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FOREX Glossary - Definitions of popular Foreign Exchange Market Terms

<< A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U |V |W | X | Y | Z >>
 

A


Appreciation - A currency is said to appreciate when the price goes up in response to market demand.

Ask Price - The ask price is the price at which traders can buy the base currency. If you think that the JPY value will increase then you can choose to buy it for USD at the price displayed in the ask quote.

At or Better - An order to sell or buy at a specific rate or better.

AUD – Abbreviation for Australian Dollar

B

Base Currency - The first currency in a currency pair. In FOREX the US dollar is usually used as the base currency in a quote.

Bear Market - A market where prices are falling is said to be a bear market. See also Bull Market

Bid Price – Bid price is the price at which the market is prepared to buy a currency.

Bid/Ask Spread - The difference between the bid price and the ask price.

Book - the summary of a FOREX market trader's positions.

Bull Market – A market with rising prices is considered to be a Bull Market. See also Bear Market

Buy Price – See Ask Price

C

Cable – Slang for the GPB/USD currency pair. See also Sterling

CAD - Canadian Dollar

Carry Currencies – High interest rate currencies. Also known as Premiums

Carry Trade -

CHF - Swiss Franc

Closed Position

Clearing - The process of settling a trade.

Commission - A transaction fee charged by a broker.

Contract - the unit of trading.

Counter Currency – The second currency in a currency pair. In the currency pairing JPY/USD the counter currency is USD

Country Risk – The perceived risk connected with a cross-border transactions, including but not limited to legal and political conditions.

Cross Currency Pairs – A pair of currencies that does not include the US dollar.

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

Currency Pair – The two currencies that make up a foreign exchange rate.

Currency Risk - the risk of an unfavorable change in exchange rates.

D

Day Order – An order that will expire automatically at the end of the trading day.

Day Trader – Traders that try to take advantage of daily price fluctuations.

Delivery – A trade where delivery of the currencies traded is actually taken. In online Forex trading delivery would not actually be taken but losses or profit would be credited or deducted from your account.

Depreciation – A fall in the value of a currency due to market forces. See also Appreciation

Devaluation – The deliberate downward adjustment of a currency's price.  

E

End of Day Order – An order to buy or sell at a certain price. This order remains open until the end of the trading day.

EUR (€) – Euro. The currency for the members of the European Union. Members include Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Slovakia, and Spain.

Exchange Rate – For example if one british pound was worth two dollars then the exchange rate would be 1:2; the exchange rate changes every 10 seconds and shows you how much of one currency you can get with another.

F

First In First Out – Open positions are closed according to which was opened first.

Fill – Effecting an order to buy or sell.

Fill or Kill – An order that will be filled immediately or cancelled if it cannot be carried out.

Foreign Exchange (Forex, FX) – The market that currencies are traded on. One currency is bought with the other currency. The Forex market is considered an Over the Counter market and trades are mostly done over the phone or by computer.

G

Going Long – Buying Currency

Going Short – Selling currency that you do not actually own.

Good 'Til Cancelled Order – An order to buy or sell at a specific price. The order would remain open until filled or until it is canceled.

GBP (£) – The Great British Pound, currency of the United Kingdom.

H

Hedge – A position reduces the risk of your primary position.

"Hit the Bid" – Acceptance of purchasing at the offer price or selling at the bid.

I

Initial Margin – An initial deposit of collateral required to enter into a position as a guarantee.

Interbank Rates – The rate of interest that international banks charge other international banks for lending them money. International banks borrow and lend money to each other to maintain liquidity.

Interest Rates – The rate at which money grows when left in a bank, usually quoted in APR which represents the total percentage of money growth over the course of a year.

J

JPY (¥) – Japanese Yen, the currency of Japan.

L

Leverage – Leverage is the ratio of the amount you have actually invested related to the trade's actual value. Leverage is usually shown as ratio like 1:100 meaning that for every dollar you have invested the broker loans you an additional $99. While leverage can enable you to make much larger trades (and potentially more profit) with a much lower initial investment it comes with increased risks to your capital. If the market is moving negative to a leveraged position the broker can initiate a margin call and require additional funds so secure your position.

Lot – A trade of 100,000 units of a currency. 100,000 units is standard but there are also mini lots (10,000 units) and micro lots (1,000 units). See also Unit

M

Margin – The minimum equity that you have invested to open a position.

Margin Call – A notice from the broker or dealer that additional funds or collateral are needed to cover an existing position that the market has moved against.

Market Maker

Market Risk – Exposure to fluctuations in market prices.

Maturity – The date for settlement of a financial contract.

Micro Lot – A trade of 1,000 units of a currency. See also Unit

Mini Lot – A trade of 10,000 units of a currency. See also Unit

N

Net Position – A position that has not been offset by an opposite position. See also Position

NOK (kr) – The Norwegian Krone, the currency of Norway

NZD ($) – The New Zealand Dollar. See also Kiwi

O

Offer – The rate at which someone is selling a currency. See Ask Price

Off-setting transaction – A trade with which serves to cancel or offset some or all of the market risk of an open position.

One Cancels the Other Order – A designation for multiple orders where if one of the orders is executed the other would be automatically cancelled.

Open order – An order that will be executed when a market moves to a designated price.

Open position – A long or short position in the market that is still subject to price changes in the market. See also Closed Position

Options – The option to buy or sell a currency at a certain price.

Order – An instruction to buy or sell at a specified rate

Over the Counter (OTC) – Transactions that are not conducted over an official exchange. FOREX trading is considered OTC and trades take place directly between two parties. NASDAQ and DOW are stock exchanges that provide trading facilities for brokers and traders.

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

Overbought – A currency pair is considered overbought when the price rises faster than usual.

P

Percentage in Point – See PiP

PiP – The smallest unit of price for any foreign currency. Most currencies are priced to four decimal places (i.e .0001 if it goes up two pips it will be .0003) You will see trading platforms advertising PiP Spreads

Point – See PiP.

Position – The status or amount of commodities held by a firm or institution.

Price Transparency – The ability of all market participants to trade at the same price.

Profit Taking – Closing a position (long or short) to realize a gain.


<< A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U |V |W | X | Y | Z >>

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