Forex glossary

:: Forex glossary
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Forex glossary

Appreciation : A currency appreciates when it strengthens in price.

Ask Rate : the rate at which traders can currently buy a particular currency.

Asset Allocation : Investment practice that divides funds among different markets to achieve diversification for risk management purposes.

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

Base Currency : The currency in which an investor keeps his book of accounts. In the Forex market, the US dollar is normally considered the base currency for quotes. Exceptions are British Pound, Euro, and Australian Dollar.

Bear Market : A market that is characterized by declining prices.

Bid Rate: The rate at which traders can currently sell a particular currency.

Bid/Ask Spread: The difference between the Bid and the Ask price, and the most widely used measure of market liquidity. Narrow spreads usually signify high liquidity.

Broker: An individual or a company that handles investors' orders to buy and sell currencies. Some brokers charge commission for this service.

Bull Market: A market that is characterized by rising prices.

Cable: Slang for the Sterling/US dollars exchange rate.

Central Bank: A government or quasi-governmental organization that manages a country's monetary policy. An example is the Federal Reserve, which is the US Central Bank.

Commission: A transaction fee charged by a broker.

Cross Rate: An exchange rate between two currencies that does not involve the US dollar.

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

Currency Risk: The probability of an adverse change in exchange rates.

Day Trading: Refers to positions that have been opened and closed on the same trading day.

Deficit: A negative balance of trade or payments.

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.

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

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

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

Futures Contract: An obligation to exchange a good or an instrument at a set price on a future date. The main difference between a Future and a Forward is that Futures are typically traded on an exchange (Exchange- Traded Contracts – ETC), whereas forwards are over-the-counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.

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

Inflation: An economic condition whereby prices for consumer goods rise, eroding purchasing power.

Limit order: An order to buy at or below a specific price or to sell at or above a specific price.

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

Long position: A market position where the client has bought a currency he did not previously have. Normally expressed in base currency terms, e.g. long Dollars (short Swiss Franc)...

Margin: The required equity that an investor must deposit to collateralize a position.

Margin call: A request from a broker or a dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer. Alternatively the client can choose to close one or more positions.

Market Maker: A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices.

Offer: The price or rate that a trader is prepared to sell at.

Open position: A deal that has not been settled by physical payment or reversed by an equal and opposite deal for the same value date.???

Over the Counter (OTC): Used to describe any transaction that is not conducted over an exchange.

Pips: The term used in the currency market to characterize the smallest incremental move an exchange rate can make. The value of a pip depends on the currency pair. One pip/basis point equals for instance 0.0001 for EUR/USD, GBP/USD and USD/CHF, and 0.01 for USD/JPY.

Resistance level: A price level at which you would expect selling to take place.

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

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

Spread: The difference between the bid and the ask price.

Stop order: An order to sell at or below a specific price or to buy at or above a specific price.

Stop loss: An order to close a position when a particular price is reached in order to minimize loss.

Support Level: A price level at which you would expect buying to take place.

Take profit: An order to close a position when a particular price is reached to ensure a profit.

Technical Analysis: An effort to forecast future market activity by analyzing market data by the use of charts, price trends, and volume


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