Forex trading Glossary

 

A

Appreciation
A currency is said to 'appreciate' when it strengthens in price in response to market demand.
Ask Price
The price at which the market is prepared to sell a specific Currency in a Foreign Exchange Contract or Cross Currency Contract.
At Best
An instruction given to a dealer to buy or sell at the best rate that can be obtained.
At or Better
An order to deal at a specific rate or better.
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B

Base Currency
The first currency in a Currency Pair.
Bear Market
A market distinguished by declining prices.
Bid Price
The bid is the price at which the market is prepared to buy a specific Currency in a Foreign Exchange Contract or Cross Currency Contract.
Broker
An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Bull Market
A market distinguished by rising prices.
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C

Cable
Trader jargon 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.
Cash Market
The market in the actual financial instrument on which a futures or options contract is based.
Central Bank
A government or quasi-governmental organization that manages a country's monetary policy.
Chartist
An individual who uses charts and graphs and interprets historical data to find trends and predict future movements.
Cleared Funds
Funds that are freely available, sent in to settle a trade.
Closed Position
Exposures in Foreign Currencies that no longer exist.
Clearing
The process of settling a trade.
Collateral
Something given to secure a loan or as a guarantee of performance.
Contingent order
Instructions you give us to attach a stop loss and/or limit order to your opening order if it is triggered and filled.
Counter Currency
The second listed Currency in a Currency Pair.
Counterparty
One of the participants in a financial transaction.
Cross Currency Pairs or Cross Rate
A foreign exchange transaction in which one foreign currency is traded against a second foreign currency. For example; EUR/GBP.
Currency
Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
Currency Pair
The two currencies that make up a foreign exchange rate. For Example, EUR/USD.
Currency Risk
The probability of an adverse change in exchange rates.
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D

Delivery
An FX trade where both sides make and take actual delivery of the currencies traded.
Depreciation
A fall in the value of a currency due to market forces.
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E

Economic Indicator
A government issued statistic that indicates current economic growth and stability.
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.
EURO
The currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).
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F

Foreign Exchange
(Forex, FX) 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 upon the interest rate differential between the two currencies involved.
Forward Points
The pips added to or subtracted from the current exchange rate to calculate a forward price.
Fundamental Analysis
Analysis of economic and political information with the objective of determining future movements in a financial market.
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G

Good 'Til Cancelled Order (GTC)
An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.
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H

Hedge
A position or combination of positions that reduces the risk of your primary position.
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I

Iceberg Orders
A large single order that has been divided into smaller lots, usually by the use of an automated program, for the purpose of hiding the actual order quantity.
Initial Margin
The initial deposit of collateral required to enter into a position as a guarantee on future performance.
Intervention
Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.
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L

Leverage
Also called margin. The ratio of the amount used in a transaction to the required security deposit.
Limit order
An order with restrictions on the maximum price to be paid or the minimum price to be received.
Liquidation
The closing of an existing position through the execution of an offsetting transaction.
Liquidity
The ability of a market to accept large transaction with minimal to no impact on price stability.
Long position
A position that appreciates in value if market prices increase. When the base currency in the pair is bought, the position is said to be long.
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M

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 customer.
Mark-to-Market
Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements.
MOC Orders
A market order that is submitted to execute as close to the closing price as possible.
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N

Net Position
The amount of currency bought or sold which have not yet been offset by opposite transactions.
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O

Offer (ask)
The rate at which a dealer is willing to sell a currency. See Ask (offer) price.
Offsetting transaction
A trade with which serves to cancel or offset some or all of the market risk of an open position.
Open order
An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders.
Open position
An active trade with corresponding unrealised P&L, which has not been offset by an equal and opposite deal.
Over the Counter (OTC)
Used to describe any transaction that is not conducted over an exchange.
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P

Parked Orders
Facilitates frequently placed orders and allows users to place multiple orders simultaneously.
Pips
The smallest unit of price for any foreign currency. Also called Tics.
Position
The netted total holdings of a given currency.
Premium
In the currency markets, describes the amount by which the forward or futures price exceed the spot price.
Profit /Loss or "P/L" or Gain/Loss
The actual "realized" gain or loss resulting from trading activities on Closed Positions
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Q

Quote
An indicative market price, normally used for information purposes only.
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R

Rally
A recovery in price after a period of decline.
Range
The difference between the highest and lowest price of a future recorded during a given trading session.
Rate
The price of one currency in terms of another, typically used for dealing purposes.
Resistance
A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
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
Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies.
Round trip
Buying and selling of a specified amount of currency.
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S

Settlement
The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.
Short Position
An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.
Smart Orders
Achieving best execution of trades while minimising market impact.
Spot Price
The current market price. Settlement of spot transactions usually occurs within two business days.
Spread
The difference between the bid and offer price.
Stop Entry
Orders to enter the market at a less favorable price.
Stop Exit
Orders to exit the market at a less favorable price.
Stop Loss Order
Order type whereby an open position is automatically liquidated at a specific price.
Swap
A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.
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T

Technical Analysis
An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.
Tick
A minimum change in price, up or down.
Tomorrow Next (Tom/Next)
Simultaneous buying and selling of a currency for delivery the following day.
Trailing Stop
Designed to allow an investor to specify a limit on the maximum possible loss, without setting a limit on the maximum possible gain.
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U

Unrealised Gain/Loss
The theoretical gain or loss on Open Positions valued at current market rates.
Uptick
A new price quote at a price higher than the preceding quote.
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V

Value Date
The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments.
Variation Margin
Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavourable price movements.
Volatility (Vol)
A statistical measure of a market's price movements over time.
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