Forex Glossary

The following lists of glossary are commonly used in the Forex market.

Appreciation - An increase in the price of a currency in response to market demand.

Arbitrage - Profiting from small prices differences by taking an equal and opposite position for an instrument that is traded on more than one market.

Bear Market - A market distinguished by general declining prices of a currency or market.

Big Figure - Dealer expression of referring to the first few digits of an exchange rate. For example, a USD/Yen rate might be 107.30/107.35, the big figure is 107.

Bretton Woods - An agreement that established fixed foreign exchange rates for major currencies and pegged the price of gold at US $35 per ounce. In1971, former US President Nixon overturned the Bretton Woods agreement and a floating exchange rate for the major currencies was established.

Broker – An agent acting as an intermediary between banks, linking together buyers and sellers to sell currencies or instrument for a fee or commission.

Bull Market - A market distinguished by general rising prices of an individual currency or market.

Buy On Margin - The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.

Cable - Referring to the Sterling/US Dollar exchange rate.

Carry (Interest-Rate Carry) - The income or cost associated with keeping a foreign exchange position overnight. This is derived when the currency pairs in the position have different interest rates for the same period of time.

Central Bank - A government or quasi-governmental organization that manages a country’s monetary policy. For example, the US central bank is the Federal Reserve.

Chartist - A person who uses charts and graphs to interprets historical data to find trends and predict future price movements. Aka as Technical Trader.

Clearing - The process of settling a trade.

Closing A Trade - The process of selling or buying a trade in the forex market resulting in the liquidation (squaring up) of the position.

Commission - A transaction fee charged by a broker.

Confirmation - A written document exchanged by counterparts to a transaction that states important details such as the date, the size of the transaction, the price, the commission, and the amount of money involved.

Contract - The standard unit of trading. In Forex the standard lot is $100,000.

Cover - To close out a short position by buying currency pair which has been sold.

Cross Rate - The exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/JPY quote would be considered a cross rate, whereas in UK or Japan it would be one of the primary currency pairs traded.

Currency – Note and coin issued by the central bank or government, serve as a legal tender for trade.

Day Order- A buy or sell order that will expire automatically at the end of the trading day on which it is entered.

Day Trading- Refers to a style or type of trading where trade positions are opened and closed within the same trading session or same day.

Dealer - One who 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.

Deficit - A negative balance of trade or payments.

Delivery - A Forex trade where both sides make and take actual delivery of the currencies traded.

Depreciation - A decline in the value of a currency.

Derivative - A security that value changes in relation to the price movements of a related or underlying security. The underlying security can include stock, bond, currencies. Future contract, forward contract and option are examples of derivative. Derivative can be traded and are usually used to hedge portfolio risk.

Devaluation- The deliberate downward act of a currency’s price by a government.

Discretionary Account - An account in which the customer permits a trading institution to act on the customer’s behalf in buying and selling currency pairs. The institution has discretion as to the choice of currency pairs, prices, and timing-subject to any limitations specified in the agreement.

Economic Indicator- A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.

European Central Bank (ECB) - The Central Bank of the European Monetary Union.

Execution - The Process of completing an order or deal.

EURO - the currency of the European Monetary Union (EMU) used by twelve countries in EU.

Federal Reserve (Fed) - The Central Bank of the United States.

Federal Open Market Committee (FOMC) – It is responsible for formulation of monetary policy. The FOMC meets eight times per year to set key interest rates, such as the discount rate, and to decide whether to increase or decrease the money supply.

Fill - The process of completing a customer’s order to buy or sell a currency pair.

Fill Price - The price at which a buy or sell order was executed.

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

Hedge - A strategy to reduce the risk of adverse price movement and volatility of the market on one’s portfolio.

Inflation - An economic condition whereby prices for consumer goods rise over time that decrease purchasing power.
Initial Margin – The initial deposit that a customer needs to make prior to enter into a position.

Interbank rates - The Foreign Exchange rates at which large international banks quote other large international banks.

Leading Indicators – Statistics such as unemployment rates, CPI, Federal Funds rate, retail sales & etc that are used to predict future economic activity.

LIBO – Means London Interbank Offer Rate. The rate which is used by major international bank to lend to one another.

Liquidity - The ability of a market to accept large transaction with minimal price changes.

Liquidation - The closing of an existing position through the execution of an offsetting transaction.

Liquid Asset – Those assets that can be easily converted to cash.

Margin - The amount of money needed to maintain an open position.

Margin call - A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer.

Market Close - Refers to the time where a market closes for trading. In forex market, there is no official market close.

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. A market maker in Forex may take a opposite position against the customer.

Momentum - The tendency of a currency pair to continue in price movement in a single direction.

Offer – The price at which a seller is willing to sell.

Open Position – A long or short position that is subject to market fluctuations and has not been closed out.

Over the Counter (OTC ) - To describe any transaction that is not conducted over an exchange.

Overnight Position – A trade that remains open at the end of a trading day.

Overbrought – A term used to describe a market where price has risen at a pace that is too fast and is due for retracement.

Oversold – A term used to describe a market where price has decelerate at an abnormal fast rate and is due for upward price reversal.

Pips – aka points. The smallest amount and exchange rate can move, i.e. 0.0001.

Political Risk - Exposure to changes in governmental policy which will have an adverse effect on an investor’s position. Political risk is prevalent in third world countries.

Position - The amount of a given currency owned by a trader.

Price Transparency - Describes bid and ask quotes to which every market participant has equal access.

Quote – The offer price of a security.

Realized/Unrealized profit – Unrealized profit is a gain from the increase of an asset that has not been cashed in. Realized profit is made from cashing in the unrealized profit.

Resistance - A term used in technical analysis indicating a specific price level that has trouble breaking out.

Revaluation - An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation.

Risk Management - The employment of financial analysis and use of trading techniques to reduce and/or control exposure to financial risk.

Roll-Over - The process of extending the settlement value date on an open position forward to the next valid value date.

Scalping - A trading strategy that a day trader used to make small profits on small price movements. Traders who used this strategy to trade are also known as scalpers.

Settlement - The actual delivery of currencies made on the maturity date of a trade.

Short Position - An investment position that benefits from a decline in market price.

Slippage – This occurs when market orders (including stop losses) are not getting filled at (or even very close to) one’s expected price. This happens often when the market price moves too fast for the broker to execute the order close to the expected price.

Spread – The difference between a bid and offer price.

Support Levels - A term used in technical analysis that indicates a specific price level that is holding and acting as a support.

Swap - A transaction which moves the maturity date of an open position to a future date.

Technical Analysis – A technique used to try and predict price movement by analyzing historical price movement and volume level.

Transaction Date - The date a trade occurs.

Turnover - The total money value of all executed transactions in a given time period.

Two-Way Price - When both a bid and offer rate is quoted in a Forex transaction.

Uptick - a price quote that is higher than the preceding quote for the same currency.

Value Date – aka maturity date. The date where payment is exchanged between two parties. For spot currency transactions, the value date is normally two business days after the trade has occurred.

Variation Margin – A call by the broker to increase margin requirement during a period of extreme market volatility.

Whipsaw – term used to describe a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

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