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Forex Glossary

Forex Glossary

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  • Appreciation – increase or strengthening of the value of a particular currency in response to market demand and supply.
  • Arbitrage – The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differences between markets.
  • Around – Dealer jargon used in quoting when the forward premium/discount is near parity.
  • Ask Rate – The rate at which a currency is sold for.
  • Asset Allocation – dividing assets according to risk class to enable diversification.
  • Automated trading – method of trading when special programs execute trades on behalf of a trader.

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  • Bar Charts – Used to convert price activity into an easily readable chart.
  • Base currency – represents the price at which one currency is worth in terms of the other.
  • Bear – trader who capitalizes on the devaluation of a currency.
  • Bid Rate – Rate at which traders buy a given currency.
  • Broker –agent between buyer and seller in the forex market.
  • Bull – trader who capitalizes on rising exchange rates.
  • Buy limit – order to buy at a predetermined price or lower. It is placed with the expectation that the price will drop to a certain level and then will start increasing again.
  • Buy stop – order placed anticipating a price surge.
  • Candlesticks – one of the methods of displaying charts of financial instruments’ rate changes.
  • Choice Market– A market with the same buy or sell price.
  • Clearing – The process of settling a trade.
  • Collateral – Guarantee on a given loan.
  • Commission – A transaction fee charged by a broker.
  • Cross currency pairs – currency pairs that do not include USD. For example, EUR/GBP.
  • Cross Rates – Exchange rate between two currencies.
  • Currency pair – Currency pair is formed by two currencies, which are written as a ratio of one to another. For example, USD/ZAR.
  • Currency Risk – the probability of an adverse change in exchange rates.
  • Day Trading – Trading positions that are completed within a day.
  • Dealer – an individual or company, with whom a trader has an agreement, governing the basics of trading operations.
  • Deficit – A negative balance of trade or payments.
  • Deposit – funds put on the account for further transactions.
  • Depreciation – Decrease in the value of a currency.
  • Derivative – Asset that derives its value from the value of another underlying asset.
  • Devaluation – The deliberate downward adjustment of a currency’s price, normally by official announcement.
  • Diversification – a strategy, that aims to reduce risks by allocating investments in different financial instruments or objects of investment.
  • Economic Indicator – Economic indicators such as GDP, foreign investment, and the trade balance reflect the general health of an economy, and are therefore responsible for the underlying shifts in supply and demand for that currency.
  • End of Day Order (EOD) – An order to buy or sell at a specified price. This order remains open until the end of the trading day which is typically 5PM ET.
  • Equity – an indicator that characterizes the trader’s account status at the moment.
  • Exchange rate (quotation) – a ratio of the price of one currency to another at any given point in time.
  • Expert Advisor – an automatic system, that executes trade without the trader’s participation based on the predetermined algorithm.
  • Financial instrument – a market product type of the financial environment (namely currency, shares, futures, options, etc.)
  • Fixed Exchange Rate– Official rate set by monetary authorities for one or more currencies
  • Flat – a period, when the price stays within the same range.
  • Flat/square – Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $1,000 then sold $1,000, thereby creating a neutral (flat) position.
  • Floating Exchange Rates – Floating exchange rates refer to the value of a currency as decided by supply and demand
  • Foreign Exchange – is the simultaneous buying of one currency while selling another.
  • Fundamental Analysis – focuses on the economic forces of supply and demand that causes price movement.
  • Futures Contract– An obligation to execute a trade at a set price on a future predetermined date.
  • Hedging – purchase or sell of a currency position to reduce the risk of loss arising from price volatility.
  • Indicator – the tools of the computer analysis of price movements on the basis of statistical data used in technical analysis.
  • Inflation – economic condition that causes general prices to rise.
  • Initial margin – initial collateral required to enter into a position as a guarantee on future performance.
  • Instant Execution – the method of order execution, where the order is executed at the price indicated. If the price changes while getting to the trading server, the client gets a notification about the price change. The trader can either accept the new price or refuse the order to be executed.
  • Interbank Rates – Foreign Exchange rates at which large international banks quote other large international banks.
  • Leading Indicators – Statistics that are considered to predict future economic activity.
  • Leverage – instrument that lets a trader execute larger trades than they can afford.
  • LIBOR – The London Inter-Bank Offered Rate. Banks use LIBOR as a reference rate when borrowing from other banks.
  • Limit order – An order with restrictions on the maximum price to be paid or the minimum price to be received.
  • Line Charts – The Line Chart connects single prices for a selected time period.
  • 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.
  • Lock – the presence of two positions of one financial instrument open in opposite directions at a time.
  • Long – the position to buy a currency pair.
  • Lot – a certain number of units or the sum of assets used for executing the trade of a certain instrument.
  • Majors – main currency pairs: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD and USD/CAD.
  • Margin – collateral required to secure a 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 client.
  • Margin Deposit – deposit to ensure against trading losses.
  • Market Execution – the method of order execution, where the order is executed in any case.
  • Market Maker – A dealer who regularly quotes both bid and ask prices and is ready to execute trades in either direction.
  • Market Risk – Exposure to changes in market prices.
  • Maturity – The date for settlement or expiry of a financial instrument,
  • Narrow Market – occurs when there is light trading and greater fluctuations in prices relative to volume.
  • News trading – executing trades based on price gaps created by economic news release.
  • Offer – The rate at which a dealer is willing to sell a currency.
  • Offsetting transaction – A trade with which serves to cancel or offset some or all of the market risk of an open position.
  • Open position – process of buying/ selling for profit because of changes in quotations.
  • Order Closing position – process of reverse selling/ buying to compensate for bought/ sold volume of the opening position.
  • Order position – client instruction to execute a trade at a designated price (buy/ sell a currency for another).
  • Overnight – A trade that remains open until the next business day.
  • Pending order – an order to buy or sell a currency in future when its price reaches a predetermined level.
  • Pips – unit/ point change of the price of a financial instrument (0.0001).
  • Point & Figure charts – The Point & Figure Chart disregards Time and focuses entirely on price activity.
  • Political Risk – Exposure to changes in governmental policy which will have an adverse effect on an investor’s position.
  • Position – The netted total holdings of a given currency.
  • Premium – amount by which the forward or futures price exceed the spot price.
  • Price Transparency – Describes quotes to which every market participant has equal access
  • Profit – positive increase in balance.
  • Quoted currency – the currency, that stands second in the currency pair.
  • Rate – The price of one currency in terms of another.
  • Requote – a notification in the trading terminal about price changes during the process of placing an order.
  • Resistance level – level at which traders can start selling.
  • Risk – Exposure to uncertain unfavorable change.
  • Risk Capital– amount of money a trader is willing to invest and if lost will not affect their position.
  • Risk Management – hedging one’s potential risk of losses through trading techniques.
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  • Scalping – a trading strategy, where a trader executes a lot of orders in a short period and fixes profit in several pips.
  • Sell limit – order to sell at a given price or higher. It is placed in with the expectation that the market price will increase up to a certain level and then will begin to fall.
  • Sell stop – order to sell at a given price. It is placed with the expectation that the market price will decrease up to a certain level and will continue to fall.
  • Settlement – The process by which a trade is entered into the books and records of the counterparts to a transaction.
  • Short Position – An investment position that benefits from a decline in market price.
  • Slippage – the amount of market movements from the time of placing an order until its execution.
  • Spot (Rate) – Spot refers to the cash price before interest charges.
  • Spot Price – The current market price. Settlement of spot transactions usually occurs within two business days.
  • Spot Trade – When you trade foreign exchange you are always quoted a spot price 2 business days in advance.
  • Spot/Next – simultaneous purchase and sale of currency.
  • Spread – The difference between the bid (buy) and offer (ask, sell) prices.
  • Stop loss – a type of pending order, that helps limit losses while trading.
  • Stop Loss Order – Order type whereby an open position is automatically liquidated at a specific price.
  • Stop out – the process of automatic order closing.
  • Support level – the term of technical analysis, which determines the specific level at which market participants often start buying.
  • Swap – Simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.
  • Take profit – a type of pending order, that helps fix profit while trading.
  • Technical analysis – a type of market analysis, where forecast is based on the fact that the market has memory and future changes will be influenced by patterns of its behavior in past.
  • Technical Analysis – An effort to forecast prices by analyzing market action through chart study, volume, trends, moving averages, patterns, formations and many other technical indicators.
  • Tick – Minimum price move.
  • Trading platform – a trader’s software, that lets execute trade from the computer or another telecommunication device.
  • Trend – Direction of the market (upwards – bullish, down – bearish, sideways – flat).
  • Trailing stop – an instrument, that “pulls” stop loss level to the current price at a certain distance untill the market turns and passes it.
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  • Uptick – a new price quote at a price higher than the preceding quote.
  • Variation Margin – The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.
  • Volatility – Measure of price fluctuations.
  • Volume – represents the total amount of trading activity for a particular currency for the given day.
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  • YIELD – Return/ Profit on investment

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