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Forex Glossary

An intermediary or person hired to carry out transactions on behalf of another person.

Ask price
It is the lowest price a seller is willing to sell a financial instrument. Also called offer price, offer, asking price, or ask.

Ask Size
The number of shares a seller is willing to sell at his/her ask rate.

Accounting Currency
Currency in which account deposit and withdrawal operations are denominated.

Asset Swap
An interest rate swap used to alter the cash flow characteristics of an institution’s assets in order to provide a better match with its liabilities.

At Best
It is a type of order where a dealer is instructed to buy or sell at the best rate that is currently available in the market.

At or Better
It’s an order to deal at a specific price or better.

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 to the right of the bar.

Base Currency
In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. 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.

Bid price
The price an investor is willing to pay for an asset. It is usually referred to simply as the bid.

Bid/ask spread
It is the difference between the buy (bid) and sell (offer) price of a currency or financial instrument.

Bear Market
Any market that exhibits a declining trend. In the long run they have a down turn of 20% or more.

Bonds are debt instruments used to raise capital, which are issued for periods greater than one year. Bondholders are loaning money (investing in debt) to companies and governments, at the end of which they will be paid a specified interest rate. Bond prices are inversely related to interest rates, as interest rates rise, bond prices fall. There are numerous types of bonds, including treasury bonds, notes, and bills; municipal bonds and corporate bonds.

It is a movement of the price through a selected support or resistance level. It is typically followed by increased volatility and heavy volume.

It is an intermediary agent that executes orders to buy and sell currencies or other financial instruments for commission fees.

It is a broker’s fee or commission.

Bull Market
A market where prices are rising or are expected to rise.

Buy break
A recommendation to buy the currency pair if it breaks the current level specified.

Candlestick Chart
Chart depicting the daily high, low, opening and closing price, similar to that of a bar chart. If the close is lower than the open than the body of the candlestick is filled in, and if the open is lower than the close the body is left empty.

Capital Markets
Markets in which capital (stocks, bonds, etc.) are traded. Usually for medium or long term investing.

Refers to a technical analyst or one who analyses charts/graphs and data to uncover potential trends.

Closed position
It is a position that has been terminated or ended.

It is a fee charged by brokers from their clients for dealing on their behalf.

Contract (Unit or Lot)
The standard trading unit on certain exchanges. A standard lot in the forex market is $100,000.

A participant, either a person or an institution, involved in one side of a financial transaction. With such transaction there is an associated risk (counterparty risk) involved that the counterparty will not be able to meet the terms outlined in the contract. This risk is usually default risk.

Cross currency pair
These are the currency pairs that do not involve the US dollar, e.g. GBP/JPY. Pairs that involve the euro are often called euro crosses, such as EUR/GBP.

It is the process of settling a transaction.

Currency Pair
Currencies are quoted in pairs, such as EUR/USD or USD/JPY. The first listed currency is known as the base currency, while the second is called the counter or quote currency. The base currency is the “basis” for the buy or the sell. For example, if you BUY EUR/USD you have bought euros and simultaneously sold dollars. You would do so in expectation that the euro will appreciate (increase in value) relative to the US dollar.

Day Trading
Refers to the process of entering and closing out trades within the same day or trading session.

An excess of liabilities over assets, of losses over profits, or of expenditure over income.

Refers to the process of borrowing and lending money. The deposit rate is the rate at which money can be borrowed or lent.

It is a type of financial contract that gives you the right to buy or sell shares at a particular price until a specific date in the future, or to pay a particular price now for shares that you will receive at a specific date in the future. Its price is largely determined by the commodity, currency, share price, interest rate, etc., to which it is linked

When the value of a currency is lowered against the other, i.e. it takes more units of the domestic currency to purchase a foreign currency. This differs from depreciation in that depreciation occurs through changes in demand in the foreign exchange market, whereas devaluation typically arises from government policy. A currency is usually devalued to improve the balance of trade, as exports become cheaper for the rest of the world and imports more expensive to domestic consumers.

Daily Cut-off
It is a particular point in time specified by a forex dealer to stand as the end of the current trading day and the beginning of a new trading day.

Economic Exposure
When the cash flow of a country is vulnerable to changes in the exchange rate.

Economic Indicator
Economic indicators provide statistical data showing general trends in the economy. They allow analysis of economic performance and predictions of future performance.

End of day order
End of day order also known as EOD order is a buy or sell order that specifies that a transaction occurs at a specific price, and is left open until the end of a trading day. If the parameters of the end of day order are not met, the order is cancelled.

Entry order
It is an order to enter the market at a specified price. If the currency pair never reaches that specified price level then the entry order is not executed.
There are three types of entry orders:

market order allows the trader to buy or sell at the current price.

limit order is an order to buy below the current market price or to sell above the current price. This is used when the trader thinks that the price action will reverse upon hitting that specified price level.

stop order is an order to buy above the current market price or to sell below the current price. This is used when the trader thinks that the price action will continue upon reaching that specified price level.

Exotic Currency
Any currency that is not considered a major currency on the foreign exchange is called exotic (e.g. USD/THB, USDMXN, USD/NOK). Such currencies are not highly liquid, and come with greater spreads in the bid and ask prices.

Fixed Exchange Rate
When the exchange rate of a currency is not allowed to fluctuate against another, i.e. the exchange rate remains constant. Typically, under fixed exchange rate regimes, currencies are allowed to fluctuate within a small margin. Fixed exchange rate regimes require central bank intervention to maintain the fixed rate.

Foreign Exchange (Forex)
The buying and selling of currencies.

It is a non-standardized contract according to which one counterparty is obliged to buy and the other to sell a financial instrument at a definite time and price in the future.

Fundamental Analysis
The analysis of economic indicators and political and current events that could effect the future direction of financial markets.

Futures (Financial Futures)
Future contracts that commit both sides to an exchange/transaction of financial instruments, currencies or commodities at a future date and a predetermined price. Future contracts are similar to forward contacts, but future contracts can be traded in the futures markets. Can be used to hedge or speculate against the value of the asset at the expiry date.

Going short
It is the act of selling a financial instrument.

Going long
It is the act of buying a financial instrument.

Strategy to reduce the risk of adverse price movements on one’s portfolio and to protect against the volatility of the market. Hedging typically involves selling the good forward or taking a position in a related security. Hedging becomes more prevalent with increased uncertainty about current market conditions.

Refers to the daily traded high and low price.

Refers to the increase in prices (price level) and wages over time that decrease purchasing power. It is calculated from changes in the price index, usually a consumer price index or a GDP deflator.

Initial margin
It is the amount of money required to open a trading account.

A ratio of amount used in a transaction to the required deposit.
It is a loan provided to an investor by the broker that is handling the former’s account. As a rule the amount of leverage provided makes 1:50, 1:100 or 1:500, depending on the broker and the investment size.

It is the ability of a currency pair to be bought and sold without leading to significant change in its exchange rate. A currency pair is said to have high level of liquidity when it is easily bought or sold and there is a considerable amount of trading activity for that pair.

Long position
It is a position that becomes beneficial as market price goes up.

It is a unit that measures the size of the transaction.

A percentage of the total value of a transaction that a trader is required to deposit as collateral. Buying on margin refers to investing with borrowed funds, and the margin requirement insures against heavy losses.

Margin call
It is a broker’s demand on an investor using margin to deposit additional funds to maintain necessary margin requirements.

Market order
It is an order to buy or sell a financial instrument at the best price currently available.

It is the sum needed in a customer account to be able to open up a position or to maintain a position open.

Market Maker
It is a brokerage or bank which quotes both the buy and sell prices.

Money Market
Highly liquid markets for short-term investing in monetary instruments and debts, typically maturing in less than one year. Because of large transaction cost relative to potential interest, transactions occur in large amounts and thus participants are mainly banks and other large financial institutions.

Net Worth
The difference between the values of assets and liabilities. For public companies this is referred to as shareholder equity.

It is the price at which a seller wants to sell a financial instrument.

Open position
It is an active trade that hasn’t been closed yet.

Open order
It is an order that will be executed as soon as a specified market price is reached.

These are tradable contracts giving the right, but not obligation, to buy or sell commodities, securities or currencies at a future date and at a prearranged price. Options are used to hedge against adverse price movements or to speculate against price rises or falls. Holding options is riskier than holding shares, but offer potentially higher returns.

An instruction by a customer to a broker/trader to buy or sell at certain price or market price. The order remains valid until executed or cancelled by the customer.

It is the smallest commonly quoted change of an exchange rate of a currency pair.

It is a  general reference to an investment holding. A position can be long or short, and it can be in any asset class, such as stocks, bonds, futures, or options.

It is the highest bid or lowest ask price available on a financial instrument at any given time.

The price of one currency in terms of another (exchange rate).

Realized and Unrealized Profit
Unrealized profit is a gain from an increase in the price of an asset that has not been cashed in. Realized profits are made from the cashing in of the unrealized gain.

There are risks associated with any market. It means variance of the returns and the possibility that the actual return might not be in line with the expected returns. The risks associated with trading foreign currencies are: market, exchange, Interest rate, yield curve, volatility, liquidity, forced sale, counter party, credit, and country risk.

Risk Capital
The capital that an investor does not need to maintain his/her living standard.

Risk management
The identification and acceptance or offsetting of the risks threatening the profitability or existence of an organisation. With respect to foreign exchange involves, among others, consideration of market, sovereign, country, transfer, delivery, credit, and counterparty risk.

It is the interest that is gained or lost on any open position held overnight, i.e. after 10 pm GMT. Each currency has a specific interest rate, based on the interest rate of a particular country;so if the interest rate of the currency a trader buys is higher than that of the currency he sells, the trader will earn a positive Rollover; whereas if the interest rate of the bought currency is lower than the interest rate of the sold currency, the trader will have to pay the Rollover.

Round trip
It is buying and selling of a specified amount of currency.

Short position
It is a position that becomes beneficial as market price goes down.

It is the difference in the price at which a broker is instructed to execute an order, and the price at which the order is actually executed.

Spot Trade
It is the immediate settlement or delivery of a trade.

Stop Order
It is an order to buy or sell a certain financial instrument if a specified price (the stop price) is reached or passed.

Spot Price
It is the current price at which a certain financial instrument can be bought or sold at a specified time and place.

(1) The difference between the bid and ask price of a currency.
(2) The difference between the price of two related futures contracts.
(3) For options, transactions involving two or more option series on the same underlying currency.

It is the original capital paid into or invested in the business by its founders. If a person owns a stock of a particular company, he/she is entitled to a proportional share of its profits. Stocks of companies can be bought and sold in stock markets, such as the New York Stock Exchange.

Stop Loss
It is a limit order in which a trade is closed when the price of a financial instrument falls to a certain level.

It is the simultaneous buying and selling of the same amount of a given currency at a forward exchange rate.

Swing Trading
It is a speculative activity in financial markets which consists in repeated buying and selling of financial instruments at or near the end of up or down price swings caused by price volatility.

Take Profit
It is an order in which the position is automatically closed once a certain profit has been made. Although it terminates any further advance in profit, it guarantees a specific profit after a level has been reached.

Technical Analysis
The study of the price that reflects the supply and demand factors of a currency. Common methods are flags, trend-lines spikes, bottoms, tops, pennants, patterns and gaps.

Thin Market
A market in which trading volume is low and in which consequently bid and ask quotes are wide and the liquidity of the instrument traded is low.

A minimum price movement.

Trade Date
The date on which a trade occurs.

It is total value of money of all executed transactions in a certain time period.

Two Way Price
A price that includes both the bid and offer price. The NASD requires that market makers have both bid and ask prices for any security, currency or commodity in which they make a market. This is called a two-sided market.

Unrealized gain/loss
It is a theoretical profit or loss of an open position determined by current market prices.

Measures the volatility of a data set/data points from the mean. It is calculated by adding the squares of the standard deviations from the mean and dividing by the number of data points, i.e. taking the average of the standard deviations.

It is a measure of the amount by which the price of an asset is expected to fluctuate over a certain period of time.

The number of shares or contracts traded for a certain security or an exchange during a period.

It is a right but not obligation to buy shares in a company at a future date and at a prearranged price. Warrants are tradable options.


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