Forex glossary
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A

ARBITRAGE

Profiting from differences in the price of a single currency pair that is traded on more than one market.

ASK

The quoted offer at which someone can buy; also called the offer price.

ASSET

An item that has value.
AUD/USD The abbreviation for the Australian dollar and U.S. dollar (AUD/USD) currency pair or cross. The value of this pair refers to how many U.S. dollars is required to buy 1 Aussie Dollar (the quote currency).

B

BASE CURRENCY

The base currency is the first currency in a currency pair, and the currency that remains constant when determining a currency pair's price. The United States Dollar (USD) and the European Union Euro(EUR) are the dominant base currencies in terms of daily traded volume in the foreign exchange market. The British Pound (GBP), also called sterling, is the third ranking base currency. The USD based pairs are USD/JPY, USD/CHF and USD/CAD; the Euro based pairs are EUR/USD, EUR/JPY, EUR/GBP, and EUR/CHF. The GBP is the base for GBP/USD and GBP/JPY. The Australian Dollar (AUD) is its own base against the USD (AUD/USD).

BASIS

The difference between the spot price and the futures price.

BASIS POINT

One hundredth of a percentage point.

BID /ASK SPREAD

The difference between the bid and offer (ask) prices; also known as a two-way price.

C

CABLE

The slang or callname for the British Pound Sterling.

CANDLESTICK CHART

A chart that displays the daily trading price range (open, high, low and close). A form of Japanese charting that has become popular in the West. A narrow line (shadow) shows the day's price range. A wider body marks the area between the open and the close. If the close is above the open, the body is white (not filled); if the close is below the open, the body is black (filled).

CENTRAL BANK

The principal monetary authority of a nation, controlled by the national government. It is responsible for issuing currency, setting monetary policy, interest rates, exchange rate policy, and the regulation and supervision of the private banking sector. The Federal Reserve is the central bank of the United States. Others include the European Central Bank, Bank of England, and the Bank of Japan.

CONVERSION

The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.

CROSS RATES

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 U.S., 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

A country's unit of exchange issued by their government or central bank whose value is the basis for trade.

CURRENCY (EXCHANGE RATE) RISK

The risk of incurring losses resulting from an adverse change in exchange rates.

D

DEFICIT

In economics, when the balance of trades or payments are negative.

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. An extended period of deflation can lead to a deflationary spiral - this is a decrease in prices resulting from reduced demand for goods and services which leads to lower employment. With fewer people earning wages, demand falls even more and further perpetuates the cycle.

DEPRECIATION

When the value of a particular currency falls substantially.

DEPTH OF MARKET

The volume of buy and sell orders waiting to be transacted for a particular currency pair at a particular point in time.

DEVALUATION

Lowering of the value of a country's currency relative to the currencies of other nations. When a nation devalues its currency, the goods it imports become more expensive, while its exports become less expensive abroad and thus more competitive.

DEUTSCHMARK

The former currency of Germany, replaced by the Euro when Germany joined the European Union.

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

ECB

European Central Bank.

ECN BROKER

Forex ECNs broker provide access to an electronic trading network, supplied with streaming quotes from the top tier banks in the world. By trading through an ECN broker, a currency trader generally benefits from greater price transparency, faster processing, increased liquidity and more availability in the marketplace.

ECONOMIC INDICATOR

A statistic that is used to gauge current economic conditions. E.g. Consumer Price Index and Durable Goods Order

ELLIOT WAVE PRINCIPLE

An attempt to explain market activity by ascribing a pattern of eight waves to any complete cycle.

EMS

European Monetary System

ENTRY ORDERS

ENTRY LIMIT ORDERS

ENTRY LIMIT ORDERS

An order used to enter a trade once a currency pair hits a pre-determined price level.

  • Buy Entry Limit: An order to buy at a price Below the current market.
  • Sell Entry Limit: An order to sell at a price Above the current market.

ENTRY STOP ORDERS

An order initiating an open position to sell as the market falls, or buy as the market rises. The client believes that prices will continue to move in the same direction as the previous momentum after hitting the order level.

  • Buy Entry Stop: An order to buy at a price Above the current market.
  • Sell Entry Stop: An order to sell at a price Below the current market.
  • Equities Ownership interest in a corporation in the form of common stock or preferred stock.
  • Equity Total assets minus total liabilities; also called net worth.
  • Equity Curve The value of a trading account graphed over a period of time.
  • Euribor Euribor® (Euro Interbank Offered Rate) is the rate at which euro interbank term deposits within the euro zone are offered by one prime bank to another prime bank.

EURO

The currency of the European Monetary Union (EMU), which replaced the European Currency Unit (ECU). The countries currently participating in the EMU are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, and Spain.

F

FEDERAL RESERVE

The Central Bank of the United States.

FIAT CURRENCY

Fiat currency is the opposite of a gold standard arrangement.

FILL

Completing an order to buy or sell.

FILL PRICE

The price at which a buy or sell order goes through.

FIXED EXCHANGE RATE

A country's decision to tie the value of its currency to another country's currency, gold (or another commodity), or a basket of currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.

G

G-7

The seven leading industrial countries, being the United States, Germany, Japan, France, Britain, Canada, and Italy.

G-20

A group composed of the finance ministers and central bankers of the following 20 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States, and the European Union. The IMF and the World Bank also participate. The G-20 was set up to respond to the financial turmoil of 1997-99 through the development of policies that "promote international financial stability".

GOING LONG

The purchase of a currency pair.

GOING SHORT

The sale of a currency pair.

H

HEAD AND SHOULDERS

A price trend pattern which has three peaks, the middle one higher than the surrounding two forming what looks to be a head with two shoulders on either side

HEDGE

A term used to describe reducing risk associated with adverse market movements by using two counterbalancing investments, thereby minimizing any losses caused by price fluctuations.

HEDGE FUND

A private, unregulated investment fund for wealthy investors (minimum investments typically begin at US$1 million) specializing in high risk, short-term speculation on bonds, currencies, stock options and derivatives.

HEDGING

A strategy designed to reduce investment risk. Its purpose is to reduce the volatility of a portfolio by investing in alternative instruments that offset the risk in the primary portfolio.

I

IMF

International Monetary Fund.

INFLATION

A rise in prices or a drop in the purchasing power of money.

INTERBANK MARKET

A market in which financial institutions can trade. The term refers to short term money or foreign exchange markets that are only accessible to banks or financial institutions.

INTERNATIONAL MONETARY FUND

Supranational organization established in 1946 to provide international liquidity and loans to member countries.

J

JAPANESE YEN

The yen is the Japanese currency unit.

JPY

Japan's currency code.

L

LONDON INTER-BANK OFFER RATE OR LIBOR

The standard for the interest rate that banks charge each other for loans (usually in Eurodollars ). This rate is applicable to the short-term international interbank deposit market, and applies to very large loans borrowed from one day to five years. This market allows banks with liquidity requirements to borrow quickly from other banks with surpluses, enabling banks to avoid holding excessively large amounts of their asset base as liquid assets. The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.

LEVERAGE

The degree to which an investor or business is utilizing borrowed money. For investors, leverage means buying on margin to enhance return on value without increasing investment. The amount, expressed as a multiple, by which the notional amount traded exceeds the margin required to trade. For example, if the notional amount traded is $100,000 dollars and the required margin is $2,000, the trader can trade with 50 times leverage ($100,000/$2,000). Leveraged investing can be extremely risky because you can lose all the money you invested.

LIBOR

London Interbank Offered Rate - The rate that banks use when borrowing from one another. See also: London Interbank Offered Rate.

LIMIT ORDERS

A limit order is an order tied to a specific position for the purpose of locking in the gains from that position, while a limit order placed on a buy position is an order to sell. A limit order placed on a sell position is an order to buy. All limit orders remain in effect until the position is liquidated or cancelled by the client.

M

MARGIN

Funds that customers must deposit as collateral to cover any potential losses from adverse movements in prices.

MARGIN CALL

A requirement for additional funds or other collateral, from a broker or dealer, to increase margin to a necessary level to guarantee performance on a position that has moved against the customer.

MARKET MAKER

A dealer that supplies prices, and is prepared to buy and sell at those bid and ask prices. Some CFTC registered FDMs are market makers.

MARKET ORDER

An order to buy or sell which is to be filled immediately at the prevailing currency price.

N

NEW ZEALAND DOLLAR

The New Zealand dollar is the currency of New Zealand.

NEWS TRADER

An investor who bases his/her decisions on the outcome of a news announcement and its impact on the market.

NFP

Non-Farm Payroll. Reported monthly, this figure represents the total number of paid U.S. workers of any business, excluding farm employees.

O

OCO (ONE CANCELS THE OTHER)

A stop-loss order and a limit order linked to a specific position. One order, the stop, is to prevent additional loss on the position, and one order, the limit, is to take profit on the position. When either order is executed, closing the position, the other is automatically cancelled.

  • Old Lady Term for the central bank of England.
  • Open Position A position whether long or short that is subject to market fluctuations and thus profits or losses.
  • Order Instructions to buy or sell.
  • Oscillators Technical analysis tools that provide buy and sell signals, characterized by a signal that oscillates between overbought and oversold levels.
  • Overbought A currency pair is overbought when its price rises much more quickly than usual in response to net buying.
  • Oversold A currency pair is oversold when its price falls much more quickly than usual, declining too far in response to net selling.

P

PETRODOLLARS

Refers to the forex reserves as a result of oil sold by oil producing nations.

PIP (TICK)

The term used in currency markets to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point. For example, 0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY.

POSITION

A view expressed by a trader through the buying or selling of currencies, and can also refer to the amount of currency either owned or owed by an investor.

PREMIUM (COST OF CARRY)

The cost or benefit associated with carrying an open position from one day to the next calculated by using the differential in short-term interest rates between the two currencies in the pair.

Q

QUANTITATIVE ANALYSIS

A technique used to analyze an observed behavior by employing complex mathematical and statistical modeling, measurement, and research.

QUANTITATIVE EASING

Quantitative easing is a monetary tool used by central banks to encourage spending within an economy.

QUOTE

When both a bid and ask price are provided for a currency pair.

QUOTE CURRENCY

The second currency of two in a currency pair. For the EUR/USD, USD is the quote currency. The exchange rate quoted is how many units of the second currency you will receive for one unit of the first currency.

R

REALIZED P/L

The profit and loss that is generated by closing a position.

RESISTANCE

Price level at which technical analysts note persistent selling of a currency.

REVALUATION

An increase in the foreign exchange value of a currency that is pegged to other currencies or gold.

REVALUATION RATES

The rate for any period or currency, which is used to revalue a position or book. The revaluation rates are the market rates used when a trader runs an end-of-day to establish profit and loss for the day.

S

SCALPING (FOREX TRADING)

A legitimate method of arbitrage of small price gaps created by the bid-ask spread. a legitimate method of currency trading based on quick momentum trades triggered by order flow.

SELL LIMIT ORDER

An order to execute a transaction only at a specified price (the limit) or higher.

SELL STOP

A limit order with a limit placed below the current market price.

SHORT

To sell a currency without actually owning it, and to hold a short position with expectations that the price will decrease so that it can be bought back at a later time at a profit.

T

TECHNICAL ANALYSIS

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

TECHNICAL CORRECTION

A price adjustment based on technical factors like resistance and support levels, as well as overbought and oversold levels, instead of market sentiment.

TECHNICAL INDICATORS

Short-term trends that technical analysts use to predict future price movements of securities and/or commodities. Also called technicals, technicalities.

TICK

The smallest possible change in a price, either up or down. Also known as a pip.

U

UNREALIZED P/L

A hypothetical valuation of the current position and the resultant profit or loss if the position were to be liquidated at that moment.

UPTICK

A new price quote that is higher than the preceding quote for the same currency.

US DOLLAR

The currency of the United States of America.

US PRIME RATE

The interest rate at which banks in the US will lend to their most valued customers.

V

VOLATILITY

Measure of how much the price of a currency changes over time.

W

WHIPSAW

Refers to when a position is taken and a stop loss is created. The market moves down to trigger the stop loss and then turns around.

WIRE TRANSFER

Electronic transfer of funds from one bank to another.

W

XAF

CFA Franc BEAC. The currency of Cameroon, The Central African Republic, Chad, The Congo, Equatorial Guinea and Gabon.

XAU

XAU is the ISO 4217 currency code for gold, denoting one troy ounce of gold.

XAU/USD

XAU/USD

Y

YARD

Traders' term for a billion as in a billion dollars.

YER

Yemeni Rial. The currency of Yemen. It is subdivided into 100 fils.

Z

ZigZag

A technical indicator that draws tops and bottoms - filtering out noise.