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Forex Glossary

A Glossary of forex terms

Trading conlleva un riesgo para su capital, y puede no ser adecuado para todos los inversores. Entérese Más

A

Account:  Record of all transactions.

Account Balance: Amount of money in an account.

Aggressive trading: The riskier alternative among trading scenarios.

Alerts: A notification, often received by email or SMS, of a market event such as a stock or currency reaching a target price.

Appreciation: A currency is said to appreciate when price rises in response to market demand; an increase in the value of an asset.

Arbitrage: Taking advantage of countervailing prices in different markets by the purchase or sale of an instrument and the simultaneous taking of an equal and opposite position in a related market to profit from small price differentials.

Ask Price: The price, or rate, that a willing seller is prepared to sell at.

Aussie: The Australian Dollar

Available Margin: The amount of funds that is available in an account to execute new transaction(s) and/or to increase an exposure. The Available Margin acts as collateral against losses, therefore when the Available Margin hits zero or below, this results in a margin call (among most brokers). The Available Margin is derived from subtracting the Used Margin requirements from the Equity. The Available Margin is also known as Usable Margin or Free Margin.  Available Margin = Total Equity – Used Margin

B

Back Office: The departments and processes related to the settlement of financial transactions (i.e. written confirmation and settlement of trades, record keeping).

Balance of Payments: A record of a nation's claims of transactions with the rest of the world over a particular time period. These include merchandise, services and capital flows.

Balance of Trade: The value of a country's exports minus its imports.

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: The currency in which an investor or issuer maintains its book of accounts; the currency that other currencies are quoted against. In the Forex market, the US Dollar is often 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.

Basis Point: One hundredth of a percent.

Bear: An investor who believes that prices/the market will decline.

Bear Market: A market distinguished by a prolonged period of declining prices accompanied with widespread pessimism.

Bearish: Believing that a particular security, sector, or the overall market is about to fall.

Opposite of bullish.

"Bear" is a trader who believes the market will fall. There are many ways to measure a Bear Market.

Many class the markets to be bearish if prices of major indices have declined more than 20%

Bearish Engulfing: A chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or "engulfs" the small white one.

Bearish Harami: A reversal pattern characterized by a large candlestick followed by a much smaller candlestick.

The second candle is located within the range of the prior candle's body, and is always smaller than the previous body.

Such a pattern is an indication that the previous upward trend is coming to an end.

Bearish Reversal: A formation of either one or numerous candlesticks, indicating that the prior downtrend is about to end.

BID: The price that a buyer is prepared to purchase at; the price offered for a currency.

Bid Price: The price at which an investor, trader or institution is willing to sell the security.

Big Figure: Dealer phrase referring to the first few digits of an exchange rate. These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity. For example, a USD/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits i.e. "30/35".

Bollinger Bands: A technical indicator forming an envelope around the trading price.

The envelope is calculated using standard deviations and shows price volatility. 

Bonds: Bonds are tradable instruments (debt securities) which are issued by a borrower to raise capital. They pay either fixed or floating interest, known as the coupon. As interest rates fall, bond prices rise and vice versa.

Bretton Woods Agreement of 1944: An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.

Broken: when a price breaks thru a certain critical level

Broker: An individual, or firm that acts as an intermediary, putting together buyers and sellers usually 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.

Buba: Bundesbank, Central Bank of Germany

Bull: An investor who believes that prices/the market will rise.

Bull Market: A market distinguished by a prolonged period of rising prices. (Opposite of bear market)

Bullish:  Bullish refers to having a positive outlook on a particular security or an investment....

A situation where groups of financial securities are rising.

Bull markets are accompanied by high confidence and market rallies.

Bullish Engulfing: A chart pattern that forms when a small black candlestick is followed by

a large white candlestick that completely eclipses or "engulfs" the previous day's candlestick.

The shadows or tails of the small candlestick are short, which enables the body of the large candlestick to cover the entire candlestick from the previous day.

Bullish Harami: A candlestick chart pattern in which a large candlestick is followed by a smaller candlestick whose body is located within the vertical range of the larger body. 

In terms of candlestick colors, the bullish harami is a downtrend of negative-colored (black) candlesticks engulfing a small positive (white) candlestick, giving a sign of a reversal of the downward trend.

Bullish Reversal: A formation of either one or numerous candlesticks, indicating that the prior uptrend is about to end.

C

Cable: Trader jargon for the British Pound Sterling referring to the Sterling/US Dollar exchange rate. Term began due to the fact that the rate was originally transmitted via a transatlantic cable starting in the mid 1800`s.

Candlestick Chart: A candlestick chart is a style of bar-chart used primarily to describe price movements of a security (finance), derivative, or currency over time. Candlestick charts provide a quick visual picture of the relationship between opening and closing prices and their relative strengths or weaknesses, especially for extended periods. The body, which looks like a candle, represents the difference between opening and closing prices.

Candlestick design: A candle stick pattern.

The rectangle represents the body of the candle and indicates the difference between the opening and closing price.

The end of the two shadows represents the high and low of the candle.

Capital Markets: Markets for medium to long term investment (usually over 1 year). These tradable instruments are more international than the 'money market' (i.e. Government Bonds and Eurobonds).

Central Bank: A government or quasi-governmental organization that manages a country`s monetary policy and prints a nation's currency. For example, the US central bank is the Federal Reserve. Other central banks include the ECB, BOE, and BOJ.

Chart report: A chart is a collection of historical price action that is represented visually.

Chartist: An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.

Clearing:  The process of settling a trade.

Closed Position: Exposures in Foreign Currencies that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will 'square' the position.

Closing price: The final price at which a security is traded on a given trading day. 

The closing price represents the most up-to-date valuation of a security until trading commences again on the next trading day.

Closing Prices: The price of the last transaction for a given security at the end of a given trading session. Also known as the 'close'.

Commission: A transaction fee charged by a broker.

Commodities: Plural of commodity.

Commodity: A basic good, such as food, grains, and metals, which is interchangeable with.

Confirmation: A document exchanged by counterparts to a transaction that confirms the terms of said transaction.

Conservative: To be cautious or risk averse in an investment strategy. Preservation of capital...

Consolidation: A period of indecisiveness where the price moves within a trading range.

Contract: The standard unit of trading.

Counter Party: The participant, either a bank or customer, with whom the financial transaction is made.

Cross Rate: An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded.

Currency: Any form of money issued by a government or central bank and used as legal tender and a basis for trade.

Currency Depreciation: When the value of a particular currency falls substantially.

Currency Pair: The two currencies that make up a foreign exchange rate. For Example, EUR/USD

Currency Risk: The risk of incurring losses resulting from an adverse change in exchange rates.

D

Dark Cloud Cover: A chart pattern where a black candlestick follows a long white candlestick.  This will indicate the possibility of an upcoming bearish trend.

Day Trading: Opening and closing the same position or positions within the same trading session.

Dealer: An individual that acts as a principal to a transaction and is the responsible for the company's risk by reviewing the customer margin, the trading rates, the deal size, etc.

Deficit: A negative balance.

Delivery: An actual delivery where both sides transfer possession of the currencies traded.

Deposit: Funding the account.

Depreciation: A decline in the value of a currency due to market forces.

Derivative: A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument.

Devaluation: The deliberate downward adjustment of a currency's value, normally by official announcement.

E

ECB - European Central Bank: The Central Bank for the European Monetary Union.

Economic Indicator: A statistic that indicates about the economic situation and that is issued by the government or a non-government institution (i.e. Gross Domestic Product (GDP), Employment Rates, Trade Deficits, Industrial Production, and Business Inventories).

EMU - European Monetary Union: A monetary union is an arrangement where several countries have agreed to share a single currency amongst them. The European Economic and Monetary Union (EMU) consists of three stages coordinating economic policy, achieving economic convergence (that is, their economic cycles are broadly in step) and culminating with the adoption of the euro, the EU's single currency.

End Of Day (Mark-to-Market): Traders account for their positions in two ways: accrual or mark-to-market. An accrual system accounts only for cash flows when they occur, hence, it only shows a profit or loss when realized. The mark-to-market method values the trader`s book at the end of each working day using the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start the next day with a net position.

Euro: The currency of the European Monetary Union (EMU).

Execution Date: The date on which a trade occurs.

Exit point: The price at which an investor closes his open position. The exit point is usually decided as part of a premeditated trading strategy meant to mitigate investment risk and take the emotion out of trade decisions.

Exposure Closing: Executing a deal or deals that results in balancing the exposure in a specific currency or of the entire exposure, so there is no risk to the trader's investment regardless to the exchange rate.

Exposure Coverage: The percentage of exposure that is covered by funds. Exposure coverage is calculated by dividing your Total Equity by your Net Exposure.

Exposure Coverage = Total Equity / Net Exposure 

F

Fed - Federal Reserve: The Central Bank for the United States.

Fixed Exchange Rate (Representative Rate): An official exchange rate set by monetary authorities for one or more currencies.

Flat (Square, Balanced): To be neither long nor short is the same as to be flat or square. One would have a flat book if he has no positions or if all the positions cancel each other out (=Exposure is closed).

Floating Profit/Loss: "Open P/L". See "Unrealized Profit/Loss"

FOMC - Federal Open Market Committee:  The Federal Reserve (the U.S. central bank) committee for monetary issues.

Forex - Foreign Exchange: The simultaneous buying of one currency and selling of another in an over-the-counter market. Most major FX is quoted against the US Dollar.

Forward: A Forex deal which its value date is more than Spot (2 business days). The rate of a Forward deal is different from the rate of Spot deal, as it considers the interest rate differences. Forward Rate = Spot Rate + Forward Pips.

Forward Points: The pips added to or subtracted from the current exchange rate to calculate a forward price.

Forward transaction: See "Forward"

FRA - Forward Rate Agreements: FRA`s are transactions that allow one to borrow/lend at a stated interest rate over a specific time period in the future.

Front and Back Office: Front office is a business term that refers to a company's departments that come in contact with clients, including the marketing, sales, and service departments. In our case, also the trading room. A back office is a part of most corporations where tasks dedicated to running the company itself take place.

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

Futures Contract: In finance, a futures contract is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality at a specified future date at a price agreed today (the futures price). The contracts are traded on a futures exchange. Futures contracts are not "direct" securities like stocks, bonds, rights or warranties. They are still securities, however, though they are a type of derivative contract.

G

G5: The five leading industrial countries, being US, Germany, Japan, France, UK.

G7: The seven leading industrial countries, being US, Germany, Japan, France, UK, Canada, Italy.

GDP - Gross Domestic Product: Total value of a country's output, income or expenditure produced within the country's physical borders.

GNP - Gross National Product: GDP + income earned from investment or work abroad.

GTC - Good-Till-Cancelled: An Order which is given to a Dealer to buy or sell one asset against the other at a specific price. The Order will remain intact until executed or cancelled.

H

Hedge: A position or combination of positions that reduces the risk of the trader's primary position.

Hedge Fund: An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). 

Hedging: A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging transactions purchase opposite positions in the market in order to ensure a certain amount of gain or loss on a trade. They are employed by portfolio managers to reduce portfolio risk and volatility or lock in profits. 

High/Low: Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.

I

IMF - International Monetary Fund: The IMF is an international organization of most of the UN member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment.

Inflation: An economic condition where there is an increase in the price of consumer goods, thereby eroding purchasing power.

Initial Margin: The initial deposit of collateral required to enter into a position as a guarantee on future performance.

Interbank Market: A market in which financial institutions can trade. The term refers to short term money or foreign exchange markets that are only accessible to banks or financial institutions. There is no physical market place; the transactions take place over communication networks such as Bloomberg or Reuters.

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

Intervention: Action by a central bank to affect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.

IRS - Interest Rate Swaps: An exchange of two debt obligations that have different payment streams. The transaction usually exchanges two parallel loans; one fixed the other floating.

K

Kiwi: The New-Zealand Dollar.

L

Leading Indicators: Economic variables that are considered to predict future economic activity (i.e. Unemployment, Consumer Price Index, Producer Price Index, Retail Sales, Personal Income, Prime Rate, Discount Rate, and Federal Funds Rate).

Leverage: Also called margin. The ratio of the amount used in a transaction to the required security deposit.

Libor - London Interbank Offered Rate: The London Inter-Bank Offered Rate. Large international banks use LIBOR when borrowing from another bank.

Limit Order: an instruction to open or close a Transaction at a price that may be available in the future which is executed in accordance with the Company’s Order Execution Policy. As an example, if the current price of EUR/USD is 1.07502/1.07522, then a limit order to buy EUR would be at a price below the market price, i.e. 1.0720.

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

Liquidity: The ability of a market to accept large transaction with minimal to no impact on price stability.

Long: In finance, a long position in an asset, such as a stock or a bond, or equivalently to be long in a security, means the holder of the position owns (buys) the asset and will profit if the price appreciates.

Long Position: A position that appreciates in value if market prices increase. When the base currency in the pair is bought, the position is said to be long.

Loonie: The Canadian Dollar.

Lot: A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.

M

Margin: The ratio between the available funds that an investor has, to his exposure.

Margin Call: A broker's demand on an investor to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin.

Margin Utilization: The percentage of the available margin utilized. Margin Utilization is calculated by dividing your Used Margin by your Total Equity. The higher the value is, the higher the risk is and the chance that the transactions will be closed due to insufficient funds.  Margin Utilization = Used Margin / Total Equity

Market Maker: A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity, hoping to make a profit on the bid-offer spread, or turn.

Market Order: an instruction to open or close a Transaction at the price currently indicated in the platform which is executed in accordance with the Company’s Order Execution Policy.

Market Volatility: volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. A higher volatility means that a security's value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.

Money Markets: Refers to investments that are short-term (i.e. under one year) and whose participants include banks and other financial institutions. Examples include Deposits, Certificates of Deposit, Repurchase Agreements, Overnight Index Swaps and Commercial Paper. Short-term investments are safe and highly liquid.

Money Supply: Money supply figures and M1 specifically, once were the most important release to watch in the Treasury market, as the Fed directly targeted M1 growth in the early 1980s. The focus on money supply has long since been abandoned, however. To the extent that money supply is still monitored by the market, M2 is the favored monetary aggregate. The Fed still targets both M2 and M3 in a rhetorical sense, but these targets mean little when it comes to policy decisions. If the Fed misses its target, it is more likely to change the target than it is to change policy. In 2000, the Fed finally abandoned the targets altogether, thereby removing any remaining emphasis on this one-time star release.

MPC - Monetary Policy Committee: A committee of the central Bank of England that is responsible for the monetary policy decisions.

O

OCO - One Cancels the Other: A set of 2 Limit orders, where the execution of one of them automatically cancels the other one.

Offer Price: ASK price - the price, or rate, that a seller (usually the Market Maker) is willing to sell at and the investor to buy at.

Open order: An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders.

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

Options: A derivative financial instrument that establishes a contract between two parties concerning the buying (CALL) or selling (PUT) of an asset at a reference price during a specified time frame. The price of an option derives from the value of an underlying asset (commonly a stock, a bond, a currency or a futures contract) plus a premium based on the time remaining until the expiration of the option.

Order: An order is an instruction, from a client to a broker to trade. An order can be placed at a specific price or at the market price. Also, it can be good until filled or until close of business.

Overnight Position: A trade that remains open until the next business day.

Over-The-Counter (OTC): Refers to trading that is not done over a formal exchange. Traditional Forex is traded over the counter, meaning traders entered into Forex transactions with one another over telephones or electronic devices. Counter refers to counterparty, in that with Forex one trades with counterparty instead of through an exchange. In online Forex trading, the counterparty is the market maker.

P

P&L: Profit and Loss

Pip: The smallest upward or downward price movements quoted in Forex. In EUR/USD, a movement of 0.0001 is one pip (for example, from 140.005 to 140.004 euro). In USD/JPY, a movement of 0.01 is one pip (for example, from 116.32 to 116.31 yen).

Pip-spreads: Spreads play a significant factor in profitable Forex trading. When we compare to the average spread to the average daily movement many interesting issues arise. Namely, some pairs are more advantageous to trade than others. Secondly, retail spreads are much harder to overcome in short-term trading than some may anticipate. Third, a "larger" spread does not necessarily mean the pair is not as good for day trading when compared to some lower spread alternatives. Same goes for a "smaller" spread - it does not mean it is better to trade than a larger spread alternative.

Points, Pips: The term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).

Position: A binding commitment to buy or sell a given amount of financial instruments, such as securities, currencies or commodities, for a given price.

It can refer to the amount of a currency either bought or sold by an investor.

Premium: In the Option markets, this is the payment for buying or selling an option. In the Margin Trading markets, it is the amount of points added to the spot price to determine a forward or futures price.

Price Manipulation: The act of artificially inflating or deflating the price of a security. 

Profit/Loss (P/L): The actual "realized" gain or loss resulting from trading activities on Closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.

Q

Quote: An indicative market price on a security at any given time.

Quoted currency: The second currency of two in a currency pair. For the EUR/USD, USD is the quoted currency. The exchange rate quoted is how many units of the second currency you will receive for one unit of the base currency.

R

Rally: A recovery in price after a period of decline.

Range: The difference between the highest and lowest price of an asset during a given trading session.

Rate: The price of one currency in terms of another.

Repo - Re-purchase: This type of trade involves the sale and later re-purchase of an instrument, at a specified time and date. Occurs in the short-term money market.

Resistance: A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross above. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line.

Retail Investor: Individual investors who buy and sell securities for their personal account, and not for another company or organization. 

Risk Management: Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. Risks can come from uncertainty in financial markets. The strategies to manage risk include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk.

Rollover: Process whereby the settlement date of a deal is rolled forward.

Risk/Reward ratio: A ratio used by many investors to compare the expected returns of an investment to the amount of risk undertaken to capture these returns. This ratio is calculated mathematically by dividing the amount of profit the trader expects to have made when the position is closed (i.e. the reward) by the amount he or she stands to lose if price moves in the unexpected direction (i.e. the risk).

S

Settlement: The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency traders may or may not involve the actual physical exchange of one currency for another.

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 so it can be bought back in the future at a profit.

Short Position: An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.

Spot: A transaction that occurs immediately, but the funds will usually change hands within two business days after deal is struck.

Spot Price: The current market price. Settlement of spot transactions usually occurs within two business days.

Spread: The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity.

Stop Loss Order: A limit order to buy/sell at a price which is inferior in compare to the market price.

Support Levels  A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.

Swap: A currency swap is the simultaneous sell and buy of the same amount of a given currency.

T

Technical Analysis: An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.

Tick: Every quote - any change in price, up or down.

Tomorrow Next (Tom/Next): Simultaneous buying and selling of a currency for delivery the following day.

Trading plan: A systematic method for screening and evaluating stocks, determining the amount of risk that is or should be taken, and formulating short and long-term investment objectives. A successful trading plan will also involve details like the type of trading system to be used. Most plans require the use of various types of technical analysis tools.

Trading Station: An application that allows online trading.

Two Way Price  Both the bid and ask rate is quoted for a Forex transaction.

U

Unrealized Profit/Loss (Open P/L): The mark-to-market Profit or Loss that occur from an Open Position, according to the relevant market rate in case of liquidation.

US Prime Rate: The interest rate at which US banks will lend to their prime corporate customers.

Used Margin:  The amount of funds that is set aside to keep the transactions open. The Used Margin acts as collateral for your net exposure per instrument, and is essentially locked away until such exposure is closed. Once transactions are executed, the required Used Margin is deducted from the Available Margin until such exposure is closed. The Used Margin is also known as Required Margin.

The Used Margin calculation is according to the Margin Requirements and its calculation is available within the trading platform. 

V

Value Date: The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date.

Volatility: A statistical measure of a market or a security's price movements over time and is calculated by using standard deviation. Associated with high volatility is a high degree of risk.

Volume: The number, or value, of securities traded during a specific period.