Forex Trading Glossary
The forex trading glossary is an extensive range of terms and definitions related to foreign currency trading and investing - with references and examples.
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- Appreciation:
- The increase in the worth of an asset.
- References:
- Ref-1
- Arbitrage:
- Any technique which profits or gains from the disparities in the prices of single currency pair which are being dealt on several markets.
- Ask:
- The value at which a currency pair is put up for sale. Instead of a currency pair, the ask price can also be the value at which a security is offered for sale. Ask or ask price is also known as the 'offer', 'ask price', and 'ask rate'.
- References:
- Ref-1
- Ask Price:
- See 'ask'.
- References:
- Ref-1
- Ask Rate:
- See 'ask'.
- References:
- Ref-1
- Asset:
- The entire property owned by a person or business that can be used to settle debts or is of value.
- Base Currency:
- The first currency quoted in a currency pair on foreign exchange. It is sometimes also referred to as the primary currency. For example, if in the case of the CAD/USD currency pair, the Canadian dollar would be the base currency and the US dollar would be the quote currency.
- References:
- Ref-1
- Bear Market:
- A market condition in which the prices of securities are falling or are expected to fall. A recession of 15-20% or more in multiple indexes is considered to be an entry into a bear market. A bear market can also be described as a market in which prices are in a declining trend.
- References:
- Ref-1
- Bid:
- An offer or proposal of a price. In terms of foreign exchange, bid is the price at which an investor places an order to buy a currency pair. This is also known as the 'bid price' and 'bid rate'.
- Bid/Ask Spread:
- The difference between the buying (bid) and selling (offer) price of the same stock or currency transaction. Much of a broker's profit comes from the difference between the bid and offer prices.
- References:
- Ref-1
- Big Figure:
- The initial two or three numbers of a foreign exchange price. In slang terms, big figure is also referred to as the whole dollar price, of a quote. A big figure can also be described as an expression used by dealers to refer to the initial numbers of an exchange rate. Examples: USD/JPY rate of 108.05/10 the big figure is 108. EUR/USD price of .8325/28 the big figure is .83.
- Bull Market:
- A financial market in which prices are rising or are expected to rise. The expression bull market is also used with reference to the stock market, but can generally be applied to anything (stock/securities/bonds/currencies) that is traded.
- References:
- Ref-1
- Buy Limit Order:
- This is an order to carry out a deal at a specified value or lower. A buy limit order can also refer to any securities which were bought at or below a certain price.
- References:
- Ref-1
- Buy on Margin:
- This is a process which involves the buying of securities by putting up only a certain margin, of the buying price and borrowing the remainder. The loan for this procedure is generally given by the investor's broker. The reference to ‘margin’ is for the portion that the investor invests, rather than for the part which is borrowed.
- Candlestick Chart:
- A type of a bar chart in which the open and close prices are expressed as the top and bottom of a rectangle surrounding a vertical line connecting the high and low prices. The daily trading price range is shown for the following: open, high, low and close.
- References:
- Ref-1
- Carry (Interest-Rate Carry):
- An expression used to describe the interest price or income for keeping a foreign exchange position overnight. It can be calculated when the currency pairs in question have different interest rates for the same time period.
- Central Bank:
- A country’s primary monetary authority, which monitors the money supply and credit, issues currency, and manages the rate of exchange.
- References:
- Ref-1
- Chartist:
- A stock-market expert who utilizes charts and graphs to interpret and predict market movement, trends, or forecast price movements of various stocks.
- Closing a Position:
- An expression used for the process of vending or purchasing a foreign exchange position. The result of this is the liquidation of that position.
- References:
- Ref-1
- Closing Market Rate:
- The rate at which a position can be closed, with reference to the market price at end of the day.
- Commission:
- A fee or percentage allowed to a sales representative or an agent for services provided.
- Confirmation:
- The written acknowledgment provided by a broker demonstrating that a trade or deal has been completed. The confirmation includes details such as the date, price, commission, fees, settlement terms, and other important details of all transactions.
- Counterpart:
- A person who participates in a financial deal.
- Cross-Rate:
- The price at which two currencies exchange based on exchange rates using a third currency. Neither of the currencies involved in the transaction are USD.
- Currency:
- A unit of exchange, that is, money in any form when in actual use as a medium of exchange. Currency is especially referred to the circulating paper money. It is the money issued by a government.
- References:
- Ref-1
- Currency Pair:
- The quotation and pricing structure of the currencies traded in the foreign exchange market. The value of one currency is determined by comparison to another currency. For example, USD/YEN.
- Currency Risk:
- A type of risk that occurs from the change in price of one currency against another.
- References:
- Ref-1
- Day Trade:
- A trade of a security that is opened and closed on the same day.
- Day Trader:
- An investor who purchases and sells securities on the basis of small short-term price movements.
- Day Trading:
- The practice of purchasing and selling stocks or securities on the same day, especially through the Internet. Day trading allows investors a method to benefit from small price fluctuations.
- References:
- Ref-1
- Dealer:
- A person or a company which purchases and sells assets from their portfolio, acting as a counterpart to a transaction. A dealer benefits from the difference between the price paid and the price received for the same security.
- Depreciation:
- A term used for a decrease or loss in the value of a currency due to factors affecting a market.
- References:
- Ref-1
- Devaluation:
- An act carried out by a government to lower the exchange value of a currency by lowering its gold equivalency.
- References:
- Ref-1
- Discretionary Account:
- A stock or commodity account in which an agent is free to trade without having to carry out prior consultation with the customer. In this type of account, the customer permits a trading institution to act on the customer's behalf.
- References:
- Ref-1
- European Central Bank (ECB):
- The Central Bank for those members of the European Union who share a common currency.
- References:
- Ref-1
- Execution:
- The process of completing an order or deal.
- Federal Reserve (Fed):
- The Central Bank of the United States.
- Fill:
- A term used to describe the process of completing a customer's order to purchase or sell a currency pair.
- Fill Price:
- The price at which a purchase or sell order was executed.
- Financial Risk:
- The risk that a company will not have adequate cash flow to meet financial obligations. Financial risk is also the additional risk a shareholder bears when a company uses debt in addition to equity financing.
- References:
- Ref-1
- Flat:
- A term used to refer to a trading book which has had no market exposure.
- Forward:
- A transaction that settles at a future date.
- Forward Points:
- The interest rate difference between two currencies expressed in exchange rate points. These points are added to or subtracted from the spot rate to give the forward or outright rate.
- References:
- Ref-1
- Forward Price:
- See forward rates.
- Forward Rates:
- The amount that it will cost to deliver a currency, commodity, or some other asset some time in the future. Forward rates can also be defined as the price used to determine the price of a futures contract.
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- Initial Margin:
- The percentage of the purchase price of securities which the investor or customer needs to disburse for with their own cash. The initial margin can also be defined as the margin required by a foreign exchange firm to initiate the buying or selling of a determined amount of currency.
- Initial Margin Requirement:
- The minimum portion of a new security purchase that an investor needs to pay for in cash.
- Liquidity:
- A term used to refer to available cash or the capacity to obtain it on demand. For example, a market is "liquid" if large transactions can occur with only minimal price changes.
- Long:
- See long position.
- Long Position:
- The net ownership position in a particular security. It can also be defined as the primary currency in the currency pair.
- References:
- Ref-1
- Margin:
- The amount of money required to maintain a position.
- Margin Account:
- A brokerage account in which the broker lends the customer cash to purchase securities. Interest, for this account, is charged on any borrowed funds and only for the period of time that the loan is outstanding.
- References:
- Ref-1
- Margin Call:
- A broker's demand on an investor using margin to deposit additional money or securities in order to bring the margin account to the minimum maintenance margin. If the client does not respond to the call, securities in the account may be liquidated.
- Market Close:
- The duration of day when a market closes.
- References:
- Ref-1
- Market Order:
- This is an order to purchase or sell stocks or commodities at the existing market price. Generally, a market order is carried out at the quoted price given before the order was entered.
- Market Rate:
- The current quote of a currency pair.
- Market Risk:
- The risks that take place when existing market pressures lead to the fluctuation of the value of an investment.
- Market-Maker:
- This is a broker-dealer firm that takes on the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security. The market-maker provides both the bid and offer prices.
- Mark-to-Market:
- This is the act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value. This term can also refer to the process of re-evaluating all open positions with the current market prices.
- References:
- Ref-1
- Maturity:
- The date on which payment of a financial obligation is due.
- Momentum:
- The inclination of a currency pair to continue movement in a single direction.
- Offer:
- The price at which a broker is willing to sell a security or a currency pair. This is also known as the 'ask', 'ask price', and 'ask rate'.
- Offsetting Transaction:
- This is a trade that creates a new position to offset the market risk of an old transaction.
- References:
- Ref-1
- Open Order:
- A purchase or sell order which remains effective till it is carried out or cancelled out by the investor or customers.
- Open Position:
- Any position (long or short) that is subject to market fluctuations and has not been closed out by a corresponding opposite transaction.
- Order:
- A term used to refer to a customer's instructions to buy or sell currencies.
- Overnight Position:
- This is the investor’s or trader’s long or short position in a currency at the end of a trading day.
- References:
- Ref-1
- Premium:
- This term describes the amount at which something is valued above its par or nominal value, as money or securities. It can also be the amount by which the forward or futures price exceed the spot price.
- Price:
- The amount at which the underlying currency can be purchased or sold.
- Price Transparency:
- The accessibility of information on the order flow for a particular stock. This is also known as "market depth”.
- References:
- Ref-1
- Principal Value:
- The original amount of money invested by the customer.
- Profit/Loss (P/L):
- The actual gain or loss an investor has which is the direct result of the trading activities on closed positions.
- Rate:
- This is the value at which a currency can be bought or sold against another currency.
- Resistance:
- The price at which a stock or market can trade, but which it cannot exceed, for a period of time.
- Revaluation:
- The calculated adjustment done to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold or a foreign currency.
- Risk (Foreign Exchange Risk):
- This is the threat that the exchange rate on a foreign currency will move against the position held by an investor.
- References:
- Ref-1
- Risk Management:
- The process of identification, analysis and either acceptance or easing of uncertainty in investment decision-making.
- References:
- Ref-1
- Roll-Over:
- The process of reinvesting funds from a mature security into a new issue of the same or a similar security.
- Selling Short:
- This is a situation where a currency has been sold with the aim of purchasing back the position at a lower price to one’s benefit.
- Settlement:
- The actual delivery of currencies made on the maturity date of a trade.
- Short:
- See short position.
- Short Position:
- In foreign exchange, this is the net investment position in a security in which the security has been borrowed and sold but not yet replaced. Short position is also called short.
- Short Squeeze:
- The stress on short sellers to take care of their positions due to an increase in prices.
- References:
- Ref-1
- Spot Market:
- A market where investors purchase and sell actual currencies for a two-day delivery.
- References:
- Ref-1
- Spot Price:
- The actual ongoing market price of a currency that normally settles in two business days.
- References:
- Ref-1
- Spot/Next or S/N Roll:
- The process of moving the spot settlement value date on an open position forward to the next valid value date. This process affects the profit or loss on the overnight position.
- Spread:
- The change between the bid and offer prices of any currency pair.
- Sterling:
- A term used to refer to the British Pound.
- Stop Order (or stop):
- An order which purchases or sells a currency when the currency's price reaches or passes a specified level.
- References:
- Ref-1
- Support Levels:
- A price at which a security or the market becomes attractive to investors.
- Swap:
- A transaction which moves the maturity date of an open position to a future date.
- Technical Analysis:
- An effort to forecast prices by analyzing market data, that is, historical price trends and averages, volumes, open interest, etc.
- Tick:
- The minimum possible difference in a price.
- Ticker:
- A ticker shows current and/or recent history of a currency either in the format of a graph or table.
- Tomorrow Next (Tom/Next), (T/N), T/N Roll:
- This procedure involves the movement of the settlement value date on an open position ahead from one business day after the trade date (tomorrow), to the next valid value date (next), the spot value date.
- Transaction Date:
- The date on which a trade or deal occurs.
- Turnover:
- The total amount of all performed dealings in a given time period.
- Two-Way Price:
- An estimate in the foreign exchange market that indicates a bid and an offer.
- Uptick Rule:
- In the US, a law which states that a security or currency may not be sold short unless the last trade before to the short sale was carried out at a price below the price at which the short sale is being carried out.
- References:
- Ref-1
- US Prime Rate:
- The interest rate at which US banks will lend to their prime corporate customers.
- References:
- Ref-1
- Variation Margin:
- Funds, which are required to bring the equity in an account back up to the initial margin level, calculated on a day-to-day basis.
- References:
- Ref-1
- Volatility (VOL):
- Statistical measure of the difference in price of a financial currency pair over a certain period of time.
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