Forex Terminology FOREX Terminology
Are you new with FOREX? If so you must know some of the terms in FOREX. A good way to start is to take a look at the Forex dictionary below. We’ve piled up all the important Forex terms in order to give you the best Forex glossary possible.
Appreciation is when a currency’s value grows stronger.
Ask Rate is the rate at which a trader can buy a currency that is for sale.
Ask (Offer) — price of the offer, the price you buy for.
Aussie — a Forex slang name for the Australian dollar.
Base Currency is the currency in which other currencies are quoted in a pair. Usually the U.S. dollar is considered the ‘Base Currency’.
Bear Market is a market in which prices are declining.
Bid/Ask Spread is the difference between the bid and offer price.
Big Figure is a term used by dealer and/or brokers. It refers to the first few digits of an exchange rate.
Bull Market is a market in which prices are rising.
Bank Rate — the percentage rate at which central bank of a country lends money to the country’s commercial banks.
Bid — price of the demand, the price you sell for.
Broker — the market participating body which serves as the middleman between retail traders and larger commercial institutions.
Clearing is a term used to refer to a process of settling a trade.
Commission is the fee that is charged by a broker/dealer.
Confirmation is a document that states the terms of a transaction.
Contract is the standard unit of trading.
Cross Rate is the exchange rate between any two currencies that are not of the country in which the currency pair is quoted. For example, in the U.S., a GBP/JPY quote would be considered a Cross Rate. The same quote would not be a Cross Rate in either the U.K. or Japan.
Currency is a unit of exchange. Any form of money that has been issued by a government/central bank is a currency. Currencies are used as a medium of exchange, i.e. they are used as a basis for trades.
Cable — a Forex traders slang word GBP/USD currency pair.
Carry Trade — in Forex, holding a position with a positive overnight interest return in hope of gaining profits, without closing the position, just for the central banks interest rates difference.
CFD — a Contract for Difference — special trading instrument that allows financial speculation on stocks, commodities and other instruments without actually buying.
Commission — broker commissions for operation handling.
CPI — consumer price index the statistical measure of inflation based upon changes of prices of a specified set of goods.
Day Trading are trades in which positions are opened and closed on the same day.
Dealer is an individual/firm that take one side of a position hoping to make a profit by closing out the position in a following trade with a different trader.
Depreciation is a fall in the value of a currency.
EA (Expert Advisor) — an automated script which is used by the trading platform software to manage positions and orders automatically without (or with little) manual control.
ECN Broker — a type of Forex brokerage firm that provide its clients direct access to other Forex market participants. ECN brokers don’t discourage scalping, don’t trade against the client, don’t charge spread (low spread is defined by current market prices) but charge commissions for every order.
ECB (European Central Bank) — the main regulatory body of the European Union financial system.
Fed (Federal Reserve) — the main regulatory body of the United States of America financial system, which division — FOMC (Federal Open Market Committee) — regulates, among other things, federal interest rates.
Fibonacci Retracements — the levels with a high probability of trend break or bounce, calculated as the 23.6%, 32.8%, 50% and 61.8% of the trend range.
Flat (Square) — neutral state when all your positions are closed.
Fundamental Analysis — the analysis based only on news, economic indicators and global events.
Foreign Exchange, Forex, FX is the simultaneous purchase or sale of one currency against the purchase or sale of another.
Forward is the predetermined and agreed upon exchange rate for the settling of a transaction at some agreed future date.
Fundamental Analysis is the analysis of economic and political information as it aims to determine future market movements.
GDP (Gross Domestic Product) — is a measure of the national income and output for the country’s economy; it’s one of the most important Forex indicators.
GTC (Good Till Cancelled) — order to buy or sell of a currency with a fixed price or worse. The order is alive (good) until execution or cancellation.
Hedging — maintaining a market position which secures the existing open positions in the opposite direction.
Inflation is an economic condition in which the prices of goods rise, hence decreasing the purchasing power of consumers.
Initial Margin is the deposit given to a broker/dealer; it is the collateral required to enter into a position as a guarantee on future performance.
Jobber — a slang word for a trader which is aimed toward fast but small and short-term profit from an intra-day trading. Jobber rarely leaves open positions overnight.
Kiwi — a Forex slang name for the New Zealand currency — New Zealand dollar.
Limit Order is an order that sets restrictions on the amount of profit and loss it can make.
Liquidity is the ability of a market to accept large transaction without it impacting the stability of its prices.
Long Position is a position that increases in value in value if market prices increase.
Leading Indicators — a composite index (year 1992 = 100%) of ten most important macroeconomic indicators that predicts future (6-9 months) economic activity.
Limit Order — order for a broker to buy the lot for fixed or lesser price or sell the lot for fixed or better price. Such price is called limit price.
Liquidity — the measure of markets which describes relationship between the trading volume and the price change.
Long — the position which is in a Buy direction. In Forex, the primary currency when bought is long and another is short.
Loss — the loss from closing long position at lower rate than opening or short position with higher rate than opening, or if the profit from a position closing was lower than broker commission on it.
Lot — definite amount of units or amount of money accepted for operations handling (usually it is a multiple of 100).
Margin — money, the investor needs to keep at broker account to execute trades. It supplies the possible losses which may occur in margin trading.
Margin Account — account which is used to hold investor’s deposited money for FOREX trading.
Margin Call — demand of a broker to deposit more margin money to the margin account when the amount in it falls below certain minimum.
Market Order — order to buy or sell a lot for a current market price.
Market Price — the current price for which the currency is traded for on the market.
Momentum — the measure of the currency’s ability to move in the given direction.
Moving Average (MA) — one of the most basic technical indicators. It shows the average rate calculated over a series of time periods. Exponential Moving Average (EMA), Weighted Moving Average (WMA) etc. are just the ways of weighing the rates and the periods.
Margin Call is when the broker/dealer request additional collateral to guarantee performance on a position that has moved against the investor.
Market Maker is a dealer who quotes both bid and ask prices, hence makes a two-sided market for any financial instrument.
Maturity is the date in which a financial instrument is expired or a transaction is settled.
Offer (Ask) — price of the offer, the price you buy for.
Open Position (Trade) — position on buying (long) or selling (short) for a currency pair.
Order — order for a broker to buy or sell the currency with a certain rate.
Offer is the rate at which a dealer is willing to sell.
Open position is a deal that has not yet been settled with a physical payment.
Overnight Trading are trades in which positions remain open until the next day.
Pips/Points is one unit of price change in the bid/ask price of a currency. It is the last digit in a rate; the fourth decimal place in an exchange rate.
Position is the netted total holdings of a given currency.
Pivot Point — the primary support/resistance point calculated basing on the previous trend’s High, Low and Close prices.
Pip (Point) — the last digit in the rate (e.g. for EUR/USD 1 point = 0.0001).
Profit (Gain) — positive amount of money gained for closing the position.
Principal Value — the initial amount of money of the invested.
Quote is an indicative market price, normally used for information purposes only and not for deals.
Rate is the price of one currency in terms of another.
Risk is an exposure to the chance of loss.
Roll-Over is a process in which the settlement of a transaction is pushed forward to another date.
Realized Profit/Loss — gain/loss for already closed positions.
Resistance — price level for which the intensive selling can lead to price increasing (up-trend).
Short Position is a position that increases in value if the market prices decrease.
Spread refers to the difference between the bid and offer prices for a currency pair.
Stop Loss Order is an order in which an open position is automatically liquidated at a specific price. Stop Loss Order minimized potential losses if the market moves in the opposite direction of the investor’s position.
Swap is the sale and purchase of a certain amount of a certain currency at a forward exchange rate.
Scalping — a style of trading notable by many positions that are opened for extremely small and short-term profits.
Settled (Closed) Position — closed positions for which all needed transactions has been made.
Slippage — execution of order for a price different than expected (ordered), main reasons for slippage are — “fast” market, low liquidity and low broker’s ability to execute orders.
Spread — difference between ask and bid prices for a currency pair.
Standard Lot — 100,000 units of the base currency of the currency pair, which you are buying or selling.
Stop-Limit Order — order to sell or buy a lot for a certain price or worse.
Stop-Loss Order — order to sell or buy a lot when the market reaches certain price. It is used to avoid extra losses when market moves in the opposite direction. Usually is a combination of stop-order and limit-order.
Support — price level for which intensive buying can lead to the price decreasing (down-trend).
Swap — overnight payment for holding your position. Since you are not physically receiving the currency you buy, your broker should pay you the interest rate difference between the two currencies of the pair. It can be negative or positive.
Transaction Cost is the cost of making a financial transaction whether it is buying or selling.
Technical Analysis — the analysis based only on the technical market data (quotes) with the help of various technical indicators.
Trend — direction of market which has been established with influence of different factors.
Unrealized (Floating) Profit/Loss — a profit/loss for your non-closed positions.
Useable Margin — amount of money in the account that can be used for trading.
Used Margin — amount of money in the account already used to hold open positions open.
Volatility — a statistical measure of the number of price changes for a given currency pair in a given period of time.
VPS (Virtual Private Server) — virtual environment hosted on the dedicated server, which can be used to run the programs independent on the user’s PC. Forex traders use VPS to host trading platforms and run expert advisors without unexpected interruptions.
Forex Terminology
