FOREX 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).
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:
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
Fundamental Analysis
Refers to the analysis of economic and political data in order to anticipate the future conditions of global financial markets.
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
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.
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.
SNB
SNB stands for Swiss National Bank and it is the central bank of Switzerland.
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.
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.
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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