Forex Glossary

A

Arbitrage:

Arbitrage means making a profit by buying and selling currency in different markets where there are different prices for the same currency. To do this, traders buy and sell the currency at the same time in related markets to take advantage of small price differences.

Ask:

“Ask” or “ask price” is the price at which a trader agrees to buy a specific currency.

Asset:

“Asset” means something that has value, like a currency or currency pair.

B

Base Currency:

In a currency pair, the first currency listed is called the “base currency”. For example, in the EUR/USD pairing, EUR is the base currency.

 

Bear Market:

When the price of an asset, currency, or security is falling, it’s called a “bear market”. “Bearish” is also used to describe the state of the forex market when it’s in decline.

 

Bull Market:

When the price of an asset, currency, or security is rising, it’s called a “bull market”. “Bull” and “bullish” are also used to describe this state.

 

Bid:

The price at which a trader is willing to sell a particular currency is called the “bid” or “bid price”.

 

Buy Limit Order:

A buy limit order is an order to execute a transaction at a specified price or lower. “Limit” refers to the price threshold.


Broker:

An individual or firm that acts as an intermediary, bringing buyers and sellers together 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.


C

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.


Carry Trade:

Carry Trade refers to the practice of borrowing money at a lower interest rate to invest in assets that have the potential to generate higher interest rates.

 

Closed Position:

When a trader brings a transaction to an end, it’s referred to as “closing a position”. This can result in profits or losses.

 

Closing Market Rate:

The final value at which a currency is traded during a specific time frame, day, or candle is referred to as the “closing market rate” or “closing price”.

Copy Trading:

Copy Trading is a type of trading in which traders can automatically copy the trading positions and strategies of other, more experienced traders

 

Currency Appreciation:

When a currency’s value increases in comparison to another currency, it’s referred to as “currency appreciation”.

 

Currency Futures:

Currency futures are contracts that specify the price at which a currency can be bought or sold on a future date. Traders often use these contracts to hedge against potential currency price fluctuations.

 

Currency Pair:

A currency pair is the underlying asset that is traded in the forex market. Currency pairs come in various forms, with most pairs labeled as “major”, “minor”, or “exotic”. For instance, GBP/USD is a major currency pair.

D

Daily Chart:

A daily chart is a graphical representation of the movements of a specific currency during a single trading day.

 

Day Trade:

A day trade refers to a forex trade that is opened and closed on the same day.

 

Demo Account:

A demo account is a forex trading account that allows traders to practice trading using virtual funds. It’s also known as a “dummy account”, “virtual currency account”, or “practice account”. This allows traders to explore the market and make trades without risking any real capital.

 

Depth of Market:

The volume of buying and selling orders at different prices for a currency is referred to as the “depth of market”.

 

Drawdown:

A drawdown occurs when the price of a currency drops, and the difference between the peak price and the new low is called the “drawdown”.


E

ECN Broker:

An ECN broker is a type of broker that utilizes Electronic Communications Networks (ECNs) to provide clients with access to liquidity providers.

 

Exchange Rate:

The exchange rate is the cost at which one currency can be traded for another. It is the foundation of the forex market.

 

Execution:

The term “execution” refers to the process of initiating and completing a trade.

 

Exposure:

“Exposure” is a term used to describe the amount invested in a currency and the associated risks in the market. It refers to the potential loss that an investor could face if the market moves against their position.

F

Fill Price:

The price at which an order is completed is referred to as the “fill price”.

 

Fill or Kill:

A fill or kill order is a type of order that terminates if it cannot be filled at a specific price that an investor has set for a forex transaction.

 

Floating Exchange Rate:

A floating exchange rate is a term used to describe an exchange rate that is not fixed and fluctuates based on the supply and demand of a particular currency relative to other currencies.

 

Forex Chart:

A forex chart is a digital chart that displays points and price movements related to a currency pair, similar to a daily chart. Forex charts can cover various timeframes, from days to years.

 

Forex Scalping:

Forex scalping is a trading strategy based on making quick trades to earn small profits, rather than relying on large price movements.

 

Forex Signal System:

A forex signal system is a service that issues forex signals to subscribers regarding current market activity. These signals can trigger trades automatically or manually.

 

Forex Spot Rate:

The forex spot rate is the exchange rate at which a currency can be bought or sold.

 

Forex Trading Robot:

A forex trading robot is a software designed to guide traders in deciding when to buy or sell a currency pair. It’s automated and operates based on specific parameters set by the trader.


Futures:

Futures are exchange-traded contracts that represent firm agreements to deliver or take delivery of a standardized quantity of a commodity, currency, bond, share, or money market deposit on a specified date at a predetermined price. The Chicago Board of Trade’s Treasury bond futures is the most actively traded derivative contract in the world, while the Chicago Mercantile Exchange’s Eurodollar contract has the largest open interest.

 

Fundamental Analysis:

Fundamental analysis is the act of evaluating the impact of key economic and political events, such as interest rate announcements and unemployment rates, on the forex market to predict the market’s future direction in relation to portfolios.

G

Fill Price:

The price at which an order is completed is referred to as the “fill price”.

 

Fill or Kill:

A fill or kill order is a type of order that terminates if it cannot be filled at a specific price that an investor has set for a forex transaction.

 

Floating Exchange Rate:

A floating exchange rate is a term used to describe an exchange rate that is not fixed and fluctuates based on the supply and demand of a particular currency relative to other currencies.

 

Forex Chart:

A forex chart is a digital chart that displays points and price movements related to a currency pair, similar to a daily chart. Forex charts can cover various timeframes, from days to years.

 

Forex Scalping:

Forex scalping is a trading strategy based on making quick trades to earn small profits, rather than relying on large price movements.

 

Forex Signal System:

A forex signal system is a service that issues forex signals to subscribers regarding current market activity. These signals can trigger trades automatically or manually.

 

Forex Spot Rate:

The forex spot rate is the exchange rate at which a currency can be bought or sold.

 

Forex Trading Robot:

A forex trading robot is a software designed to guide traders in deciding when to buy or sell a currency pair. It’s automated and operates based on specific parameters set by the trader.


Futures:

Futures are exchange-traded contracts that represent firm agreements to deliver or take delivery of a standardized quantity of a commodity, currency, bond, share, or money market deposit on a specified date at a predetermined price. The Chicago Board of Trade’s Treasury bond futures is the most actively traded derivative contract in the world, while the Chicago Mercantile Exchange’s Eurodollar contract has the largest open interest.

 

Fundamental Analysis:

Fundamental analysis is the act of evaluating the impact of key economic and political events, such as interest rate announcements and unemployment rates, on the forex market to predict the market’s future direction in relation to portfolios.

H

Hard Currency:

A hard currency is a currency that is considered dependable and resilient, especially in times of political and economic instability. Opposite to a soft currency, well-known hard currencies include the US Dollar (USD), Great Britain Pound (GBP), and Euro (EUR).

 

Hedge:

Hedge is a trading strategy used to protect investors by reducing risk associated with volatile markets. It involves making two independent investments that work to balance each other out, thus minimizing potential losses due to price fluctuations.

I

Inflation:

Inflation is an economic condition where prices for consumer goods rise, eroding purchasing power.

 

Interbank Rates:

Interbank rates are foreign exchange rates that large international banks quote to each other.

 

Interest:

Interest refers to the adjustments in cash to reflect the effect of owing or receiving the notional amount of equity of a CFD position.


Initial Margin:

The initial margin is a returnable deposit required to be lodged by buyers and sellers with the clearing house to secure a new futures or options position.

 

Intervention:

Intervention refers to actions committed by a nation’s central bank to affect the value of its currency. This often involves direct entering of the market, increasing the level of control that the nation has over the currency exchange rate.

 

Introducing Broker:

An introducing broker is a person or corporate entity that introduces accounts to a broker in return for a fee.


J

N/A

K

Key Currency:

Key currency refers to small countries that orientate their currencies to their major trading partners, which are the constituents of a currency basket. These countries are highly dependent on exports.

 

Kiwi:

Kiwi is slang for the New Zealand dollar.

 

Knock In:

Knock In is a process where a barrier option (European) becomes active when the underlying spot price is in the money. Knock Out has a corresponding meaning although the option may permanently cease to exist.


L

Leverage:

Leverage is a service offered by forex brokers that allows a trader to maximise their buying power. It gives the trader the ability to deposit a small amount of capital yet still trade currency in large volumes. Leverage is expressed by a ratio; for example, leverage of 1:100 increases a trader’s purchasing power by 100 times.

 

Level:

Level refers to a price zone or particular price that is significant from a technical standpoint or based on reported orders/option interest.

 

Liability:

Liability is a potential loss, debt or financial obligation.

 

Limit Order:

A limit order represents an instruction to either close or open a transaction at a future price. For example, if EUR/USD is currently listed at 1.07503/1.07523, then a related limit order to buy EUR at a lower-than-current market value price would see the currency purchase occur at 1.07522 or below.

 

Liquid Market:

A liquid market is one which has sufficient numbers of buyers and sellers for the price to move in a smooth manner.

 

Liquidity:

Liquidity is the amount (or volume) of a set currency currently available for active trading.

 

Liquidation:

Liquidation refers to the closing of an existing position through the execution of an offsetting transaction.

 

Long Position:

A long position is the opposite of a short position, where any investor who takes a long position buys a base currency with a view to profiting on a market price increase.

 

Lot:

A lot is a standardised quantity of the currency you are choosing to trade with, with one lot equalling 100,000 units of a particular currency.

 

Loonie:

Loonie is a nickname for the Canadian dollar or the USD/CAD (U.S. Dollar/Canadian Dollar) currency pair.


M

Margin:

“Margin” refers to the amount of account balance required in order to maintain an open position.

 

Margin Call:

A margin call is an alert that notifies you that you need to make an additional deposit in order to increase your margin to keep remaining positions active.

 

Market Order:

A market order is an order for a trade to be executed immediately (if possible) at the best price available for those who want to trade instantaneously.

 

Market Maker:

A market maker is a dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial product.

 

Micro Lot:

Micro lot refers to 1,000 units of the base currency within a pair.

 

Macro:

Macro refers to the longest-term trader who bases their trade decisions on fundamental analysis. A macro trade’s holding period can last anywhere from around six months to multiple years.

N

Net Position:

Net Position refers to the amount of currency bought or sold which has not yet been offset by opposite transactions.

O

Open Order:

An Open Order is an order that will be executed when a market moves to its designated price. It is normally associated with good ’til cancelled orders.

 

Open Position:

An Open Position is an active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.

 

Option:

An Option is a derivative which gives the right, but not the obligation, to buy or sell a product at a specific price before a specified date.

 

Order:

An Order is an instruction to execute a trade.

 

Order Book:

An Order Book is a system used to show market depth of traders willing to buy and sell at prices beyond the best available.

 

Over the Counter (OTC):

Over the Counter (OTC) is used to describe any transaction that is not conducted via an exchange.

 

Overnight Position:

An Overnight Position is a trade that remains open until the next business day.


P

Pair:

 

In the forex market, a pair refers to the quoting convention where one currency is matched against another. For example, the EUR/USD currency pair matches the euro against the US dollar.

 

PIP:

 

In forex trading, a pip stands for “percentage in point”. It is the smallest possible price change that can occur within an exchange rate. For most currency pairs, a pip is represented as the fourth decimal place in the exchange rate, with the exception of currency pairs involving the Japanese yen, which is represented by the second decimal place.

 

Position:

 

A position in forex trading refers to the net total holdings of a particular currency or financial product. A trader can have either a long position, where they are buying a currency with the expectation that it will increase in value, or a short position, where they are selling a currency with the expectation that it will decrease in value.

 

Profit:

 

In forex trading, profit is the difference between the cost price and the sale price of a currency or financial product, where the sale price is higher than the cost price. Profit is a key goal for traders and investors, as it represents the financial gain made from a successful trade.

 

Profit-Taking:

 

Profit-taking in forex trading refers to the process of closing a position in order to collect the profit made from a successful trade. Traders may choose to take profits at different levels depending on their strategy, such as when the currency pair reaches a certain price level or when a certain profit target is achieved.

 

P&L:

 

P&L is an abbreviation for “profit and loss”. It represents the financial gains or losses made from a trade or investment. A positive P&L indicates a profit, while a negative P&L indicates a loss.

Q

Quote Currency:

In a currency pair, the second currency listed is known as the “quote currency”. For instance, in the EUR/USD pairing, the USD is the quote currency

R

Rally:

A currency rally refers to an increase in its price following a period of decline, be it a short-term or a long-term one.

 

Resistance:

Resistance is a level of price that a currency struggles to surpass. A currency will repeatedly test this upper limit, but if it fails to break through it, a downward trend may start.

 

Risk Management:

As the forex market can be volatile, traders must adopt risk management practices to safeguard their capital. These practices encompass strategies and tools that aim to minimize the financial risk involved in trading.

 

Rollover Rate:

A rollover rate is the interest that traders pay or earn when holding an open position overnight. The term “rollover” refers to the continuous nature of these positions that roll over from one day to the next.

S

Short Position:
A type of trading position where the investor benefits from a decline in the price of a currency pair, and profits when the base currency is sold.

 

Slippage:
The difference between the expected price of a trade and the actual price at which it is executed, usually occurring during times of high market volatility.

 

Soft Currency:
A type of currency that is considered less stable and more susceptible to economic and political events compared to hard currencies, such as the Zimbabwean Dollar (ZWD) and North Korean Won (KPW).

 

Speculator:
A trader who takes on high levels of risk in hopes of achieving high returns.

 

Spike:
A sudden and sharp upward or downward movement in the price of a currency pair over a short period of time.

 

Spread:
The difference between the bid and ask price of a currency pair, usually presented in pips, which represents the brokerage service costs.

 

Stop-Loss Order:
A market order to buy or sell a currency pair at a certain price, typically placed to minimize losses in a trading position.


Swap

A forex swap is a simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another. This involves borrowing one currency and lending another for the same period, with any cost of funds or rate of return being expressed in the price differential between the two sides of the transaction.

T

Take-Profit Order (T/P):

A market order placed by traders which specifies the price level or price range at which they want to close their position, securing their profit.

 

Technical Analysis:

A method of predicting future price movements in the forex market by analyzing past and current market data, using trading indicators, charts, and other technical tools. Technical analysis helps traders to identify trends, support and resistance levels, and potential price reversals.


Tick

In forex trading, a tick is the minimum incremental movement that a currency pair’s price can change, either up or down. This is typically expressed as one pip, which is the smallest possible price change that can occur within an exchange rate.

U

N/A

V

Volatility:

Volatility refers to the amount of variation in price or market activity that is associated with a particular currency, currency pair or security. This variation can be a result of a range of factors including economic or political events, changes in supply and demand or even investor sentiment. In forex trading, volatility can often present opportunities for traders to make profitable trades, but can also pose risks due to the unpredictability of price movements.


W

N/A

X

N/A

Y

Yield

Yield refers to the income return on an investment in the forex market, expressed as a percentage of the amount invested. It represents the profit earned from holding a currency position, and is often used as a measure of the potential return on investment.

Z

N/A