Forex TermsFOREX TERMINOLOGY (A-Z)

 

A

 

American Option

It is an options type that can be exercised at any valid business date until the options maturity.

 

Appreciation

Currency appreciation happens when the domestic currency is strengthening against foreign currencies. Currency appreciation is based on the powers of demand and supply.

 

Arbitrage

It is a common practice that takes advantage of tiny price differentials between different financial markets.

 

Asian session

Refers to the Tokyo session that lasts from 23:00 to 08:00.

 

Ask Rate

Ask rate (or offer) is the rate at which traders can buy a Forex currency. The rate at which a currency can be sold is called bid.

 

B

 

Back Office

The department of a Forex broker that is responsible for settling financial transactions.

 

Balance of trade

It measures the net difference between a country's exports and imports {exports-imports}.

 

Base Currency

The base currency is the first currency of a Forex pair. For example, for the pair GBPUSD, GBP is the base currency.

 

Basis Point

The minimum changes in points in the price of a financial instrument.

 

Bid Rate

The rate at which Forex traders can sell a Forex currency.

 

BoE

BoE refers to the central Bank of England.

http://www.bankofengland.co.uk/

 

Broker

A broker is an entity that buys and sells financial instruments on behalf of its clients. A broker acts as an intermediary between buyers and sellers.

 

Find Forex brokers at FxPros.net: www.Fxpros.net

 

Bull Market

A bull market refers to a rising market. The opposite is called a bear market.

 

 

C

 

Cable

Cable is the Forex slang for GBPUSD.

 

Candlestick Chart

A candlesticks chart is are alternative chart type to a bar chart that incorporates and can visualize useful information.

 

Carry Trade

Carry trade is a Forex trade strategy that aims to capture the difference in the level of interest rates between two currencies.

 

Cash Market

A cash market is the real (underlying) market on which other products such as derivatives are based.

 

Commissions

Commissions is a transaction fee charged by brokers. Usually, Forex brokers are making money only by widening the spread between ask and bid. In real ECN conditions, Forex brokers charge trade commissions and pass their client orders directly to the ECN market .

 

Counter Currency

The second currency in a Forex pair. For example, for GBPUSD the US dollar is

the counter currency.

 

Crosses

Forex crosses are pairs that don't include the US dollar, for example:

  • AUDJPY  -The Australian dollar / the Japanese yen
  • AUDNZD -The Australian dollar / the New Zealand dollar
  • EURGBP -The Euro / the British pound
  • EURJPY -The Euro / the Japanese yen
  • EURNZD -The Euro / the New Zealand dollar
  • GBPAUD -The British pound / the Australian dollar
  • GBPCHF -The British pound / the Swiss franc
  • GBPJPY -The British pound / the Japanese yen
  • NZDJPY -New Zealand dollar / the Japanese yen

 

Currency Risk

The probability of trading losses due to adverse movements in Foreign exchange rates.

 

D

 

Day Trading

Refers to the practice of opening and closing trade positions on the same day.

 

Dealing Desk (DD)

Refers to market makers (DD brokers) that use a Dealing-Desk to facilitate pricing on behalf of their clients. Dealing-Desk brokers are often accused of price manipulation and excessive delays on order execution. The opposite brokerage type is the NDD model (NonDealing-Desk).

 

Delta

Delta in options trading is the ratio between the change in the price of a derivatives product and the change in the price of its underlying asset.

 

Depreciation

A fall in the price of a currency against foreign currencies due to the market forces of demand and supply.

 

E

 

ECN

ECN means Electronic Communication Network and it is an electronic bridge that connects retail traders to tier-1 liquidity providers. The whole process is made through an ECN Broker and a trading platform.

 

Economic Indicator

A macroeconomic statistic that indicates the growth and stability of the domestic economy. Commonly used Economic indicators include: GDP, Unemployment, Retail Sales, and Inflation (CPI).

 

European Central Bank (ECB)

ECB is the Central Bank of the Eurozone or else the EMU (European Monetary Union).

https://www.ecb.europa.eu

 

Equity

Equity in a trading account refers to the net account's balance. If there are pending open positions, equity equals Balance plus Floating Profit/Loss.

 

Exotics

The Forex exotics are pairs including the currencies of emerging economies, these are some popular-traded exotic pairs:

  • USDTRY -The US Dollar / the Turkish lira
  • EURTRY -The Euro / the Turkish lira
  • USDRUB -The US Dollar / the Russian Ruble
  • USDZAR -The US Dollar / the South African rand
  • USDMXN -The US Dollar / the Mexican peso

 

Expert Advisor (EA)

Expert advisor or Forex Robot is a software code capable of opening and closing trade positions without any human involvement. All action is done automatically and that is why these systems are considered mechanical trading systems (MTS).

 

Find Expert Advisors at ForexRobots.net:

» ForexRobots.net:

 

F

 

Factory orders

Refers to the dollar value of new orders regarding durable and non-durable goods.

 

Fair value

Fair value when trading derivatives is the difference between the price of a derivative and the price of the underlying asset. Fair-value indicates that there is no opportunity for arbitrage between the two markets.

 

FED

FED is the Federal Reserve Bank of the United States and operates as the central bank of the United States.

http://www.federalreserve.gov/

 

Fiber

Fiber is the Forex slang for EURUSD (The Euro vs the U.S. Dollar).

 

FOMC

FOMC (Federal Open Market Committee) is the policy-setting committee of the US FED (Federal Reserve Bank).

 

Foreign Exchange Market

Foreign Exchange Market (or Forex or Fx) is an OTC market where global currencies are bought and sold against each other. Forex is a non-centralized financial market.

 

Forex Brokers

Forex Brokers are financial entities operating as intermediaries between the Foreign Exchange market and global traders. Brokers offer their brokerage services to their clients by charging a spread between ask and bid and/or by charging a commission per traded volume. There are two main categories of Forex Brokers:

1-Institutional Forex Brokers

2-Retail Forex Brokers

Find Brokers at TradingCenter.org

http://TradingCenter.org

 

Fundamental Analysis

Refers to the analysis of economic and political data in order to anticipate the future conditions of global financial markets.

 

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G

 

G7 Group

The G7 is a group of 7 Nations {US, Germany, Japan, UK, France, Italy, and Canada}.

 

G8 Group

The G8 group consists G7 countries plus Russia {US, Russia, Germany, Japan, UK, France, Italy, and Canada}.

 

Gearing

Gearing is synonymous to trading leverage.

 

GMT

GMT means Greenwich Mean Time and it is the standard preferred time zone in the forex market. GMT does not change during the year.

 

Good ‘til Canceled (GTC)

Refers to a trading order that remains active until it is filled or until the client that gave that order cancels it.

 

GDP

GDP means Gross domestic product and measures the total value of a country's produced goods and services, for a particular period (usually one year).

 

H

 

Hawkish Monetary Policy

Refers to an upcoming monetary policy of increased interest rates in order to deal with inflation or excessive economic growth.

 

Hedging

Refers to a common practice aiming to offset the market risk of a trade position. Hedging practically means opening a second position in the opposite direction of the primary position. Derivatives products are used for low-cost hedging.

 

Hit the bid

It means to sell at the current market bid (market order).

 

I

 

Industrial Production

It is an economic indicator measuring the total value of output produced in a certain period of time by manufacturers, mines, and utilities. Industrial production is considered a leading indicator as concerns personal income and employment.

 

Initial Margin Requirement

The minimum amount of cash required in a trading account in order to open and maintain a trade position.

 

IPO (Initial Public Offering)

IPO means Initial Public Offering and refers to a company’s initial offer of stock to the general public.

 

Interbank Rates

Refers to the interest rates at which international banks quote other commercial international banks.

 

Introducing Broker (IB)

An introducing broker or an IB is an entity which introduces clients to Forex brokers in return for a fee. This fee is sometimes shared with retail traders and that is called a Forex Rebate.

Find Forex trade rebates at Forex-Rebates.com

» Forex-Rebates.com

 

J

 

Japanese Economy Watchers Survey

It measures the business conditions of the Japanese industries that directly serve consumers. Readings above 50 signal better sentiment.

 

JPN225

Refers to the Japanese NIKKEI stock-market index.

 

K

 

Kiwi

The Forex slang for NZDUSD.

 

L

 

LIBOR

LIBOR refers to the London Inter-Bank Offered Rate. LIBOR is used globally as the base rate of international lending.

 

Loonie

Loonie is the Forex slang for USDCAD.

 

Lot

The Lot is a unit measure when trading Forex. One standard lot equals 100,000 USD.

 

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M

 

Majors and their Slang Nickname

The majors are pairs involving the US Dollar against the currencies of major economies:

  • EURUSD -The Euro / the US Dollar (Fiber)
  • GBPUSD -The British pound / the US Dollar (Cable)
  • AUDUSD -The Australian dollar / the US dollar (Aussie)
  • NZDUSD -The New Zealand dollar / the US dollar (kiwi)
  • USDJPY -The US dollar / the Japanese yen (Yen)
  • USDCHF -The US dollar / the Swiss franc (Swissie)
  • USDCAD -The US dollar / the Canadian dollar (Loonie)

 

Margin

The required amount of equity in a trading account in order to collateralize a trade position.

 

N

 

NAS100

Refers to the NASDAQ 100 index.

 

O

 

One Cancels the Other Order (OCO)

Refers to a combination of trading orders whereby one order's execution cancels the execution of the other order.

 

Open Position

A position that has not yet been settled, therefore it remains opened.

 

Open Time

The Forex market starts trading on Sunday at 21:00 GMT.

 

Over the Counter (OTC)

It refers to financial transactions that are not conducted within a regulated

exchange. The Forex market is an example of an OTC market.

 

Overnight position

Refers to a trade position that remains active on the next business day.

 

P

 

Pip

A pip means percentage in point and it is the smallest move an exchange rate can make.

 

Premium

Premium in derivatives trading refers to the amount by which a derivatives product price exceeds the spot price. The opposite is called a discount.

 

Pullback

Refers to the correction of the price after a strong movement, usually due to profit-taking.

 

Purchasing Managers Index (PMI)

PMI is an economic indicator measuring the performance of the domestic manufacturing companies.

 

Q

 

Quote

Quote refers to an indicative market price.

 

Quantitative Easing

Refers to a monetary policy applied by a central bank which aims to stimulate economic growth. This is happening by enhancing the amount of money flowing in an economy.

 

S

 

SEC

SEC is the US Securities and Exchange Commission.

https://www.sec.gov/

 

SNB

SNB stands for Swiss National Bank and it is the central bank of Switzerland.

https://www.snb.ch/en/

 

Spot Price

Refers to the current market price.

 

Spread

Spread in Forex trading is the difference in points (pips) between ask and bid.

 

Stop-Loss Order

An order that closes a trade position when a certain price is reached. Stop-loss orders can control portfolio risk and minimize potential losses.

 

Swissie or Swissy

The Forex slang for USDCHF.

 

T

 

T-Bill

Refers to the US Treasury Bill.

 

TIBOR

TIBOR is the Tokyo Interbank Offered Rate.

 

TIFFE

TIFFE is the Tokyo International Financial Futures Exchange.

http://www.tfx.co.jp/en/

 

T/P

It means Take/Profit.

 

Take Profit

Take profit is an order that closes a position with a profit when a particular price is reached.

 

Thin Market

A financial market of limited liquidity.

 

Trade Balance

It measures the difference between the value of imported and exported goods and services.

 

 

U

 

UK OIL

UK oil refers to the Brent Crude Oil.

 

Unemployment Rate

It is a key economic indicator measuring the total workforce that is seeking employment but it is currently unemployed.

 

US30

Refers to Dow Jones Industrial or Dow Jones index or DJIA or simply Dow.

 

V

 

Vega

Vega in options trading measures the price change of an options contract for 1% change in the implied volatility.

 

Value Date

Value Date refers to the maturity date and it is the date on which a particular transaction is agreed to be settled.

 

VIX

VIX is a volatility index that measures the market's expectation of 30-day volatility.

 

W

 

Whipsaw

It is a slang for a highly volatile market conditions.

 

Wholesale Prices

It is an indicator that measures changes in the prices paid by retailers in order to purchase finished goods.

 

World Bank

A global institution created by IMF members. The world bank aims to assist the development of member states by providing loans.

http://www.worldbank.org

 

Working Order

Refers to a limit order that is not yet filled.

 

X

 

XAG/USD

It is the symbol of Silver against the US dollar (silver Index).

 

XAU/USD

It is the symbol of Gold against the US dollar (gold Index).

 

Y

 

Yard

Slang for one billion US Dollars.

 

Yield

Refers to the investment's return on capital.

 

YoY

It means year over year.

 

Yuan

The currency of China.

 

Z

 

Z-Certificate

It refers to a certificate issued by BoE (Bank of England) to discount houses.

 

Zero Coupon Bond

It is a bond that pays no interest to its holders. This bond type is initially offered at a discount.

 

 

 

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Forex Glossary

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Confidence and skill can be built they can't be purchased.The Forex Trading Tips

Foreign Exchange is the most competitive financial market in the world. Here are some key tips when trading Forex currencies. Never forget that confidence and skill can be built they can't be purchased.

Forex Trading Tip: Trade like a Big Shark not like a Little Penguin

There is a little secret that every rich person knows about. This secret is called Great-Reward-Investing. Most of Forex traders open positions with Reward/Risk ratio of 1:1 to 2:1, they trade like little penguins. If you trade using Reward/Risk 1:1 you need at least 60% winning ratio just not to lose your own money (given the transaction cost). On the contrary, big sharks select trades with Reward/Risk of 5:1 or even higher. If you trade with R/R 5:1, you may lose 3 of 4 your overall positions and still make a decent profit. This is a big deal. In order to profit from Great-Reward-Trades you need (a) to use tight capital leverage (max 20:1), and (b) to follow long-term trends as they can be visible in H4 and D1 charts. Let's examine that approach:

Find a strong trending market visible in the H4/D1 charts.

Confirm the trend continuation using the MACD histogram and chart patterns such as double tops and bottoms, pennants, flags, ascending and descending triangles.

Time your entrance using the M5/M15 charts and confirm it with RSI(21)

Run you profits

Forex Trading Tip: Trade only When the Time is Right

As a big shark sometimes said: Good investing is boring, if you have fun you are probably not making money. You can't trade as a hobby and you can't trade anytime you like, unless of course, you have a lot of money to give away. If you can't find good trading opportunities then close your computer and spend some time with your family and friends. Timing is everything in our life. Prefer to trade Forex between 10:00 – 17.00 PM (GMT) from Tuesday to Thursday when the liquidity booms. When liquidity increases you pay tighter spreads and currency pairs trend better.

Find more about Forex trading and timing at ForexExperts.net

» http://forexexperts.net/index.php/learning/best-forex-time

HotForex Security

Forex Trading Tip: Forex Trading as a Stepwise Process

Trading Forex successfully can not be taught intraday, instead, it is a stepwise process that needs several months of training and practicing. Beginners should always start trading in a demo account in order to get familiar with MetaTrader-4 and test their performance without any risk. After practicing on a demo account the next step should be opening a micro-lot account. This account type (micro) uses 1,000 USD as 1 lot and that means that you will not pay hard your mistakes. Next, traders should move to a mini-lot account and finally, they should open a standard lot account where 1 lot worths 100,000 USD. Confidence and skill can be built they can't be purchased.

Open Risk-Free Demo Accounts:

» http://forexexperts.net/index.php/compare-zone/compare-forex-brokers

Forex Trading Tip: Limit Your Trading Cost

The cost when trading Forex is basically very tight and can be measured in a few pips. But as the capital leverage and the frequency of trading increases that tiny cost can become a huge issue. Professional traders mind their trading cost more than anything else. There are a few ways to limit your trading cost.

Select carefully your broker and avoid market makers (ECN/STP brokers are cheaper by rule).

Choose to trade only liquid Forex pairs and avoid trading during times when the market activity shrinks. The most active Forex hours are between 10.00GMT and 17.00GMT.

Enter a Forex Rebate Plan (it can shrink your trading cost up to 50%).

Find Forex trading rebates at ForexExperts.net

» http://forexexperts.net/index.php/compare-zone/rebates

Forex Trading Tip: Select to Trade Trending Pairs

Forex pairs are either trending upwards / downwards or moving in range (oscillating). Trending means that the price of a financial asset moves in strong directional moves. These moves can be defined using the H4/D1 chart as it was explained before. A trending market offers great advantages for Forex traders. First of all following a strong trend offers exceptional Reward/Risk ratios up to 15:1. If your profits are running fast you don't have to close your positions based on fear, instead, you can apply a trailing stop order of let's say 50 pips and secure your profits. A ranging market is a market that trades within a specific range that is defined between an important support and an important resistance price level. You can trade these ranges using pending orders and trade in the direction of the trend until a price resistance or support is reached. Note that trending markets are much easier to trade.

Trending markets are much easier to trade

Forex Trading Tip: Mind the Market Volatility and Avoid News Releases

Experienced currency traders know how to handle the Forex market volatility but beginners must be very careful. Beginners must always use low capital leverage and leave a lot of space for their stop-loss orders when they trade volatile currency pairs. Another important aspect regarding volatility is timing. If you trade during important news releases then you are exposed to extreme choppy market conditions. Non-professional traders should better avoid trading during news release (20 minutes before and 20 minutes after). In any case, if you trade during news releases use your stop-loss as your shield and keep your capital leverage low.

Forex Trading Tip: Mind the Interest Rate Differences

When you open a position on a currency pair you are exposed to two currencies, the one you buy and the one you sell. Forex currencies pay interest rates, and if the currency you buy pays more interest rate than the currency you sell then you are paid an overnight interest rate, that is called a positive SWAP value. On the contrary, if the currency you buy pays less interest rate than the currency you sell, then you are charged an overnight rate (negative SWAP value). On particular Forex pairs such is NZDUSD and AUDJPY this extra interest income can be accumulated in huge profits over time, this practice is called carry trade. Note also that on Wednesday at midnight the SWAP value triples (x3) in order to cover the weekend.

Find the best brokers for carry trading at ForexExperts.net

» http://forexexperts.net/index.php/compare-zone/best-overnight-rates

 

COMPARE BROKERS: » DIRECTORY | » TRADE SPREADS | » FOREX REBATES | » FOREX SCALPING | » SWAP RATES | » FUNDS SAFETY

 

Forex Trading Tips

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Alternative Trading System (ATS)Alternative Trading System (ATS)

An alternative trading system (ATS) is an alternative trading venue to an organized exchange, approved by a regulatory authority such is SEC or FSA. An ATS is a common example of a trading dark pool.

What is an Alternative Trading System?

An ATS or else an alternative trading system is a system designed to trade a range of financial instruments that is not regulated as an organized exchange. An ATS works as a matching machine between the buying and selling orders of its subscribers. These subscribers may be brokers, institutional traders, investment banks, or even large retail traders.

Regulated by SEC in the US

The American SEC started to regulate Alternative Trading Systems back in 1998. The SEC regulation aims to resolve any issues arising from the operation of an ATS but also to protect investors in general. According to SEC framework, if the volume generated by an ATS exceeds 5% of the overall volume for any given security, then more intensive reporting and operation transparency are demanded by SEC.

The Advantage of Anonymity of an Alternative Trading System

Institutional traders use ATSs to find counterparties for their large transactions. The use of an ATS is better than trading large blocks of assets on common exchanges, and the reason is anonymity. If a large player starts to buy or to sell large blocks of a particular security on a common exchange that can skew the market in a particular direction. That means problems for the institutional player and thus the use of an ATS seems a better option. Note that many ATSs are designed to match exclusively large buyers and sellers.

 

The Customers of an ATS

These are the common customers of an ATS:

(1) Asset Managers

Including mutual funds and pension funds.

(2) Professional Traders

Including hedge funds, proprietary trading desks, high-frequency traders, and others.

(3) Financial Brokers

Financial brokers are firms that buy and sell securities for their clients.

(4) Brokers / Dealers

These brokers / dealers buy and sell securities for their clients, but also they execute trades for their own accounts. Usually, these brokers are parts of large commercial banks such as Citigroup, Goldman Sachs, and Morgan Stanley.

(5) Market Makers

Market makers create a market within a market and use an ATS for enhancing their liquidity. They include UBS, Citi, Knight Capital, Citadel, and many others.

(6) Retail Traders

They gain access to an ATS via their online brokers.

 

HotForex Security

 

Types of Alternative Trading Systems (ATSs)

An ATS usually refers to an electronic system where investors can buy or sell existing financial instruments. These financial instruments include Forex derivatives, shares, bonds and other derivatives. There are two main types of ATS:

(a) matching systems

(b) crossing networks

Different Venues of an ATS

These are the main different venues for trading securities off of exchanges:

(1) ECNs (Electronic Communication Networks)

The ECNs are similar to exchanges but are not allowed to list stocks.

(2) Dark Pools or Crossing Networks

Dark Pools offer anonymity. Some of the largest dark pools are:

(3) Matching Networks

The Matching Networks allow a company to fill a trade order from that company's own internal supply of stock.

(4) Voice-Brokered Third-Party Matching

Refers to traditional traders that match buy and sell orders directly.

Examples of Equity ATSs in the US and Canada:

ATS List by FINRA: http://www.finra.org/sites/default/files/equity-ats-firms-list.pdf

 

What is an ECN (Electronic Communication Network)?

An ECN network is an automated alternative trading system designed to match buyers and sellers. An ECN network is able to operate as a bridge connecting brokerages and individual traders without the need of a middleman. An ECN allows investors located in different geographic places to trade easily and instantly with each other.

 

The Forex ECN Network

The Foreign Exchange (Forex) trading is based on the technology of the Electronic Communication Networks. The first ECN for currency trading was the Matchbook FX formed in 1999, in New York. Today, there are several ECN provides for currency trading, including:

  1. CurreneX

  2. DMA Link

  3. Fxall (Thomson Reuters)

  4. Bloomberg Tradebook

  5. Hotspot FX

  6. 360T

  7. Integral

These networks operate as matching engines offering tight spreads and very fast execution (less than 100 milliseconds per trade). The matching is quote-driven and that means that each order is filled with the best available match.

Compare ECN Forex Brokers

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Alternative Trading System (ATS)

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There are many different practices for predicting the exchange rate movements. Many Forex traders use technical analysis and charting tools to make trading decisions.

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