Glossary

When first starting out in the world of Forex, the jargon and terms seasoned traders use can be very confusing to a newcomer. Here’s a list of commonly used words that you will surely come across throughout your time on the foreign exchange market.

A

Ask Price – The price at which the market is prepared to sell a specific currency pair. Also known as the ‘offer’, ‘ask’ and ‘ask rate’.

 

At Best – An instruction given to a dealer to buy or sell at the best rate that he can achieve.

At or Better – An order to deal at a certain rate or better.

Aussie – Trader slang for the AUS/USD currency pair.

B

Balance of Trade – The value of a specific country’s exports minus its imports.

Base Currency – The first currency in a pair is the base currency. For example EUR/USD, the Euro is the base currency.

Bid Price – The price at which the market is prepared to buy a specific currency. It is shown on the left side of the quotation. For example, in the quote USD/CHF 1.4527/32, the bid price is 1.4527; meaning you can sell one US dollar for 1.4527 Swiss francs.

Broker – An individual or firm that acts as an intermediary, who executes orders to buy and sell currencies for a commission or spread.

Bear Market – A market distinguished by falling prices.

Bar Chart – Well known graph format for displaying price action of a currency pair.

Buy Limit – A pending order to buy a currency at a lower price than the current one

Buy Stop – A pending order to buy a currency at a higher price than the current one.

C

Cable – Commonly referring to the Sterling/US Dollar exchange rate.

Candlestick Chart – A chart that indicates the trading range for the day as well as the opening and closing price.

Central Bank – A government or quasi-governmental organization that manages a country’s monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.

Chartist – A person who uses charts to attempt to predict prices by analyzing historical price movements.

Closing a Position – The process in which a trader buys or sells a forex position, resulting in liquidation of the position.

Clearing – The process of settling a trade.

Correlation – The existing relationship between two or more currencies

Counter Currency – The second listed Currency in a Currency Pair.

Currency Pair – The two currencies that make up a foreign exchange rate. For Example, EUR/USD

D

Day Trade – A trade position that is opened and closed on the same day.

Day Trader – A trader who attempts to profit from short term price movements. Closing and opening trades frequently, often within the same day.

Dealer – An individual or firm that operates out of there own portfolio, buying and selling assets. They act as a principal or counter-party to a transaction.

Deficit – Defined in economics as when the balance of trades or payments are negative.

Delivery – A foreign exchange trade where both sides make and take actual delivery of the currencies traded.

E

Economic Indicator – A statistic issued by the government that allows traders to gauge current economic conditions.

 

End Of Day Order (EOD) – An order to buy or sell at a specified price. This order remains open until the end of the trading day which is typically 5PM ET.

Elliot Wave Theory – A principle used to try and explain market activity, by ascribing a pattern of eight waves to any complete cycle.

EURO – The currency of the European Monetary Union (EMU).

F

Flat – Dealer jargon used to describe a position that has been completely reversed, for example: you bought $200,000 then sold $200,000, thereby creating a neutral (flat) position.

Forex – Acronym for Foreign Exchange

Forward – A transaction that will settle on a future date.

Fundamental Analysis – Analysis of economic and political information with the hope of predicting future currency price movements.

G

Going Long – The purchase of a currency pair.

Going Short – The selling of a currency pair by first borrowing it, then ending the transaction at a later time by buying it back (hopefully at a lower price).

 

Gross Domestic Product – Total value of a country’s output, income or expenditure produced within a country’s borders.

Good Till Cancelled Order (GTC) – An order to buy or sell a currency pair at a specified price. Remains in effect until it is either cancelled or executed by the trader.

H

Hedge – A position or number of positions that reduces the risk of your primary position.

Holder – Buyer of a currency pair.

I

Inflation – Where prices for consumer goods rise, in a specific country, eroding purchasing power.

Inter-day Trading – When positions are opened and closed on the same day.

Interest Rate – The rate charged, or paid for the use of money. Released by the Central Bank of a specific country.

J

Japanese Yen – Currency of the country Japan. Also called the Yen.

K

Kiwi – Trader slang for the New Zealand dollar.

L

Leading Indicators – Statistics that traders consider to predict future economic movement and activity.

Leverage – The ratio of margin to the maximum position size. For example a deposit of $100 with 100:1 leverage would give a buying power of $10,000.

Limit order – An order to terminate a transaction at a specified price or better.

Liquidation – The closing of an existing Forex position through the execution of an offsetting transaction.

Liquidity – Describes a market where lots of buyers and sellers generate a lot of volume.

Long position – When you purchase a currency pair, it is called going long. When a currency pair is long, the first currency is purchased, whilst the second is sold short.

M

Margin – The required minimum deposit for a trader to open a position.

Margin Call – A request from a broker or dealer for additional funds to be deposited in order to cover the size of existing positions. Usually because the value of the account has fallen below the minimum margin needed.

Market Maker – A dealer who frequently quotes both bid and ask prices and is ready to make a two-sided market for any currency pair.

Market Order – An instruction to buy or sell a currency immediately, at the best available price

N

Net Position – Forex currency positions that have not yet been offset with opposite positions.

NZD – The currency symbol for the New Zealand Dollar.

O

Offer – The rate at which a dealer is willing to sell a currency. Also called the ask price.

Open order – A Forex open trade, either buy or sell that does not expire until it is cancelled.

Open position – An active trade, either long or short that is subject to market movements, therefore profit and losses.

Oscillator – A  technical indicator characterized by the fact that it shows overbought and oversold conditions of the market

P

Pips – The smallest upward or downward price for any foreign currency. E.g. In EUR/USD, 1 pip is equal to 0.0001

Political Risk – Exposure to changes in governmental policy which may have an effect on a currency and therefore a traders position.

Position – A trade that is still In effect.

Q

Quote – An indicative market price, when both bid and ask price are provided for a certain currency pair.

R

Rally – A recovery in price where a currency will surge upwards.

Range – The difference between the highest and lowest price during a trading period.

Rate – The price of a currency can be purchased by a trader, or sold against another.

Resistance – A term used in technical analysis, where analysts predict people will sell.

Roll-Over – When a trader extends the settlement value date on a current open position to the next trading day.

S

Short – Selling a currency pair,

Spot Price – The current market price. Settlement of spot transactions usually occurs within two business days.

Spread – The difference between the big and ask price of a currency pair.

Stop Loss Order – An order by a trader to buy or sell once a given price is reached. This is used to close an already open trade.

Sell Limit – A pending order to sell a currency pair at a higher price

Sell Stop – A pending order to sell a currency pair at a lower price

T

Take Profit Order – An order used by a trader to lock in profit at a certain level by closing his/her trade.

Technical Analysis – An effort to forecast currency prices by analyzing market data.

Tick – A minimum change in price, up or down. Also known as a pip.

Tomorrow Next (Tom/Next) – The act of closing a currency then immediately reopening within the current trade date so the settlement date is pushed forward.

Turnover – The total money value of all executed trades in a given time period.

Two-Way Price – When both a bid and offer rate is quoted for a Forex transaction. Also know as quote.

U

US Dollar – The currency of the United States of America.

Uptick – A new price that must be executed at a higher price than the previous trade.

V

Value Date – The settlement date for a currency contract.

Variation Margin – Funds a broker must request from the client to have in their account to meet the required margin deposit.

Volatility (Vol) – A statistical measure of a market’s price movements over a set period of time.

W

Whipsaw – Expression when a position is opened and a stop loss is created. The market moves and triggers this stop loss, then turns around and moves back up again.

 

X

 

Y

 

Z