Forex Glossary
A
Appreciation - A currency is said to "appreciate" when it strengthens in price in response to market demand.
Arbitrage - Taking advantage of countervailing prices in different markets by the purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market to profit from small price differentials.
Ask (Offer) Price - The price at which the market is prepared to sell a specific currency in a contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation. For example, in the quote USD/CHF 1.2400/04, the ask price is 1.2404; meaning you can buy one US dollar for 1.2404 Swiss francs.
B
Bar Chart - A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar.
Base Currency - The first currency in a currency pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.2400 then one USD is worth CHF 1.2400. In the FX markets, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.
Basis Point - One hundredth of a percent.
Bear Market - A market distinguished by a prolonged period of declining prices accompanied with widespread pessimism.
Bid Price -.The bid is the price at which the market is prepared to buy a specific currency. At this price, the trader can sell the base currency. It is shown on the left side of the quotation. For example, in the quote USD/CHF 1.2400/04, the bid price is 1.2400; meaning you can sell one US dollar for 1.2400 Swiss francs.
Bid/Ask Spread - The difference between the bid and offer price. Broker - An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a 'dealer' commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.
Bretton Woods Agreement of 1944 - An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.
Bull Market - A market distinguished by a prolonged period of rising prices. Opposite of bear market.
C
Cable - Trader jargon for the British Pound Sterling referring to the GBP/USD pair. Term began due to the fact that the rate was originally transmitted via a transatlantic cable starting in the mid 1800`s.
Candlestick Chart - A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
Capital Markets - Markets for medium to long term investment (usually over 1 year). These tradable instruments are more international than the ‘money market’ (i.e. Government Bonds and Eurobonds).
Central Bank - A government or quasi-governmental organization that manages a country’s monetary policy and prints a nation’s currency. For example, the US central bank is the Federal Reserve, others include the ECB, BOE, BOJ.
Chartist - An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.
Closed Position - Exposures in forex that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will 'square' the position.
Collateral - Something given to secure a loan or as a guarantee of performance.
Commission - A transaction fee charged by a broker. Counter Currency - The second listed currency in a currency pair.
Country Risk - Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
Cross Currency Pairs or Cross Rate - An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded
Currency Symbols -
AUD - Australian Dollar
CAD - Canadian Dollar
EUR - Euro
USD- US Dollar
JPY - Japanese Yen
GBP - British Pound
CHF - Swiss Franc
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.
Currency Swap - Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.
D
Day Trading - Opening and closing the same position or positions within the same trading session.
Dealer - An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Deficit - A negative balance of trade or payments.
Depreciation - A fall in the value of a currency due to market forces.
Devaluation - The deliberate downward adjustment of a currency's price, normally by official announcement.
Drawdown - The magnitude of a decline in account value, either in percentage or dollar terms, as measured from peak to subsequent trough. For example, if a trader's account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5,000 (incurred when the account declined from $20,000 to $15,000) even though that trader's account was never in a loss position from inception.
E
Economic Indicator – A statistic that indicates current economic growth and stability issued by the government or a non-government institution (i.e. Gross Domestic Product (GDP), Employement Rates, Trade Deficits, Industrial Production, and Business Inventories).
Euro - The currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).
European Central Bank (ECB) - The Central Bank for the new European Monetary Union.
F
Federal Reserve (Fed) - The Central Bank for the United States.
Flat/square - Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $200,000 then sold $200,000, thereby creating a neutral (flat) position.
Foreign Exchange (Forex or FX) - the simultaneous buying of one currency and selling of another.
Foreign Exchange Swap - Transaction which involves the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed at the time of the conclusion of the contract (short leg), at a date further in the future at a rate agreed at the time of the contract (the long leg).
Fundamental Analysis - Analysis of economic and political information with the objective of determining future movements in a financial market.
FX - Foreign Exchange.
G
G7 - The seven leading industrial countries, being the US, Germany, Japan, France, UK, Canada, Italy.
Going Long - The purchase of a stock, commodity, or currency for investment or speculation.
Going Short - The selling of a currency or instrument not owned by the seller.
GTC - Good-Till-Cancelled. An order left with a Dealer to buy or sell at a fixed price. The GTC will remain in place until executed or cancelled.
Gross Domestic Product - Total value of a country's output, income or expenditure produced within the country's physical borders.
Gross National Product - Gross domestic product plus income earned from investment or work abroad.
H
Hedge - A position or combination of positions that reduces the risk of your primary position.
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 Rates - The foreign exchange rates at which large international banks quote other large international banks.
L
Leading Indicators - Statistics that are considered to predict future economic activity. Examples are Unemployment, Consumer Price Index, Producer Price Index, Retail Sales, Personal Income, Prime Rate, Discount Rate, and Federal Funds Rate.
Leverage - Also called margin. The ratio of the amount used in a transaction to the required security deposit.
LIBOR - The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.
Limit order - An order with restrictions on the maximum price to be paid or the minimum price to be received.
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.
Lot - A unit to measure the amount of the deal. A standard size lot is $100,000 (or $100K).
M
Margin - The required equity that an investor must deposit to collateralize a position.
Margin Call – A requirement from a broker or dealer for additional funds or other collateral to bring the margin up to a required level to guarantee performance on a position that has moved against the customer.
Market Maker - A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices. A market maker runs a trading book.
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 requirements.
Money Markets - Refers to investments that are short-term (i.e. under one year) and whose participants include banks and other financial institutions. Examples include Deposits, Certificates of Deposit, Repurchase Agreements, Overnight Index Swaps and Commercial Paper. Short-term investments are safe and highly liquid.
O
Offer (ask) - The rate at which a dealer is willing to sell a currency.
One Cancels Other Order (O.C.O. Order) - A contingent order where the execution of one part of the order automatically cancels the other part.
Open position - An active trade with corresponding unrealized 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.
Overnight Position - A trade that remains open until the next business day.
P
Pip (or Points) - The term used in currency market to represent the smallest incremental move an exchange rate can make. Normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).
Political Risk - Exposure to changes in governmental policy which will have an adverse effect on an investor's position.
Position - A position is a trading view expressed by buying or selling. It can also refer to the amount of a currency either owned or owed by an investor.
Price Transparency - Describes quotes to which every market participant has equal access.
Profit /Loss or "P/L" or Gain/Loss - 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 Mark-to-Market.
R
Rally - A recovery in price after a period of decline.
Range - The difference between the highest and lowest price of a currency recorded during a given trading session.
Rate - The price of one currency in terms of another currency.
Resistance - A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
Risk - Exposure to uncertain change, most often used with a negative connotation of adverse change.
Risk Capital - The amount of money that one can afford to invest, which, if lost would not affect one’s standard of living.
Risk Management -The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.
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 Turn (or Round Trip) - Buying and selling of a specified amount of currency, basically meaning one completed trade.
S
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.
Slippage - The difference in price between what the screen quote indicates and the actual price that gets executed on the trading platform. For example, if the quote shows a "buy" at a price of 1.2400 and the trading platform actually executes the "buy" at 1.2402, there would be 2 pips of "slippage" or difference between the signal price and actual execution price.
Spread - The difference between the bid and offer prices.
Stop Loss Order - An order to automatically liquidate an open position when a particular price is reached, either above or below the price that prevailed when the order was given. Often used to minimize exposure to losses if the market moves against a trader’s position.
Support Levels - A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself.
Swissy - Market slang for Swiss Franc.
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.
U
Unrealized Gain/Loss - The theoretical gain or loss on open positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains/Losses become Profits/Losses when position is.
Uptick Rule - In the U.S., a regulation which states that a security may not be sold short unless the trade prior to the short sale was at a price lower than the price at which the short sale is executed.
V
Value Date - The date that both parties of a transaction agree to exchange payments.
Volatility (Vol) - A statistical measure of a market's price movements over time.
W
Whipsaw - slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Y
Yard - Slang for a billion
A
Appreciation - A currency is said to "appreciate" when it strengthens in price in response to market demand.
Arbitrage - Taking advantage of countervailing prices in different markets by the purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market to profit from small price differentials.
Ask (Offer) Price - The price at which the market is prepared to sell a specific currency in a contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation. For example, in the quote USD/CHF 1.2400/04, the ask price is 1.2404; meaning you can buy one US dollar for 1.2404 Swiss francs.
B
Bar Chart - A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar.
Base Currency - The first currency in a currency pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.2400 then one USD is worth CHF 1.2400. In the FX markets, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.
Basis Point - One hundredth of a percent.
Bear Market - A market distinguished by a prolonged period of declining prices accompanied with widespread pessimism.
Bid Price -.The bid is the price at which the market is prepared to buy a specific currency. At this price, the trader can sell the base currency. It is shown on the left side of the quotation. For example, in the quote USD/CHF 1.2400/04, the bid price is 1.2400; meaning you can sell one US dollar for 1.2400 Swiss francs.
Bid/Ask Spread - The difference between the bid and offer price. Broker - An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a 'dealer' commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.
Bretton Woods Agreement of 1944 - An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.
Bull Market - A market distinguished by a prolonged period of rising prices. Opposite of bear market.
C
Cable - Trader jargon for the British Pound Sterling referring to the GBP/USD pair. Term began due to the fact that the rate was originally transmitted via a transatlantic cable starting in the mid 1800`s.
Candlestick Chart - A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
Capital Markets - Markets for medium to long term investment (usually over 1 year). These tradable instruments are more international than the ‘money market’ (i.e. Government Bonds and Eurobonds).
Central Bank - A government or quasi-governmental organization that manages a country’s monetary policy and prints a nation’s currency. For example, the US central bank is the Federal Reserve, others include the ECB, BOE, BOJ.
Chartist - An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.
Closed Position - Exposures in forex that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will 'square' the position.
Collateral - Something given to secure a loan or as a guarantee of performance.
Commission - A transaction fee charged by a broker. Counter Currency - The second listed currency in a currency pair.
Country Risk - Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
Cross Currency Pairs or Cross Rate - An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded
Currency Symbols -
AUD - Australian Dollar
CAD - Canadian Dollar
EUR - Euro
USD- US Dollar
JPY - Japanese Yen
GBP - British Pound
CHF - Swiss Franc
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.
Currency Swap - Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.
D
Day Trading - Opening and closing the same position or positions within the same trading session.
Dealer - An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Deficit - A negative balance of trade or payments.
Depreciation - A fall in the value of a currency due to market forces.
Devaluation - The deliberate downward adjustment of a currency's price, normally by official announcement.
Drawdown - The magnitude of a decline in account value, either in percentage or dollar terms, as measured from peak to subsequent trough. For example, if a trader's account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5,000 (incurred when the account declined from $20,000 to $15,000) even though that trader's account was never in a loss position from inception.
E
Economic Indicator – A statistic that indicates current economic growth and stability issued by the government or a non-government institution (i.e. Gross Domestic Product (GDP), Employement Rates, Trade Deficits, Industrial Production, and Business Inventories).
Euro - The currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).
European Central Bank (ECB) - The Central Bank for the new European Monetary Union.
F
Federal Reserve (Fed) - The Central Bank for the United States.
Flat/square - Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $200,000 then sold $200,000, thereby creating a neutral (flat) position.
Foreign Exchange (Forex or FX) - the simultaneous buying of one currency and selling of another.
Foreign Exchange Swap - Transaction which involves the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed at the time of the conclusion of the contract (short leg), at a date further in the future at a rate agreed at the time of the contract (the long leg).
Fundamental Analysis - Analysis of economic and political information with the objective of determining future movements in a financial market.
FX - Foreign Exchange.
G
G7 - The seven leading industrial countries, being the US, Germany, Japan, France, UK, Canada, Italy.
Going Long - The purchase of a stock, commodity, or currency for investment or speculation.
Going Short - The selling of a currency or instrument not owned by the seller.
GTC - Good-Till-Cancelled. An order left with a Dealer to buy or sell at a fixed price. The GTC will remain in place until executed or cancelled.
Gross Domestic Product - Total value of a country's output, income or expenditure produced within the country's physical borders.
Gross National Product - Gross domestic product plus income earned from investment or work abroad.
H
Hedge - A position or combination of positions that reduces the risk of your primary position.
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 Rates - The foreign exchange rates at which large international banks quote other large international banks.
L
Leading Indicators - Statistics that are considered to predict future economic activity. Examples are Unemployment, Consumer Price Index, Producer Price Index, Retail Sales, Personal Income, Prime Rate, Discount Rate, and Federal Funds Rate.
Leverage - Also called margin. The ratio of the amount used in a transaction to the required security deposit.
LIBOR - The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.
Limit order - An order with restrictions on the maximum price to be paid or the minimum price to be received.
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.
Lot - A unit to measure the amount of the deal. A standard size lot is $100,000 (or $100K).
M
Margin - The required equity that an investor must deposit to collateralize a position.
Margin Call – A requirement from a broker or dealer for additional funds or other collateral to bring the margin up to a required level to guarantee performance on a position that has moved against the customer.
Market Maker - A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices. A market maker runs a trading book.
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 requirements.
Money Markets - Refers to investments that are short-term (i.e. under one year) and whose participants include banks and other financial institutions. Examples include Deposits, Certificates of Deposit, Repurchase Agreements, Overnight Index Swaps and Commercial Paper. Short-term investments are safe and highly liquid.
O
Offer (ask) - The rate at which a dealer is willing to sell a currency.
One Cancels Other Order (O.C.O. Order) - A contingent order where the execution of one part of the order automatically cancels the other part.
Open position - An active trade with corresponding unrealized 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.
Overnight Position - A trade that remains open until the next business day.
P
Pip (or Points) - The term used in currency market to represent the smallest incremental move an exchange rate can make. Normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).
Political Risk - Exposure to changes in governmental policy which will have an adverse effect on an investor's position.
Position - A position is a trading view expressed by buying or selling. It can also refer to the amount of a currency either owned or owed by an investor.
Price Transparency - Describes quotes to which every market participant has equal access.
Profit /Loss or "P/L" or Gain/Loss - 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 Mark-to-Market.
R
Rally - A recovery in price after a period of decline.
Range - The difference between the highest and lowest price of a currency recorded during a given trading session.
Rate - The price of one currency in terms of another currency.
Resistance - A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
Risk - Exposure to uncertain change, most often used with a negative connotation of adverse change.
Risk Capital - The amount of money that one can afford to invest, which, if lost would not affect one’s standard of living.
Risk Management -The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.
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 Turn (or Round Trip) - Buying and selling of a specified amount of currency, basically meaning one completed trade.
S
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.
Slippage - The difference in price between what the screen quote indicates and the actual price that gets executed on the trading platform. For example, if the quote shows a "buy" at a price of 1.2400 and the trading platform actually executes the "buy" at 1.2402, there would be 2 pips of "slippage" or difference between the signal price and actual execution price.
Spread - The difference between the bid and offer prices.
Stop Loss Order - An order to automatically liquidate an open position when a particular price is reached, either above or below the price that prevailed when the order was given. Often used to minimize exposure to losses if the market moves against a trader’s position.
Support Levels - A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself.
Swissy - Market slang for Swiss Franc.
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.
U
Unrealized Gain/Loss - The theoretical gain or loss on open positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains/Losses become Profits/Losses when position is.
Uptick Rule - In the U.S., a regulation which states that a security may not be sold short unless the trade prior to the short sale was at a price lower than the price at which the short sale is executed.
V
Value Date - The date that both parties of a transaction agree to exchange payments.
Volatility (Vol) - A statistical measure of a market's price movements over time.
W
Whipsaw - slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Y
Yard - Slang for a billion
