quote Currency. For example: On the GBP/USD pair (British Pound vs US Dollar), the US Dollar (USD) is the quote currency. Also see Base Currency. Do not confuse this with the currency in which your trading account is denominated. The only criteria for Quote Currency is that it is found on the right side of the currency pair's name/symbol, it has nothing to do with your own account. For example, the quote currency of USD/JPY is the JPY (Japanese Yen) and the quote currency of the EUR/CHF is the CHF (Swiss Franc), regardless of whether your account balance and margin is denominated in any other currency.


A Re-Quote is the infamous phenomenon, originating from the MetaTrader software, in which a trader attempts to place a Market Order and receives an error message quoting a new price for the order rather than an instant fill of the order. Unfortunately, the practice of using Re-Quotes was commonly used by dealing desk brokers against traders to reduce or negate traders' profits. Re-Quotes should not happen often on an ECN; however, it remains a possibility due to technical issues as the MT4 Bridge to the ECN aggregator must confirm an order fill against a liquidity provider on the cloud network before it confirms the trade to the MetaTrader terminal. Still, Re-Quotes should happen very rarely regardless, as our live servers were placed in strategic geographical locations to avoid significant latency during this process. If you are an ECN client experiencing regular Re-Quotes, please contact the technical support department immediately as there may be a serious technical problem on the live trade servers. (Unlike dealing desk brokers, an ECN broker does not benefit from this phenomenon so please let us know if it happens.)

Short Sell / Short Position

The concept of Short Selling is, for the purpose of trading, a bet on the fall of an asset's value. Once a trader has short sold an asset, he/she is said to have taken a "Short Position". "Taking a short position" is the opposite of buying (aka. "taking a long position" which is effectively betting on the rise of an asset's value) and, like buying to open long positions, a short sell also opens a new position from the perspective of a trader's account. (This is different from selling an asset after having bought it, as such a sale would be used to close a position.) While short selling is often mistakenly portrayed in a negative light by mainstream media, the role of short sellers is extremely helpful to the efficiency and stability of a double-auction market. By allowing individuals as well as institutional market makers to short sell, the market consists of a two-sided dynamic rather than a one-sided greed and panic pattern. (More specifically, once a short seller has taken a short position, he/she must eventually close the short position by buying again. Whether he/she manages to buy lower to profit from the short sell or is forced to buy higher to limit potential losses and manage risk, the fact remains that the short seller must eventually buy. As a result, short sellers participating in a market will provide added buying support at a later time, especially as there is no guarantee that the short seller will always be the profitable party in a transaction.)


Slippage is a phenomenon in any double-auction market in which the Best Ask or Best Bid changes immediately after the entry of a Market Order. In any real double-auction market, Slippage may happen at any time but in theory could happen in favour of or against the trader. Unfortunately, due to underhanded practices by dealing desk brokers in the retail FX industry, many individual currency traders have come to know of the concept of Slippage only in its negative form. While it is entirely possible for negative slippage to happen more often than positive slippage due to a trader's particular style of trading (for example, if a trader attempts to "straddle" the price prior to periods of predictable volatility) there should remain instances of positive slippage on occasion. In any case, despite the bad name given to slippage by the manipulation of dealing desk retail FX brokers, it should be noted that real slippage happens in every double-auction market including the centralised exchanges. A true ECN brokerage has no interest in creating artificially manipulated slippage; however, the ECN also cannot control instances of negative slippage which do naturally occur as result of liquidity providers cancelling Bids/Asks and/or other liquidity takers having absorbed all available liquidity at a particular price level before the trader's order reaches the ECN order matching system.


The difference between the Best Bid and the Best Ask. In other words, it is the difference between the highest price at which a trader may sell (or short sell) immediately and the lowest price at which a trader may buy immediately. Effectively, the spread is a transaction cost. However, as an ECN client, you may place limit orders between the spread in lieu of Market Orders to reduce this effect. Traditionally, the spread is often seen as an artificial difference between the two prices arbitrarily determined by the dealer. (Hence, the common question that individual traders ask, "What are your spreads?"). As a true ECN or STP broker, this factor is not artificially created by the brokerage. Instead, the Best Bid will always be the highest Bid prices quoted by any of the connected liquidity providers and the Best Ask will always be thw lowest Ask price quoted by a connected liquidity provider. Depending on circumstances and market factors, the two prices can originate from two entirely different liquidity providers.


The Swap rate is a factor of the differential between the interest rates of the two countries whose currencies are involved in a Currency Pair. If a trader holds an open position overnight (past roll-over time), the trader will either be charged a fee or will receive a credit depending on the interest rate differential between the two countries involved. For example, as of the writing of this answer, since the interest rates in Australia far exceeds that of Japan, a trader who holds a long position on the AUD/JPY overnight will receive a positive swap credit. While such a practice is often performed as an actual strategy called a "carry trade", traders should exercise caution especially when using high leverage in such a transaction as an eventual market movement against such a position can negate and far exceed the gains received from such a strategy. Conversely, a short position in the AUD/JPY would be relatively expensive to hold overnight as the effect of a short AUD/JPY position is economically equivalent to borrowing AUD (at a high interest rate) to buy JPY (which yields low interest). While the circumstances of the example currencies may change over time, the basic concept of the above example should continue to apply so long as you keep in mind that it was intended as an example during a time when the Australian interest rates far exceeded those of Japan.


A Sub-Pip is the next digit after the Pip digit in a quote or price of a Currency Pair. Specifically, it is the fifth (5th) digit after the decimal place of most currency pairs; the third (3rd) digit after the decimal place of Japanese Yen Quoted pairs. (See the definition of Pip for more on this and why.) The emergence of Sub-Pips in interbank trading arose for similar reasons to fractional-cent pricing in the American stock exchanges (for example, day traders in the equity markets often trade American shares at prices such as 10.345 as one would notice by watching the consolidated tape of any high volume symbol on the US exchanges, despite the fact that displayed quotes in their markets cannot be displayed at intervals smaller than one cent apart if the shares trade above 1.00 USD). At the large sizes traded by most institutions in the interbank FX market, an increase in the fidelity of pricing makes perfect sense and has contributed to the much better pricing (and subsequently, tighter spreads) available today to both institutional and individual traders such as clients of true ECN brokerages.

Trading Platform

Trading Platform generally refers to the software package used by a trader to place trades on a financial market. For example, MetaTrader is the most popular trading platform for individual Forex traders around the world today.

Unrealised Profits or Losses

An unrealised profit or loss refers to the amount that a currently-open trade would lock in (whether it may be a gain or a loss) if the trade were to be closed immediately at the current market price. (For a long position, the market price is the Best Bid quoted which is the highest price that the currency pair could be sold for at the immediate moment. For a short position, the market price is the Best Ask quoted which is the lowest price that the currency pair could be bought for at the immediate moment.) Professional traders typically follow a trading plan (a specific criteria for closing out a trade, whether at a profit or at a loss to manage risk) rather than reacting with knee-jerk emotional reactions (fear and greed) to every momentary change in the unrealised profit or loss numbers.

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The frequently asked questions (FAQ) section of this web site is provided for informational purposes only. The views expressed by the writer of the answers in many general question categories may not reflect the views of the Company or its regional branches and subsidiaries. This information is provided "AS IS" and neither its author(s) nor the owner of the web site shall be held liable for any errors or omissions. Additionally, none of the statements contained herein shall be construed as advice to buy or sell any specific investment vehicle or trading instrument at any particular point in time.
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