Forex glossary - common words in currency trading | Online Forex Trading - Learn currency trading, forex broker review, trade forex guide

Forex glossary

Are there any forex words you do not understand the meaning of?

In our forex dictionary you find answers for difficult words that may need a short and simple explination.

A

Arbitrage
Profiting from price difference in a currency, by trading
against various currency crosses. For instance, you can trade USD against both GBP and JPY in order to take home some risk free profits.

At best (for best exchange rate)
A common term used in international forex platforms. Means that you are willing to buy or sell at the best rate in the market right now. This type of order can be an alternative when there is low volatility and no big news are about to effect the currency rates.

B

Bar Chart
Probably the most used chart in forex trading. Consists of four points; high, low, opening and closing rate.

The highest and lowest exchange rate forms the vertical bar in a intra day graph. Then we have the opening price, which are marked by a horizontal line to the left of the bar staple.

Finally, there is the closing price, marking a horizontal line to the right of the bar staple.

Base currency
The first currency in a currency pair, which show how much the base currency is worth in terms of the other currency in the pair.

Bear Market
A period of downgoing prices in a currency pair.

Broker
A forex broker or forex brokerage acts as the middle man between one purchasing currency and one selling currency.

C

Cable
Forex traders use the term ‘cable’ when talking about the currency pair
GBP/USD. The name was created because the exchange rate was originally
transferred through a trans-atlantic cable between USA and UK in the beginning of the 19th century.

Central bank
Usually a government that create a currency and administrate fiscal policy, such as open market operations and keeping a currency reserve in other currencies.

Exempeles of central banks are the Federal Reserve (FED) in USA, Bank of England (BOE) in UK and European Central Bank (ECB) in EU.

Currency
The money used by a country. Each currency has a value relative to others for forex trading.

D

Day Trading
A currency exchange deal that automatically renews at 22:00 GMY each night until it is ended.

Delivery Date
The date a contract matures and the transaction is settled by exchanging currencies.

E

European Currency Unit (ECU)
A weighted basket of all the European Community currencies. Created by the European Monetary System to eventually replace individual currencies.

Exercise Price
The price an option can be exercised at.

Exposure
The potential for profit or loss due to market fluctuations.

F

Fixed Exchange Rate
The official rate set by monetary authorities for a currency. Central banks will intervene if the rate fluctuates too far.

Foreign Exchange
The buying or selling of one currency against another.

Forward Contract
A contract with a date in the future for delivery of a specified currency if not liquidated before the contract reaches maturity.

Fundamental Analysis
Analysis based on news, current events, economic and political factors and global events.

G

Gap
Difference between Friday’s close and Monday’s open price in forex markets.

Gross Domestic Product (GDP)
A total measure of a country’s output, income and expenditure. It is a statistical concept that is an important forex indicator.

Good Till Cancelled (GTC)
An order to buy or sell currency at a fixed price. It remains in place until it is either executed or cancelled by the client.

H

Hedging
Transactions designed to protect an existing open position if the market moves in the opposite direction.

I

Initial Margin
A deposit required by a broker before trading occurs. This protects against default by the client.

Interest Rate Risk
The potential loss that can arise from interest rate movements.

J

Jobber
Slang term for traders that operate on short-term fast profits and will not usually leave open positions overnight.

K

Kiwi
Slang term for the New Zealand dollar.

L

Leading Indicators
Composite macroeconomic indexes that predict future changes in economic growth and business activity.

Limit Order
Order to buy or sell at a pre-defined rate or one that is better during a defined period.

Liquidity
The capacity of a market to handle large transactions without it leading to major changes in currency and interest rates.

Long Position
A market position where the client buys a currency they did not previously have.

Lot
Amounts of units of money. Usually it is a multiple of 100.

M

Margin
Collateral money that must be deposited to cover potential losses that may occur in margin trading.

Margin Call
A demand for more money to cover trading positions.

Maturity
The date for settlement or the closing date of a contract.

N

Note
A financial instrument that represents a promise to pay.

O

Offer
Price a dealer is willing to sell the base currency at.

Open Position
Any deal which has not been settled on buying (long) or selling (short) for a currency pair.

Option
A contract which gives the right to buy or to sell at a specified amount and price before a certain date is reached.

Order
Order for a broker to buy or sell a certain currency within a specified price range.

P

Point
100th of 1 per cent. Exchange rate movements are usually cited in terms s of points.

Position
The overall exposure to a given currency. It can be flat when there is no exposure, long if more currency has been bought than sold, or short where more currency has been bought than sold.

Profit
The amount of money gained when a position is closed.

Put Option
A contract which gives the right, but not the obligation, to sell at a specified amount and price before a certain date is reached.

Q

Quote
An indicative price for information purposes.

R

Rate
The amount of one currency in the value terms of another.

Resistance
A price level where selling generally leads to price increases.

Risk management
Identifying and accounting for the risks associated with the market. Foreign currency trading can be affected by interest rates, yield curves, volatility, credit, country events like political changes and wars.

S

Selling Rate
Rate at which the seller or bank is willing to sell a particular currency.

Short Position
A market position where the trader has sold a currency that he does not own yet.

Spread
The difference between the bidding and asking prices of a currency.

Sterling
The currency of the British pound. Also known as cable.

Stop-Loss Order
An order to buy or sell if a currency reaches a certain price. It will sometimes mean a loss is made, but is to protect against massive losses if a market moves suddenly.

Swap
Purchases made at the same time for buying and selling the same amount of a currency at different dates. You do not physically receive the currency but get the price differential between the two transactions.

T

Take-Profit Order
An order to buy or sell when a currency reaches a certain price that will give you a profit. It is often combined with stop-loss orders.

Technical Analysis
Analysis based on supply and demand factors that influence a currency.

Trend
The direction the market is moving in.

U

Useable Margin
The amount of money in an account that can be used for trading.

V

Volatility
A statistical measure of the amount of fluctuations for a given currency over a specified time period. Often measured as the annual standard deviation of historic daily price changes.

W

Writer
The party that is selling a position. If you “write a currency” you are selling it.

Y

Yield Curve
A graph showing the change in yield of currencies and other instruments compared to the time until maturity.