Forex Trading Glossary

Forex Glossary!

Comprehensive glossary provides definitions of the most commonly used terminology in the Forex markets. We hope that this is a useful tool for your Forex knowledge base.

【Ａ】

Arbitrage

Making a profit from differences in the price of a single currency pair which is traded in more than one market.

At Best

An instruction given to a dealer to buy or sell at the best rate that can be obtained at the moment.

Automated Trader

A trader who uses an automated system to trade without any human input.

【Ｂ】

Back Testing

A method for checking the potential profitability of a trading system by applying it to historical data.

Bundesbank

Germany's central bank.

【Ｃ】

Carry Trade

Refers to the simultaneous selling of a currency with a low interest rate, while purchasing a currency with a high interest rate.

Central Bank

A government or quasi-governmental organization that manages a country`s monetary policy and or prints a nation's currency. For example, the US central bank is the Federal Reserve, and others include the ECB, BOE and BOJ.

Chartist

An individual who uses historical data and charts to find trends and predict future movements.

Clearing

The process of settling a trade.

Close a Position

To eliminate an investment from one's portfolio by either buying back a short position or selling a long position.

Commission

A transaction fee charged by a broker.

Convertible Currency

Currency which can be freely exchanged for other currencies or gold without special authorization from the appropriate central bank.

Counter Party

The customer or bank with whom a foreign exchange deal is made.

Country Risk

Risk associated with a cross-border transaction, including but not limited to legal and political conditions.

CPI

Consumer Price Index is the statistical measure of inflation based on changes of prices of a specified set of goods.

Cross Currency

A pair of currencies that does not include the US dollar.

Currency Pair

The two currencies that make up a foreign exchange rate.

Current Account

One of two parts of a nation's balance of payments (the other is capital account). It is a record of all trade, exports and imports, between a nation and the rest of the world. The current account is separated into merchandise, services, and what's called unilateral transfers. The merchandise part is nothing other than the well-known balance of trade. There's also a lesser known balance of services -- the difference between services imported and exported.

【Ｄ】

Day Order

An order which remains open until the end of the trading hours for that day.

Day Trader

An individual who trades during the day but carries no overnight positions.

Dealer

An individual or firm that acts as a principal or counterpart to a transaction.

Deficit

A negative balance of trade or payments.

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.

Delivery

An FX trade where both sides make and take actual delivery of the currencies.

Depreciation

A fall in the value of a currency due to market forces

Derivative

A contract that charges in value in relation to the price movements of a related or underlying security, future or other physical instrument. An option is one of the most common derivative instruments.

Discount Rate

The Interest rate that an eligible depositary institution is charged to borrow short-term funds directly from the Federal Reserve Bank or Central Bank.

Devaluation

The deliberate downward adjustment of a currency's price normally by official announcement.

Durable Goods Order

An economic indicator that marks a change in the sales level of products that have a lifespan of three years or more.

【Ｅ】

ECB

European Central Bank. The main regulatory body of the European Union financial system.

Elliot Wave

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.

EMS

European Monetary System.

Escrow Account

A segregated account where client's money is kept separate from a dealer's operating funds.

EURO

The currency of the European Monetary Union

【Ｆ】

Factory Orders

The dollar level of new orders for both durable and nondurable goods. This report is more important than the durable goods report which is released earlier in the month.

Federal Open Market Committee

Committee made up of Federal Reserve members who meet eight times a year to discuss current monetary policy and its effect on the present economy, and address any possible changes.

Federal Reserve

The Central Bank of the United States.

Fed fund rate

The interest rate on Fed fund account balances that is closely monitored to gauge the Fed's view on the economy.

Fed Meeting

The federal Reserve System is the US central bank responsible for conducting US monetary policy by influencing money and credit conditions in the economy.

First In First Out

A contract clause that excuses one or both parties from fulfilling all or part of their contract obligations in the event of an extraordinary event, such as a war or "act of God," that makes fulfillment of the contract extremely difficult or impossible.

Foreign Exchange

The simultaneous buying of one currency and selling of another.

Forward

The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based on the interest rate differential between the two currencies involved.

Fundamental Analysis

Analysis of economic and political information with the object of determining future movement in a financial market.

Futures

A way of trading financial instruments for a specific price on a specific date in the future. Unlike options, futures give the obligation to buy or sell instruments at a later date. They can be used to both protect and to speculate against the future value of the underlying product.

【Ｇ】

G7

The seven leading industrial countries (US, UK, Germany, Japan, France, Canada, Italy).

Going Long

The purchase of a currency.

Going Short

The selling of a currency pair.

Golden Cross

In technical analysis, when a short-term moving average breaks through a long-term moving average upward, it is considered that the currency has set an up-trend.

GDP

Total value of a country's output, income or expenditure produced within the country's physical borders.

GNP

Gross domestic product plus income earned from investment or work abroad.

GTC Order

An order which remains open until filled or until the client cancels.

【Ｈ】

Head and Shoulders

A price trend pattern which has three peaks, the middle one being higher than the surrounding two, forming what looks to be a head with two shoulders on either side. When this pattern is seen, the pair of currencies is expected to decline substantially sometime in the future.

Hedge

A position or combination of positions that reduces the risk of a primary position.

Hedge Fund

A private fund which usually solicits investments from wealthy individuals. It has a speculative nature as it is unregulated.

【Ｉ】

Inflation

An economic condition whereby prices for consumer goods rise, eroding purchasing power.

Initial Margin

The initial deposit of collateral required to enter into a position as a guarantee on future performance.

Interbank Market

The Interbank Market is the currency market for Foreign Exchange - the international market for currencies. The Interbank Market is the largest market in the world dealing in about $1.9 trillion daily turnover.

Interbank Rate

The foreign exchange rates at which large international banks quote other large international banks.

Intervention

Action by a central bank to impact the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.

Introducing Broker

A person or corporate entity which introduces clients to Hirose for a fee.

【Ｋ】

Kiwi

Slang for the New Zealand dollar.

【Ｌ】

Leading Indicators

Economic indicators used to predict future economic activity, such as the levels of the S&P 500 index.

Leverage

The ratio of the amount used in a transaction to the required margin deposit.

Libor

The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.

Limit Order

An order to buy or sell at a more advantageous level than where the market last traded.

Liquidity

The ability for a market to accept large transactions with minimal to no impact on price volatility.

Long Position

When the base or trade currency is bought, the position is said to be long.

Lot

A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.

【Ｍ】

Managed Account

An account for which the account holder gives the broker the holder's authorisation to buy and sell foreign currencies on his or her behalf. It is also widely known as discretionary account.

Margin

The required equity that an investor must deposit to collateralise a position.

Margin Call

A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the client.

Market Maker

A dealer who provides a bid and ask price in which they stand ready to buy and sell. In this way, dealers are also known as market makers.

Market Risk

Exposure to changes in market prices

Mark-to-Market

Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirement.

Maturity

The date for settlement or expiry of a financial instrument.

Meta Trader 4 Mobile

Meta Trader 4 Mobile program is comparable with full-functioning trading terminal. You have the possibility of full access to financial markets and making deals from anywhere of the world.

Middle Rate

The price halfway between the bid and ask offered by dealers.

Mine and Yours

When traders want to buy, they may say 'Mine'. This would also be known as taking the offer. To sell they say 'Yours'. This is known as hitting the bid.

Momentum

The measure of the currency's ability to move in the given direction.

Moving Average

One of the most basic technical indicators. It shows the average rate calculated over a series of time periods.

【Ｎ】

Net Position

The amount of currency bought or sold which has not yet been offset by opposite transactions.

【Ｏ】

Offer (ask)

The rate at which a dealer is willing to sell a currency.

One Cancels the Other (OCO)

A designation for two orders whereby one part of the two orders is executed and, the other is automatically cancelled.

Online Broker

A brokerage that provides trading services to its clients over the Internet.

Open Position

An active trade with corresponding unrealised P&L, which has not been offset by an equal and opposite trade.

Over the Counter

Used to describe any transaction that is not conducted over an exchange.

Overnight Position

A trade that remains open until the next business day.

Order

An instruction to execute a trade at a specified rate.

【Ｐ】

Personal Income

Measures an individual's total annual gross earnings from wages, business enterprises and various investments. Personal Income is the key to personal spending, which accounts for 2/3 of GDP in the major economies.

Pips

The smallest unit of price for any foreign currency. Digits added to or subtracted from the fourth decimal price, i.e. 0.0001. Also called Points.

Pivot Point

The primary support/resistance point calculated based on the previous trade's high, low and closing prices.

PPI

Producer Price Index, a measure of wholesale prices of goods and services.

Profit /Loss (P/L)

The actual realized gain or loss resulting from trading activities on Closed positions, plus the theoretical unrealized gain or loss on Open positions that have been Marked-to-Market.

【Ｑ】

Quote

A two-way market price containing the bid and offer price.

【Ｒ】

Rally

A recovery in price after a period of decline.

Range trading

Range trading is a tactic that includes buying when prices veer towards lower support levels and selling when prices veer to wards upper resistance levels.

Resistance

A term used in technical analysis indicating a specific price level at which the current uptrend is expected to halt.

Retail Sales

Measures the monthly retail sales of all goods and services sold by retailers based on a sample. This data gives a look into consumer spending behavior, which is a key determinant of growth in all major economies.

Revaluation

An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation.

Risk

Exposure to uncertain change, most often used with a negative connotation of adverse change.

Roll-Over

A roll-over is the interest paid or earned on an open position created in the past at the close of the NY trading at 1700 hours Eastern Standard Time, reflecting the interest rate differential between the two currencies.

Round Trip

Buying and selling (opening and closing of a trade) of a specified amount of currency.

【Ｓ】

Scalping

A style of trading notable by many positions that are opened for extremely small and short-term profit.

Short Position

A position that benefits from a decline in market price. When the base currency of the pair is sold, the position is said to be short.

Slippage

Execution of order for a price different than expected (ordered).The main reasons for slippage are fast (or volatile) markets, low liquidity, and a broker's in ability to execute orders at a predetermined price.

Spot Market

A physical market in which foreign currencies are bought and sold for cash at the current market price, settle on the spot and delivered immediately.

Spread

The difference between the bid and offer prices.

Square

Purchase and sales are in balance and thus the account holder or dealer has no position.

Sterling

Slang for British Pound.

Stop Loss Order

Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor's position.

Support Level

A technique used in technical analysis that indicates a specific price level at which a current declining trend is expected to correct by itself. Opposite of Resistance.

【Ｔ】

Take Profit Order

A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on that position.

Technical Analysis

An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open, interest, etc.

Tick

The minimum change in price, up and down.

Trade Balance

Measures the difference in value between imported and exported goods and services. Nations with trade surpluses (exports greater than imports), such as Japan, tend to see their currencies appreciate, while countries with trade deficits (imports greater than exports), such as the US, tend to see their currencies weaken.

Trading Platform

The set of software and technical resources that support financial market trading information to be received in real time; processes trading operations, takes into account mutual obligations between the client and the dealer, and observes conditions and restrictions as well. For the purposes of the present regulation, it consists of the "Server" and "Client" terminals.

Trading through API

A way of Trading conducted through an Application Programming Interface, which is used in foreign exchange market for automated software trading.

Transaction Cost

The cost of buying or selling a financial instrument.

Trend

The current general direction of price movement

Trend Line

These are straight lines, with a positive slope, drawn on a graph through low points when tendencies are rising, and with a negative slope, drawn through the high points when tendencies are on the decline. These lines define the current trends. Trend line gaps usually signal tendency changes.

Turnover

The total money value of all executed transactions in a given time period.

Tow-way Price

When both bid and offer rates are quoted for a FX transaction.

【Ｕ】

Unrealized P/L

The theoretical profit or loss on open positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Profit/Loss becomes Profit/Loss when the position is closed.

Uptick

A new price quoted at a price higher than the preceding quote.

US Prime Rate

The interest rate at which US banks lend their funds to their prime corporate customers.

【Ｖ】

Value Date

The date on which counterparts to a financial transaction agree to settle their respective obligations.

Volatility

A statistical measure of a market's price movements over time.

【Ｗ】

Wholesale Price

Measures the changes in prices paid by retailers for finished goods.