Forex Glossary

A

Account

A systematic record of transaction of goods and services owed by one person to another.

Aggressor

A forex trader dealing on a cost that can be obtained in the Forex market.

Ask

The quoted price at which a currency pair or security is accessible for sale. This is also known as the 'offer', 'ask price', and 'ask rate'.

Ask Price

The quoted price at which a currency pair or security is offered for sale.

Ask Rate

This the rate at which a financial instrument or currency is offered for sale.

Asset

Assets are essentially anything of value, which an organization owns. Any item having commercial or exchange value can also be called as an asset.

Appreciation

An increase in the value of currency rate in response to market demand.

Arbitrage

The purchase of an instrument and concurrent taking of an equal and turn around position in a related market.

Around

Dealer jargon used in quoting when the forward premium is near parity.

Asset Allocation

An increase in the value of currency rate in response to market demand. Investment practice that splits funds among diverse Fx-markets to accomplish diversification for

B

Bank Rate

The rate at which a central bank is prepared to lend money to its domestic banking system.

Back Office

The office location/department where the financial transaction processing takes place.

Base Currency

In common terms, the base currency is the currency in which an investor maintains its book (transaction) of accounts. In the forex markets, the US Dollar is usually considered the "base" currency for quotes that is the quotes are expressed as a unit of US$1 per the other currency quoted in the pair. The primary exceptions of this rule are the British Pound (GBP), the Euro (EUR) and the Australian Dollar (AUD).

Bear Mar

An extensive period of general price decline in an individual asset, security or a market, in other words it is a market distinguished by declining prices.

Bid

The quoted price at which an investor can place an order to buy a currency pair.

Bid/Ask Spread

It is point difference between the Ask (offer) and Bid price, and most widely used measure of market liquidity.

Big Figure

Expression refers to the first few digits of a foreign exchange rate or price. These digits hardly change in normal market fluctuations, and hence are omitted in dealer quotes, particularly in times of high market activity.

Broker

An individual or firm that acts as a mediator, putting together buyers and sellers for a fee or commission.

Bull Market

A market in which prices turn down sharply against a background of widespread pessimism.

Buy Limit Order

An order to execute a transaction at a specified price or lower.

Buy On Margin

A process of buying a currency pair where a client pays you cash for part of the overall value of the position.

Bundesbank

Germany's Central Bank.

Balance of Payments

A record of all transactions made by one specific country with another during a certain period of time. It compares the value of economic transactions between one country and all other countries. This includes trade balance, foreign investments, and as well as investments by foreigners.

Balance of Trade

The value of a country's exports minus its imports, in other words it is a net flow of goods (exports minus its imports) between two countries.

Big Figure

Dealer expression referring to the first few digits of an exchange rate.

Book

A 'book' is the summary of a forex trader's or desks total positions.

Bretton Woods Agreement of 1944

An agreement that recognized fixed foreign exchange rates for major currencies.

Bear

Someone who believes the prices/market will decline.

Bull

Someone who believes the prices/market is going to rise. A bull market is a market distinguished by rising prices.

C

Cable

A term that is used in the forex market for the US Dollar/British Pound rate.

Call Rate

The overnight inter-bank interest rate.

Capital Markets

Markets in which capitals (stocks, bonds, etc.) are traded; usually for medium or long term investing.

Cash Market

A market for buying and selling of physical currencies.

Convertible Currency

Without getting special approval from the suitable central bank, this currency could be freely exchanged for other currencies or gold.

Cross Rate

An exchange rate between two currencies, created from the entity exchange rates of the two currencies.

Currency Risk

The risk that shifts in foreign exchange rates may destabilize the overseas investments.

Currency Swap

Bond which consigns two counter-parties to switch over streams of interest payments in different currencies for an agreed period of time.

Currency Option

Option contract that gives the right for buying or selling a currency with another currency at a particular exchange rate during a specified period.

Currency Swaption

OTC Option to enter into a currency swap contract.

Currency Warrant

OTC Option; long-dated currency option

Candlestick Chart

OTC Option to enter into a currency swap contract.

Carry (Interest-Rate Carry)

A bank, being administered by a national government regulates the behavior of financial institutions within its borders and which holds out monetary policies.

Central Bank

A bank, being administered by a national government regulates the behavior of financial institutions within its borders and which holds out monetary policies.

Closing a Position

The process of selling or buying a foreign exchange position resulting in the liquidation of the position.

Closing Market Rate

The rate at which a position can be closed at the end of the day based on the market price.

Commission

The fee, which a broker might charge to clients for dealing on their behalf.

Confirmation

Written acknowledgment of a trade, listing significant details such as the date, the size of the transaction, the commission, the price, and the sum of money involved.

Correspondent Bank

The foreign banks representative who recurrently performs services for a bank which has no branch in the pertinent centre.

Counterpart

A participant in a financial deal.

Cover

(1) To take out a onward foreign exchange contract. (2) To close out a short arrangement by buying currency or securities which have been sold.

Currency Pair

The two currencies in a foreign exchange transaction. Ex: "EUR/USD"

Clearing

The progression of settling a trade.

Contagion

The inclination of an economic crisis to spread from one market to another.

Commission

A transaction fee charged by a broker.

Confirmation

A document exchanged by counterparts to a transaction, which states the terms of said transaction.

Contract

The typical unit of trading.

Country Risk

The risk related with government intervention (does not carry central bank intervention). Examples are legal and political events for example war, or civil unrest.

Currency

It is a form of money used as a unit of exchange within a country.

D

Day Trading

Refers to opening and closing the same spots within a day's trading.

Dollar Rate

A variable amount of a foreign currency is quoted against one US Dollar.

Day Order

A buy or sell order that will conclude automatically at the last part of the trading day.

Day Trade

A foreign exchange trade that is opened and closed on the same trading day.

Day Trader

A trader who buys and sells on the source of small short-term price movements.

Depreciation

A drop in the worth of a currency due to forex market forces.

Desk

Term referred to a faction dealing with a particular currency.

Devaluation

The act by a government to lessen the external value of its currency.

Direct quotation

Quoting in fixed units of foreign currency against changeable amounts of the domestic currency.

Discretionary Account

An account in which the customer allows a trading institution to act on the customer's behalf in buying and selling currency exchange pairs.

Dealer

An individual who acts as a chief or counterpart to a transaction.

Deficit

A negative balance of trade (or payments), when the expenditures are greater than income/revenue.

Delivery date

The date of maturity of the deal, when the currencies exchange is actually made. This date is usually known as the value date in the FX or Money markets.

Delivery

An FX trade where both parts make and take actual delivery of the currencies traded.

Depreciation

A fall in the value of a foreign exchange currency due to market forces other than official action.

Derivative

A contract that changes in value in relation to the price movements of an underlying security, future or other physical instrument.

Devaluation

The planned downward adjustment of a currency's value vs. the value of other currency usually caused by official announcement.

E

Economic Indicator

A government issued statistic that states current economic growth and stability.

Equilibrium

A price region, which suggests a balance between demand and supply for a currency pair in the marketplace.

European Monetary Union (EMU)

The principal objective of the EMU is to launch a single European currency called the Euro, which will officially reinstate the national currencies of the member EU countries in 2002.

European Central Bank (ECB)

The Central Bank for the new European Monetary Union.

EMS

Acronym for European Monetary System, an agreement between member nations of the European Union to uphold an alignment between the exchange rates of their respective currencies.

European Monetary Union

The principal goal of the EMU is to set up a single European currency called the Euro, which will officially replace the national currencies of the member, EU countries in 2002.

Exchange Rate Risk

The risk of getting losses resulting from an unfavorable change in exchange rates.

EURO

The currency of the European Monetary Union (EMU), which replaces the European Currency Unit (ECU).

Execution

The Process of finishing an order or deal.

F

Federal Reserve (Fed)

The Central Bank of the United States.

Fixed Exchange Rate

An official foreign exchange rate set by fiscal authorities for one or more currencies.

Flat / Square

To be neither too long nor too short is the same as to be flat or square. One will have a flat book if he has no positions or if all the positions gets cancel each other out.

Floating Rate Interest

A foreign exchange rate where the price is determined by market forces. Even floating currencies are subject to intervention by the fiscal authorities. When such activity is often the float is referred as a dirty float.

Flexible exchange rate

Exchange rates with a fixed parity against one or more foreign currencies with often revaluations, a form of managed float.

Foreign Exchange Swap

Transaction which involves the tangible exchange of two currencies 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).

Foreign Exchange

The instantaneous buying of one currency and selling of another in an over-the-counter market.

Forward

A deal that will instigate at an agreed date in the future.

Fundamental Analysis

Thorough analysis of economic and political information with the objective of determining future movements in a financial market.

Federal Deposit Insurance Corporation (FDIC)

The regulatory agency liable for administering bank depository insurance in the US.

Forward points

The points that are added to or subtracted from the spot rate to estimate the forward rates required for a forward foreign exchange transaction.

Futures Contract

An obligation to exchange a good, service or instrument at a set price on a particular future date.

Fast Market

Hasty movement in a Forex market caused by strong interest of buyers and sellers.

Federal Deposit Insurance Corporation (FDIC)

The regulatory agency in charge for administering bank depository insurance in the United States.

Federal Reserve System

The central banking system in the United States.

Fill

The process of completing a customer's order in buying or selling a currency pair.

Fill Price

The price at which a buying and selling order was executed.

Financial Risk

The risk that a firm will be incapable of gathering its financial obligations.

Flat

A Term that describes a trading book with no market exposure.

FOMC Federal Open Market Committee

The committee that sets money supply goals in the US which have a propensity to be implemented through Fed Fund interest rates.

Forex

Term used for referring to the foreign exchange market.

Forex Club

Groups formed between foreign exchange dealers in the major financial centers to persuade educational and social contacts.

Forward Price

The net price resulting from calculating the forward points and subtracting them from the existing spot rate.

Forward Rates

Forward rates are quoted in terms of forward points that represent the difference between the forward and spot rates.

FX

Foreign Exchange.

G

GTC (Good Till Cancelled)

An order left with a Dealer to buy or sell at a fixed price and remnants in place until gets cancelled by the client.

Going long

The purchase of a stock, service, or any currency for investment or speculation.

Going short

The selling of a foreign currency or any instrument not owned by the seller.

Gold Standard

The actual system for supporting the value of foreign currency issued. The price of gold is fixed against the currency it states that the increased supply of gold does not reduces the price of gold but causes prices to increase.

Grid

Fixed margin within that particular exchange rates are allowed to fluctuate.

Gross Domestic Product (GDP)

Total value of a country's output, income or expenditure produced within the nation's physical borders.

H

Hard currency

A major world currencies, which is well traded and easily converted into other currencies.

Hedging

The practice of undertaking one investment activity in order to protect against loss in another.

High/Low

Usually the highest traded price or the lowest traded price for the fundamental instrument for the current trading day.

Hit the bid

Acceptance of buying at the offer or selling at the bid.

Hedge

An investment position or mixture of positions, which reduces the volatility of your portfolio value.

I

IMF

International Monetary Fund, established in 1946 to offer international liquidity on a short and medium term and to support liberalization of exchange rates.

Initial Margin

The required initial deposit of security to enter into a position as a guarantee on future performance.

Interbank Rates

The Foreign Exchange rates at which one international bank quote another international bank.

Inflation

Monetary condition whereby prices for consumer goods rise, eroding purchasing power.

Initial Margin Requirement

The minimum portion of a new security purchase, which an investor need to pay for in cash.

J

Jobber

A trader who trades for small, short-term profits in course of a trading session, hardly carrying a position overnight.

K

K

A NASDAQ stock symbol mentioning that the stock has no voting rights.

Kiwi

In forex, jargon for the New Zealand dollar.

L

Long Position

A market position where the Client has purchased a currency he earlier did not hold own.

Limit order

A request for buying or selling a foreign currency at a specified price or better.

Leading Indicators

A composite index (1992 = 100) of ten economic indicators intended to envisage economic activities in future.

LIBOR

The London Inter-Bank Offered Rate.

0Liquidity

Refers to the relationship between transaction size and price movements, in other words it is the ability of a market to accept large transactions.

Liquidation

The closing of an accessible position through the execution of an equalized transaction.

Long

When a currency is bought, the pair present in the primary currency is 'long' and the secondary currency is 'short' during foreign exchange.

M

Margin call

An appeal from a dealer or other collateral for extra Forex funds assuring performance on a position that has moved against the customer.

Market Maker

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

Mark-to-Market

The daily adjustment of an account to replicate accrued profits and losses frequently required calculating variations of margins.

Maturity

The date for settlement or finishing of a financial instrument.

Momentum investor

A Forex market participant who increase market exposure when the market is rising and decreases exposure or goes short when the market is declining.

Margin

Customers need to deposit funds as security to cover any possible losses from adverse movements in prices.

Maintenance

A set minimum margin, which a customer should maintain in his margin account.

Margin Account

An account, which allows leverage buying on credit and borrowing on currencies already in the account.

Margin Call

A call for additional funds in a margin accounts either because the value of equity in the account has fallen below a required minimum.

Market Close

This refers to the time of day that a market closes. 5:00 PM EST is often referred to and understood as the market close because value dates for spot transactions change to the next new value date at that time.

Market Order

A customer order for instantaneous execution at the best price available when the order reaches the marketplace.

Market Rate

The latest quote of a currency pair.

Market Risk

The Forex risks that occur when general market pressures cause the value of an investment to fluctuate.

Momentum

The leaning of a currency pair to persist movements in one direction.

N

Non-Client Order

An order on a foreign exchange, which is made by a participant firm or on behalf of a partner, officer, director, or employee of the participant firm.

Net Position

The amount of currency bought or sold, which has not yet been offset by opposite transactions.

Net Worth

Amount of assets, which exceed liabilities; Might also be known as stockholders equity or net assets.

O

Offer

The price, or rate, that a willing seller is ready to sell at.

Offsetting transaction

A trade with which serves to cancel or offset some or all of the Forex market risk of an open position.

One Cancels the Other Order (OCO)

A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.

Open order

An order that would be executed when a market moves to its chosen price.

Open position

Any deal that has not been settled by physical payment or reversed by an equal and opposite deal for the same particular value date.

Over the Counter (OTC)

Used to depict any transaction that is not accomplished over an exchange.

Overnight

A trade that ruins opens until the next business day.

Overnight Trading

Refers to a purchase or sale in between the hours of 9.00 pm and 8.00 am on the specific following day.

Order

A customer's instructions to purchase or sell currencies.

Overnight Position

Trader's actual position may be long or short in a currency at the end of the trading day.

P

Parities

The sum of one currency in terms of another.

Pips

A Digit that is added to or subtracted from the fourth given decimal place. One unit of price exchange in the bid/ask price of a foreign currency.

Position

The net total holdings of a given foreign currency.

Premium

In the forex market, it is the total sum of points added to the spot price to predict a forward or futures price.

Price Transparency

The ability of all market traders to "see" or deal in the same price.

Pip (or Points)

The term used in currency market to symbolize the smallest incremental move an exchange rate can make.

Political Risk

The vagueness in return on an investment due to the possibility that a government might take actions which are harmful to the investor's interests.

Principal Value

The actual amount endowed by the client.

Q

Quote

An analytic market price, usually used for information purposes only.

R

Rate

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

Resistance

A term used in technical analysis representing an exact price level at which analysis concludes people would further sell.

Roll - Over

An overnight swap, particularly the next coming up business day against the following business day (also called Tomorrow Next, abbreviated as Tom-Next).

Risk Capital

The amount of money, which an individual could afford to invest, if lost will not affect their lifestyle.

Revaluation

Daily calculation of prospective profits or losses on open positions based on the difference between the settlement price of the last trading day and the current trading day, in other words an increase in the foreign exchange rate of a currency as a result of official action.

Risk

The hazard that the exchange rate on a foreign currency will move against the position held by an investor.

Risk Management

The employment of financial analysis and use of trading techniques to diminish its financial risk.

S

Sell Limit Order

An order to carry out a transaction only at a particular price or higher.

Selling Short

A situation where a currency has been sold with the aim of buying back the position at a lower price to make a profit.

Selling rate

Rate at which a bank is ready (willing) to sell a foreign currency.

Short position

When a currency pair is sold, the position is said to be short in foreign exchanges.

Short Squeeze

The pressure on short trader to cover their positions as a result when sharp price increases.

Slippage

It's the experience of not getting filled at your expected price when you place a market order or stop loss.

Spot Market

Market where people buy and sell actual financial instruments for two-day delivery.

Spot/Next or S/N roll

The procedure to move the spot settlement value date on an open position forward to the next suitable value date.

Spot Price

The price at which the currency is presently trade in the spot market.

Sterling

Known as UK currency, the Pound otherwise referred as "cable."

Stop Order (or stop)

An order to buy or to sell a currency when the currency's price passes a specified level.

Settlement

The course by which a trade is entered into the books and records of the equivalents to a transaction.

Settlement date

The date upon which forex deals get settled.

Stop Loss Order

An order to buy or sell at the market when a meticulous price is reached, either above or below the price that reigned when the order was given.

Support Levels

A system used in technical analysis that designates a specific price ceiling and floor.

Swap

The simultaneous buying and selling of the same amount of a given currency for two different dates, against the purchase and sale of another currency.

Swissy

Slang for Swiss Franc in foreign currencies exchange market.

Short

To go 'short' is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline to attain profit in the future.

Spot

The most usual foreign exchange transaction.

Spread

The difference between the bid and offer (ask) prices and for measuring forex market liquidity.

T

Technical Analysis

An attempt to forecast prices by scrutinizing market data.

Transaction Cost

The cost at financial instrument or security is bought or sold.

Transaction Date

A particular date on which a trade takes place.

urnover

The total money value of all carried out transactions during a given time period.

Two - Way Price

When both a bid and offer rate is quoted for FX transaction.

Take Profit Order

A customer's instructions for buying or selling a currency pair which, when executed, would result a drop in the size of the available position and show a profit on said position.

Tick

The smallest probable change in a price, perhaps up or down.

Tomorrow Next (Tom/Next), (T/N), T/N Roll

The method of moving the settlement value date on an open position forward from one business day after the trade date (tomorrow), to the next valid value date (next), the spot value date.

U

Uptick

New price quote at a price higher than the previous quote.

Uptick Rule

A regulation in U.S whereby a security may not be sold short if not the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.

US Prime Rate

The interest rate at which US banks would lend to their prime corporate trader or customers.

Under - valuation

An exchange rate is usually considered to be undervalued when it is below the purchasing power parity.

U.S. Treasury

The United States Department of the Treasury is the government department accountable for issuing all Treasury bonds, notes, and bills.

V

Value Date

The date on which counterparts to a financial transaction decides to settle their existing respective obligations.

Variation Margin

The term usually refers to extra funds that must be deposited as a result of hostile price movements.

Volatility

A statistical measure of the foreign currency market or a currency's price movements over time and is calculated by using system of standard deviation. Higher volatility simply states greater fluctuation in price.

Value Spot

Normally the spot of settlement for two working days from today.

W

Whipsaw

Slang for a condition of a highly volatile market where a sharp price movement is pursued by a sharp reversal in a fast manner.

Withholding Tax

Income tax suspended from employees' wages and paid directly to the government by the employer.

Wash trade

A matched deal that produces neither a gain nor a loss.

X

X

A NASDAQ stock symbol specifying that it is a mutual forex fund.

Y

Yard

Slang for a billion.

Z

Z - Score

A statistical measure that quantifies the distance a data point is from the mean of a data set.

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