Appreciation – A currency is said to ‘appreciate’ when it strengthens in price in response to market demand.
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 differentials between markets
Ask (Offer) Price – The price at which the market is prepared to sell a specific currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation. For example, in the quote USD/CHF 1.4527/32, the ask price is 1.4532; meaning you can buy one US dollar for 1.4532 Swiss francs.
At Best – An instruction given to a broker to buy or sell at the best rate that can be obtained.
At or Better – An order to deal at a specific rate or better.
Balance of Trade – The value of a country’s exports minus its imports.
Bar Chart – A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar.
Base Currency – The first currency in a Currency Pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.6215 then one USD is worth CHF 1.6215 In the FX markets, the US Dollar is normally considered the ‘base’ currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.
Bear Market – A market distinguished by declining prices.
Bid Price – The bid is the price at which the market is prepared to buy a specific Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can sell the base currency. It is shown on the left side of the quotation. For example, in the quote USD/CHF 1.4527/32, the bid price is 1.4527; meaning you can sell one US dollar for 1.4527 Swiss francs.
Bid/Ask Spread – The difference between the bid and offer price.
Big Figure – The first two or three digits of a foreign exchange price or rate. Examples: If the USD/JPY bid/ask is 115.27/32, the big figure is 115. On a EUR/USD price of 1.2855/58 the big figure is 1.28. The big figure is often omitted in dealer quotes. The EUR/USD price of 1.2855/58 would be verbally quoted as “55/58″.
Book – In a professional trading environment, a ‘book’ is the summary of a trader’s or desk’s total positions.
Broker – An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a ‘dealer’ commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.
Bull Market – A market distinguished by rising prices.
Bundesbank – Germany’s Central Bank.
Cable – Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800′s.
Candlestick Chart – A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
Carry Trade – Refers to the simultaneous selling of a currency with a low interest rate, while purchasing currencies with higher interest rates. Examples are the JPY crosses such as GBP/JPY and NZD/JPY.
Central Bank – A government or quasi-governmental organization that manages a country’s monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.
Chartist – An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.
Cleared Funds – Funds that are freely available, sent in to settle a trade.
Closed Position – Exposures in Foreign Currencies that no longer exist.
Clearing – The process of settling a trade.
Collateral – Something given to secure a loan or as a guarantee of performance.
Commission – A transaction fee charged by a broker.
Contract – The standard unit of trading.
Counter Currency – The second listed Currency in a Currency Pair.
Counterparty – One of the participants in a financial transaction.
Country Risk – Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
Cross Currency Pairs – A pair of currencies that does not include the U.S. dollar. For example: EUR/JPY or GBP/CHF.
AUD – Australian Dollar
CAD – Canadian Dollar
EUR – Euro
JPY – Japanese Yen
GBP – British Pound
CHF – Swiss Franc
NZD – New Zealand Dollar
USD – 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. For Example, EUR/USD
Currency Risk – The risk one is exposed to in the event of an adverse change in exchange rates.
Day Trader – Speculators who take positions in currencies which are then liquidated within the same trading day.
Dealer – An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Deficit – A negative balance of trade or payments.
Delivery – An FX trade where both sides make and take actual delivery of the currencies traded.
Depreciation – A fall in the value of a currency due to market forces.
Derivative – A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument.
Devaluation – The deliberate downward adjustment of a currency’s price, normally by official announcement.
Economic Indicator – A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.
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.
Euro – The currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).
European Central Bank (ECB) – The Central Bank for the new European Monetary Union.
Federal Reserve (Fed) – The Central Bank for the United States.
Foreign Exchange – (Forex, FX) – The simultaneous buying of one currency and selling of another.
Fundamental Analysis – Analysis of economic and political information with the objective of determining future movements in a financial market.
FX – Foreign Exchange.
G7 – The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.
Gapped – Being “gapped” refers to price opening at a significantly higher or lower price than what it closed in the previous trading session. The stock market closes each afternoon which makes gapping a regular occurrence. The forex market, on the other hand is open 24 hours a day 5 days a week, meaning the only time it can gap is on a monday morning. Clever traders know this and will therefore avoid placing orders first thing monday morning.
Going Long – The purchase of a stock, commodity, or currency for investment or speculation.
Going Short – The selling of a currency or instrument not owned by the seller, in order to profit from a fall in price.
Gross Domestic Product – Total value of a country’s output, income or expenditure produced within the country’s physical borders.
Gross National Product – Gross domestic product plus income earned from investment or work abroad.
Hedge – A position or combination of positions that reduces the risk of your primary position.
Inflation – An economic condition whereby prices for consumer goods rise, eroding purchasing power.
Initial Margin – The initial deposit of collateral required to enter into a position as a guarantee on future performance.
Interbank Rates – The Foreign Exchange rates at which large international banks quote other large international banks.
Intervention – Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.
Kiwi – Slang for the New Zealand dollar.
Leading Indicators – Statistics that are considered to predict future economic activity.
Leverage – Also called margin. The ratio of the amount used in a transaction to the required security deposit.
Limit order – An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 117.00/05, then a limit order to buy USD would be at a price below 102. (ie 116.50)
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.
Long position – A position that appreciates in value if market prices increase. When the base currency in the pair is bought, the position is said to be long.
Lot – A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots. 1 standard lot is equal to $100,000 base currency. 1 mini lot is equal to $10,000 base currency.
Margin – The required equity that an investor must deposit to collateralize 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 customer.
Market Maker – A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.
Market Risk – Exposure to changes in market prices.
Offer (ask) – The rate at which a dealer is willing to sell a currency. See Ask (offer) price
Offsetting 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 (OCO) – A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.
Open order – An order that will be executed when a market moves to its designated price. Normally associated with Good ’til Cancelled Orders.
Open position – An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.
Over the Counter (OTC) – Used to describe any transaction that is not conducted over an exchange.
Overnight Position – A trade that remains open until the next business day.
Order – An instruction to execute a trade at a specified rate.
Pips – The smallest unit of price for any foreign currency. Digits added to or subtracted from the fourth decimal place, i.e. 0.0001. Also called Points.
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.
Profit /Loss or “P/L” or Gain/Loss – The actual “realized” gain or loss resulting from trading activities on Closed Positions, plus the theoretical “unrealized” gain or loss on Open Positions that have been Mark-to-Market.
Quote – An indicative market price, normally used for information purposes only.
Rally – A recovery in price after a period of decline.
Range – The difference between the highest and lowest price of a future recorded during a given trading session.
Rate – The price of one currency in terms of another, typically used for dealing purposes.
Resistance – A term used in technical analysis indicating a specific price level at which analysis concludes are likely to sell.
Retail Sales – Measures the monthly retail sales of all goods and services sold by retailers based on a sampling of variety of different types and sizes. This data gives a look into consumer spending behavior, which is a key determinant of growth in all major economies.
Revaluation – An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation.
Risk – Exposure to uncertain change, most often used with a negative connotation of adverse change.
Risk Management – The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.
Roll-Over – A rollover is the interest paid or earned on an open position held past the close of the NY trading at 1700 ET reflecting the interest rate differential between the two currencies.
Settlement – The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.
Short Position – An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.
Simple Moving Average (SMA) – A simple average of a pre – defined amount of price bars. For example, a 50 period Daily chart SMA is the average closing price of the previous 50 daily closing bars. Any time interval can be applied here.
Spot Market – A physical market in which foreign currencies and commodities are bought and sold for cash at the current market price, settled “on the spot” and delivered immediately.
Spot Price – The current market price. Settlement of spot transactions usually occurs within two business days.
Spot Trade – The purchase or sale of a foreign currency or commodity for immediate delivery (as opposed to a date in the future). Spot contracts are settled electronically.
Spread – The difference between the bid and offer prices.
Sterling – Slang for British Pound.
Stop Loss Order – Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor’s position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.
Support Levels – A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will most likely correct itself. Opposite of resistance.
Swap – A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.
Swissy – Market slang for Swiss Franc.
Technical Analysis – An ancient method used to forecast prices by analyzing market data, i.e. historical price trends, moving averages, volume, support and resistance, etc.
Tick – A minimum change in price, up or down.
Trade Balance – Measures the difference in value between imported and exported goods and services. Nations with trade surpluses (exports greater than imports), such as Japan, tend to see their currencies appreciate, while countries with trade deficits (imports greater than exports), such as the US, tend to see their currencies weaken.
Transaction Cost – The cost of buying or selling a financial instrument.
Transaction Date – The date on which a trade occurs.
Turnover – The total money value of all executed transactions in a given time period; volume.
Unemployment Rate – Measures the total workforce that is unemployed and actively seeking employment, measured as the percentage of the labor force.
Unrealized Gain/Loss – The theoretical gain or loss on Open Positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains’ Losses become Profits/Losses when position is closed.
Uptick – A new price quote at a price higher than the preceding quote.
Variation Margin – Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.
Volatility (Vol) – A statistical measure of a market’s price movements over time.
Volume – A measure of how many dollars were traded in a given period of time.
Wedge Chart Pattern – Chart formation that shows a narrowing price range over time, where price highs in an ascending wedge are incrementally less, or in a descending wedge, price declines are incrementally smaller. Ascending wedges typically conclude with a downside breakout, and descending wedges typically terminate with upside breakouts.
Whipsaw – Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Yard – Slang for a billion.