Forex glossary


A Aggregated Risk:A bank’s exposure to Forex contracts from a single customer.
Agio: A fee charged to exchange money from one currency to another.
Ask: The price at which sellers are willing to sell a currency pair, also known as the ‘offer’, ‘ask price’, and ‘ask rate’.
Asset Class::An item that has value; an investment such as stocks, options, or Forex.
AUD/USD: The abbreviation for the Australian dollar and U.S. dollar (AUD/USD) currency pair or cross. The currency pair tells the reader how many U.S. dollars (the quote currency) are needed to purchase one Australian dollar (the base currency).
Automated Dealer: A trader who uses an automated system to input trades without any human input.
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B Backoffice: The office location, or department, where the processing of financial transactions takes place.
Band: In countries where the currency is pegged, the range in which the rates are permitted to fluctuate.
Bank Rate: The rate at which a central bank is prepared to lend money to its domestic banking system.
Banking Day: Days of the week when commercial banks are open for business in the country of the particular currency traded.
Bar Charts: A popular format for studying the price action of currency pairs.
Base Currency: In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the Euro is the base currency.
Basis Point: One hundredth of one percent, or 0.0001.
Basket of USD Short: A number of operations where the USD is being sold against various currencies.
Bear: A trader who believes prices will fall.
Bear Market: An extended period of general price decline in an individual security, an asset, or a market.
Bid: The price at which an investor can place an order to buy a currency pair; the quoted price where an investor can sell a currency pair. This is also known as the ‘bid price’ and ‘bid rate’.
Bid/Ask Spread: The point difference between the bid and offer (ask) price.
Broker: An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks, bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries, affiliates and partners in many countries.
Brokerage: A company that offers trading services to the public.
Bull: Trader who believes that prices will rise.
Bull Market: A market that is on a consistent upward trend.
Buy Limit Order: An order to execute a transaction at a specified price (the limit) or lower.
Buy on Margin: The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.
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Carry Currencies: High interest rate currencies.
Carry Positive: A carry trade where you are long the high interest currency and short the low interest currency. Excluding the volatility of the currency pair, this forex strategy is profitable based on the interest rate differential between the two countries.
Cash on Deposit: Funds deposited in a trading account.
Chartist: A person who attempts to predict prices by analysing past price movements as recorded on a chart.
Closed Position: A transaction that offsets the number of units in a previous open position. In the case of a long position, selling the exact number of units so that your exposure in the market is zero.
Commission: The fee that a broker may charge clients for dealing on their behalf.
CPIConsumer Price Index: A month-to-month economic indicator, which gauges changes in the cost of living by measuring price changes in a common basket of goods and services that most people use, such as food, clothing, transportation, and entertainment.
Conversion Rate: The value of one currency exchanged for another currency.
Correlation: A statistical term that refers to a relationship between two seemingly independent things. In Forex for example, one could argue that the Euro and the Sterling have a higher correlation than, for example, the Euro and the Brazilian Real.
Counterpart: A participant in a financial transaction.
Counterparty: The other party in a Forex deal. In online spot Forex, the counterparty is the market maker.
Country Risk: By virtue of economic, political, and geographical factors, some countries are more stable than others. Country risk in reference to Forex means the stability of the currency and the creditworthiness of its bonds.
Cross Rate: The exchange rate between 2 currencies where neither of the currencies are USD.
Currency Code: The currency codes are specified by ISO 4217. Most codes are composed of the country’s two-character country code, and the first character of the national currency name.
Currency: Money issued by a government. Coins and paper money. It is a form of money used as a unit of exchange within a country.
Currency Pair: The two currencies in a foreign exchange transaction. The “EUR/USD” is an example of a currency pair.
Currency Risk: The risk that shifts in foreign exchange rates may undermine the dollar or any other foreign currency value of overseas investments.
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Day Order: A buy or sell order that will expire automatically at the end of the trading day on which it is entered.
Day Trade: A trade opened and closed on the same trading day.
Day Trader: A trader who tries to profit from short-term price movements, often taking and closing a position within the same trade day.
Deal Blotter: A list of all the deals that were done in a trading day.
Deal Date: The date a transaction is entered.
Deal Ticket: A record of the basic details of a transaction that a dealer keeps, as opposed to the statements that customers receive.
Dealer: An individual or firm that buys and sells assets from their own portfolio, acting as a principal or counterparty to a transaction.
Default: Term for breaching a contract.
Deficit: In economics, when the balance of trades or payments are negative.
Deflation: A deep and long-lasting decrease in the price of goods and services within an economy. It is the opposite of inflation, which is an escalation in prices. An extended period of deflation can lead to a deflationary spiral – this is a decrease in prices resulting from reduced demand for goods and services, which leads to lower employment. With fewer people earning wages, demand falls even more and further perpetuates the cycle.
Delivery Risk: Risk where a counter party is not able to fulfil his side of the deal even though he is willing to do so.
Depreciation: When the value of a particular currency falls substantially.
Derivative: A financial contract whose value changes in relation to an underlying security. For example, an option changes value according to the asset that underlies it.
Details: The information necessary to facilitate a Forex transaction. For example, the currency pair, rate, time and date, and the quantity.
Devaluation: When a government allows the value of its currency to weaken in relation to other currencies.
Dirty Float: Exchange rate policy where the value of a currency is allowed to fluctuate, but the central bank will intervene from time to time.
Discretionary Account: An account where a customer allows the institution to make trading decisions and buy and sell on his or her behalf.
Dollar Rate: The amount of foreign currency quoted against one US Dollar. Some currencies are quoted in the amount of US Dollars per foreign currency unit, like the British Pound.
Done: The term used by traders to signal that a contract has been agreed upon.
Drawdown: The size of a drop in the value of an account from its peak to its low.
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Easing: Refers to either a small price decline in a currency or when a central bank engages in monetary policy to spur spending. An example of central bank easing would be lowering of interest rates.
ECN Broker: Forex ECN brokers provide access to an electronic trading network, supplied with streaming quotes from the top tier banks in the world. By trading through an ECN broker, a currency trader generally benefits from greater price transparency, faster processing, increased liquidity and more availability in the marketplace.
Economic Indicator: A statistic that is used to gauge current economic conditions.
Effective Exchange Rate: Explanation of a country’s currency strength or weakness entirely on its trade balance.
Elliot Wave Principle: An attempt to explain market activity by ascribing a pattern of eight waves to any complete cycle. The eight wave patterns consist of a five-stage advance and a three-stage correction.
Entity Trading Account: A trading account that does not belong to an individual, but rather to a company that has designated a person to be responsible for it’s trading decisions.
Escrow Account: A segregated account where customer money is kept separate from a dealer’s operating funds.
Euro Interbank Offered Rate: The Euro Interbank Offered Rate or Euribor is a daily reference rate based on the averaged interest rates at which banks offer to lend unsecured funds to other banks in the Euro wholesale money market or interbank market.
European Monetary System: An arrangement in the 1970s and 1980s where many European countries linked their currencies to prevent large fluctuations in value. It was one of several initiatives leading to the deployment of the Euro.
Exchange: The physical location of trading activity. Some famous examples include the New York Stock Exchange or the Chicago Mercantile Exchange.
Exchange Control: Various devices a central bank uses for controlling the movement of foreign exchange so as to not deplete a country’s reserves.
Exchange Rate: In finance, the exchange rates (also known as the foreign-exchange rate, Forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. For example an exchange rate of 102 Japanese Yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 102 is worth the same as USD 1.
Execution: Completing a trade.
Exit: In the case of a long position, the sale of the long currency. In a short position, the purchase of the short currency, resulting in a closed position.
Exotic: As opposed to the major currencies, which are heavily traded, exotics are the less traded currencies.
Expiration Date: The day on which a financial option is no longer valid.
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Fiat Currency: Fiat currency is the opposite of a gold standard arrangement. In a fiat currency system,the currency value rises and falls on the market in response to demand and supply pressures. It is this fluctuation that makes it possible to speculate on future currency values.
Fill: Completing an order to buy or sell.
Fill or Kill: An order that must be executed immediately based on certain criteria such as price and quantity. If it cannot be executed, the order is immediately cancelled.
Fill Price: The price at which a buy or sell order goes through.
Fisher Effect: The effect of interest rates on international money movement such that money moves into currencies paying higher interest rates.
Fixed Exchange Rate: Foreign exchange policy where a central bank maintains an official rate for their currency, often intervening to keep the rate fixed within a limited range.
Flexible Exchange Rate: An exchange rate that is fixed, but is re-evaluated frequently.
Floating Exchange Rate: An exchange rate whose value is determined by market forces.
Foreign Exchange: Buying or selling one currency against another currency.
Foreign Exchange Centres: The largest Forex centre in the world is London. Other financial centres, which follow the sun across the sky, are New York, Tokyo, Hong Kong, Singapore, and Zurich. Trading passes from one centre to the next, the traders in one bank’s dealing desk handing off the trading book to their colleagues in another centre.
Forex: Acronym for foreign exchange.
Forex Demo Account: Free Forex Practice Account, trading software and charts. Forex demo accounts allow you to practice Forex trading without risking a monetary loss. Once you’ve sharpened your skills, you can begin to make big bucks by moving on to Forex live accounts.
Forward Contracts: A transaction that settles at a future date. The buyer and seller are bound by the contract to settle on the specified date.
Forward Rates: An exchange rate that differs from the spot exchange rate by forward points. The forward points are either added to or subtracted from the spot rate depending on anticipation of future conditions.
Free Reserves: The margin by which excess reserves exceed borrowings.
Fundamental Analysis: The study of economic factors (GDP, Trade Balance, Employment, and so on) that can influence prices in financial markets.
Fundamental Trader: An investor who uses fundamental analysis.
Funding Currencies: Low interest rate currencies.
Futures: An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange while forwards are traded over the counter (OTC).
FX: An acronym for Forex, Foreign Exchange.
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Gearing: A term related to margin trading where you are controlling a position whose face value is greater than the money you deposit.
Going Long: The purchase of a currency pair.
Going Short: Selling a currency pair by first borrowing it, then returning it at a later time by buying it back (hopefully once prices are lower).
Gold Standard: A commitment made by certain countries to fix the prices of their domestic currencies in terms of a specified amount of gold. Also known as the Bretton Woods System, the Gold Standard was enacted in 1946 and created a system of fixed exchange rates that allowed governments to sell their gold to the United States treasury at a fixed price. On August 15, 1971 President Richard Nixon ended the Bretton Woods system.
Golden Cross: In technical analysis, when two moving averages intersect, usually a short one like a 20 day and a long one such as 40 day. This is considered a favourable sign that the underlying currency will move in the same direction.
Goldilocks Economy:Term that describes an economy that has steady growth and acceptable inflation. In this sense, the economy is not too hot and not too cold.
Grid Trading: A series of positions and open orders that are built with a predetermined spread defined by the trader.
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Hard Currency: A currency that investors have confidence in. Examples could be the US Dollar or the Euro.
Head and Shoulders: A price trend pattern which has three peaks, the middle one higher than the surrounding two forming what looks to be a head with two shoulders on either side. This pattern is seen as an indicator of a trend reversal.
Hedge: A term used to describe reducing risk associated with adverse market movements by using two counterbalancing investments, thereby minimising any losses caused by price fluctuations. For example, if you sell a house in Holland to relocate to the UK (your new base currency), you are in a long Euro (EUR) position and short Pounds Sterling (GBP). To offset this position you would need to sell the equal amount of EUR to make up for the short GBP position.
Hit the Bid: Selling at the bid price.
Holder: Buyer and subsequently owner of a currency pair.
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IFEMA: International Foreign Exchange Master Agreement.
Inflation: A rise in prices or a drop in the purchasing power of money.
Initial Margin: The first deposit by a customer, which determines a corresponding maximum trade size.
Initial Margin Requirement: When entering a position, the minimum amount that must be paid in cash.
Interday Trading: Positions that are opened and closed within the same trading day.
Interest Rate: The rate charged or paid for the use of money. An interest rate is expressed as an annual percentage of the principal. Interest rates often change as a result of inflation and Central Bank policies.
Introducing Broker: A person or firm that introduces customers to a market maker often in return for commission or a portion of the spread.
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Japanese Housewives: A term coined by the financial press to refer to the Japanese households that speculated on the carry trade and became a major seller of Yen, thereby driving the currency against the levels forecast by financial institutions.
Japanese Yen: The Yen is t.he Japanese currency unit. It is the third most-traded currency in the foreign exchange market after United States dollar and the Euro.
Jobber: A trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.
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Kill or Fill: An order that does not permit partial filling. If it cannot be completely filled, then the order is to be cancelled (i.e. “killed”).
Kiwi: Traders term for the New Zealand Dollar.
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Leading Indicators: Economic indicators used to predict future economic activity, such as the levels of the S&P 500 index.
Leverage: The ratio of margin to the maximum position size. With a deposit of $5000 and a leverage of 50, a trader could enter a position with a face value of $250,000. Leveraging allows you to profit quickly, but lose money just as fast.
Liability: The obligation to deliver currency as part of a spot transaction. In speculative Forex trading, currency is not delivered. All profits and losses are subtracted from margin deposits.
Limit Order: An order to transact at a specified price or better.
Line Chart: The simplest form of charting, a line chart plots a series of lines connecting the various price levels over a specified time period.
Liquid: Term used to describe a market where there are lots of buyers and sellers generating a great deal of volume.
Long: When a currency pair is long, the first currency is bought while the second currency is sold short. To go long on a currency means that you buy it. A long position is expressed in terms of the base currency.
Loonie: Dealer slang for the USA/CAD currency pair.
Lots: Standardised method of trading in Forex, which requires a trade of 100,000 units of a particular currency.
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Maintenance: A set minimum margin that a customer must maintain in his margin account.
Maintenance Margin: The minimum margin that must be available in an account to support all open trades.
Managed Float: Exchange rate policy where central banks regularly intervene to stabilise and/or steer the direction of their currency.
Margin: The minimum deposit required to maintain an open position. For example, with an open position of $250,000 and a leverage of 50, the required margin would be $5000.
Margin Account: An account that allows leverage buying and short selling on credit.
Margin Call: A notification that more funds must be deposited into an account because the value of the account has fallen below the minimum margin needed to cover the size of existing positions.
Market Order: An order for immediate execution at the best available price.
Market Rate: The most current quote for a currency pair.
Maximum Leverage: The biggest position that a margin deposit would cover. At a leverage of 50, one could enter a maximum leveraged position of $100,000 by depositing $2,000 worth of margin.
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MetaTrader 4 Mobile: MetaTrader 4 Mobile trading program is comparable with full-function trading terminal. You have a possibility of full access to financial markets and making deals from anywhere of the world. Moreover, technical analysis and graphical visualization of financial instruments are available (including off-line mode – without connecting to server). Trade dealing is done with careful observation of confidentiality and is absolutely safe. If required, you always have the history of completed trade deals.
Moving Average: Method of smoothing out data on price charts so that trends are easier to spot. Average refers to a mathematical average or a statistical mean that is plotted over the original curve.
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NAV: Net Asset Value. The total value of an asset less liabilities. In the case of a trading account, the NAV is the balance of deposits, realised and unrealised profit/loss, and interest, minus withdrawals.
Net Interest Rate Differential: The difference in the interest rates associated with two currencies.
Net Position: Currency positions that have not been offset with opposite positions.
News Trader: An investor who bases his/her decisions on the outcome of a news announcement and its impact on the market.
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Odd Lot: A non-standard transaction size. In Forex, a standard lot is usually 100,000 units of a particular currency.
Offer: Also known as the Ask Price, it is the price at which a seller is willing to sell.
Open Position: A position whether long or short that is subject to market fluctuations and thus profits or losses.
Overbought: A currency pair is overbought when its price rises much more quickly than usual in response to net buying. Once overbought, the pair is then expected to make a contrarian move, meaning its price is expected to fall.
Overnight: Trades that extend past the current trade day into the next.
Oversold: A currency pair is oversold when its price falls much more quickly than usual, declining too far in response to net selling. Once oversold, the pair is then expected to make a contrarian move, meaning its price is expected to rise.
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Par: The official value of a currency.
Pegged: A system where a currency’s value is tied with that of another currency. For example, the Chinese Yuan with the US Dollar. Most pegs are allowed to deviate within a small band.
Pip: The smallest upward or downward price movements quoted in Forex. In EUR/USD, a movement of 0.0001 is one pip (for example, from 140.005 to 140.004 Euro). In USD/JPY, a movement of 0.01 is one pip (for example, from 116.32 to 116.31 Yen).
Political Risk: Changes in government policy or to a wider extent, government instability that might have negative effects on the currency.
Price: The cost of purchasing a second currency in terms of a first currency.
Principals: Refers to the major currencies that are traded.
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Quote: When both a bid and ask price are provided for a currency pair.
Quote Currency: The second currency of two in a currency pair. For the EUR/USD, USD is the quote currency. The exchange rate quoted is how many units of the second currency you will receive for one unit of the base currency.
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Range: The difference between the highest and lowest price of a currency pair during a given trading period.
Rate: Price at which a currency can be purchased or sold against another currency.
Realized P/L: The profit and loss that is generated by closing a position.
Regulated Market: A market in which a government agency monitors and regulates industry activity to protect investors. An example is Forex trading in the United States.
Resistance: Price level at which technical analysts note persistent selling of a currency.
Revaluation: Daily calculation of potential profits or losses on open positions based on the difference between the settlement price of the previous trading day and the current trading day.
Right Hand Side: Refers to the ask or offer price. This is the price at which traders buy.
Risk (Foreign Exchange Risk): The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced.
Risk Capital: The amount of money one could risk without impinging on one’s accustomed lifestyle.
Rollover Credit: Amount credited to a trader’s account when the long currency of a currency pair has a higher yielding interest rate than the shorted currency.
Rollover Debit: Amount debited from a trader’s account because of an overnight rollover, when the long currency of a currency pair has a lower yielding interest rate than the shorted currency.
Rollover Rate: Generally, the daily rollover interest rate is the amount a trader either pays or earns, depending on the currency pairs in question.
Round Lot: In most cases, 100,000 units of a currency.
Round Trip: The buying and selling of a currency pair and having the profit or loss applied to one’s account currency.
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Settlement: When exchange contracts expire. In the currency markets, this is usually two days after the opening of the market. In practice, traders do not pick up their money, but the profits and losses are directly reflected in their account balance.
Short Covering: Short Covering: Buying the same monetary unit to offset an earlier short order.
Spot: Goods that can be bought and sold at the current date and price.
Spot Market: A market that allows people to buy and sell current goods.
Spot Price: The current price in the currency market.
Spread: Difference between buying and selling price.
Stable Market: A market in which large amounts of buying and selling will not generate significant fluctuations in the market. An example would be Euro/Dollar trading.
Sterling: Another name for the British Pound (GBP).
Stop Order: An order to buy or to sell a currency when the currency’s price reaches or passes a specified level.
Swissy: Trader’s nickname for the Swiss Franc.
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Take Profit Order: When executing a buying or selling order according to a customer’s instructions, profits or losses will be immediately reflected in a customer’s balance.
Technical Analysis: Analytically predicting fluctuations in price based on factors such as market data, historical price trends and fluctuating averages, volume, open interest, etc.
Technical Correlation: Technical Correlation: When market prices are determined by levels of technical resistance and support, as well overbuying and overselling, rather than by market sentiments.
Technical Indicators: Tools used by technical analysts use to predict future price changes of commodities.
Tick: The smallest possible change in price, whether up or down; also known as pips.
.Ticker: The name that a trading software assigns to a currency or a commodity.
Trading Model: A complex program that provides you with professional recommendations for buying and selling currencies. This model analyzes historical patterns and external recommendations to predict fluctuations in the foreign exchange market for currencies relevant to your transaction log.
Trading Platforms: A software application for foreign exchange transactions that is often used on the Internet.
Transaction: Buying or selling between a currency pair.
Transaction Cost: The cost of buying or selling between a currency pair.
Trend: The current market direction, be it up, down or constant.
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Unconvertible Currency: Currency that cannot be freely exchanged due to foreign exchange regulations.
Unit: A widely used currency amount. In Forex trading, a unit of the U.S. dollar is equal to one U.S. dollar, the euro, a unit of the yen is equivalent of one yen. One unit is the smallest possible amount in foreign exchange transactions.
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Virtual Balance: Your current balance that can be realized by closing the account. For example, if your actual account balance is $575 and have $25 of profit in open order 2, your virtual account will display a balance of $600.
Volatility: The amplitude of the change in currency over the change in time.
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Working Day: A day when a particular national currency bank is open for business.
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Yard: Term used to describe 1 billion USD worth of dealings.
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