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FOREX Glossary

A

Appreciation A rise in the price or value of a currency (or other asset) over time.
Arbitrage The purchase of securities on one market for simultaneous or immediate resale on another market with the goal of profiting from a price discrepancy. Currency traders often arbitrage against exchange risk by buying a currency for immediate delivery but also selling that currency on the forward market at the same time.
Ask Price The rate at which a Client carries out a trading operation of buying.
Asset Any item of economic value owned by an individual or corporation, especially that which could be converted to cash.
Asset Allocation The division of funds between different assets (items of value such as property, financial instruments, commodities and cash) with the goal of diversifying ones personal holdings to manage specific risk / reward expectations.

B

Back Office The departments and processes related to the settlement of financial transactions.
Balance The amount in the trader’s account after the last complete transaction.
Bank Wire A computer message system linking major banks. It is used as a mechanism to advise the receiving bank of some action that has occurred, i.e., the payment by a customer of funds into that bank’s account.
Bar chart A type of chart which consists of four significant points: the maximum and minimum 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 to the right of the bar.
Base Currency The first currency in a currency pair. For example, in the following pair USD/EUR, the first currency (in this case USD) is referred to as the base currency. The primary base currency is the US dollar, meaning that quotes are most commonly expressed as a unit of $1 USD per the other currency quoted in the pair.
Basis Point Someone who expects the price of a given financial instrument or the overall value of a given financial marketplace to decline in value and thereby is a seller of the instrument(s). This individual is said to be bearish on the instrument / marketplace. Opposite of bull (bullish).
Bear

A market participant, who thinks that prices will go down.

Bear Market A market distinguished by declining prices.
Big Figure Dealer expression referring to the first few digits of an exchange rate. These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity. For example, a USD/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits i.e. «30/35».
Bid Price The rate at which a client carries out a trading operation of sale.
Bid / Ask Spread The difference between the buy (bid) and sell (ask) price. In the following example — 0.9853/58 the spread is 0.0005 or 5 PIPs.
Breakout The price’s crossing of support or resistance levels.
Bretton Woods Agreement An agreement signed by the original United Nations members in 1944 that established the International Monetary Fund (I.M.F.) and the post-World War II international monetary system of fixed exchange rates.
Broker An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Bull A market participant, who thinks that prices will go up.
Bull Market A market distinguished by rising prices.
Buying / Selling FX An investor/speculator buys a currency pair (takes a long position), if he/she believes the base currency will go up relative to the quote currency, or equivalently that the corresponding exchange rate will go up. Selling the currency pair implies selling the first, base currency, and buying the second, quote currency. An investor / speculator sells a currency pair (takes a short position), if he/she believes the base currency will go down relative to the quote currency, or equivalently, that the quote currency will go up relative to the base currency.

C

Cable Refers to the Sterling/US Dollar exchange rate. Derived from mid-1800s practice of New York sending sterlings dollar rate to London via a transatlantic cable.
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.
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.
Clearing The process of settling a trade.
Commission A fee charged by a broker for executing a trade.
Contract The standard unit of trading.
Counter currency

The second currency in a currency pair.

Counterparty One of the participants in a financial transaction.
Cross Rate An exchange rate between two non-US dollar currencies. For example: EUR/GBP. Trading between two non-US dollar currencies usually occurs by first trading one currency against the US Dollar and then trading the US Dollar against the second non-US dollar currency.
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 is a currency pair.
Currency Risk The probability of an adverse change in exchange rates.

D

Day Trader / Day Trading Opening and closing the same position or positions within the same trading session. Speculators trying to take advantage of market movements in very short time periods buying a currency and then selling it again may happen within hours or even minutes. Day traders are attracted to currency trading because of the size, liquidity, volatility, and accessibility of the market.
Dealer An individual who 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 trading or payment balance.
Delivery A trade where both sides make and take actual delivery of the currencies traded. Delivery is not the norm in FX trading. More commonly, an FX trade involves cash settlement of the difference between spot and delivery prices. Spot refers to any delivery within two business days. Forward refers to delivery beyond two days and usually quoted one year out in increments of 30 days (i.e. 1 month, 2 month, etc.).
Deposit  The money placed at a trading account available for further operations.
Directional Forecast A projection of bid/ask prices for a currency pair for a point in the future. The forecast displays the most likely future direction of prices. This direction reflects the latest price fluctuations as they are influenced by economic and political events. Directional Forecasts are designed for: Investors and traders who trade small to large volumes in the foreign exchange markets daily Professionals who do business internationally and who want to minimize foreign exchange risk due to currency price fluctuations.
Dollar Rate The exchange rate of a foreign currency as quoted against the US dollar (USD). Some currencies are typically only quoted against the US dollar, such as the Algerian dinar (DZD) and the Andorran franc (ADF). The exchange rate of the Algerian dinar against the Andorran franc is thus computed from DZD-USD and ADF-USD.
Double Bottom A figure of technical analysis of the market situation: the rate lowers to a certain level twice and then increases again.
Double Top A figure of technical market situation when the rate increases to a certain level twice and then lowers again.
Downtrend A declining trend, accompanied by diminishing maximums and/or minimums.

E

Elliott Wave theory

A method of technical analysis and price forecasting based on R. N. Elliott’s theory. The main point of it is that price movement has 5 waves in one trend direction followed by 3 correction waves.

Entry Order An order to buy/sell a currency pair when the market reaches a specified price.
Equity Value that reflects the Client’s current account status taking into consideration the operations carried out at the given moment.
EURO The currency of the European Union (EU) since January 1, 1999. The following countries have adopted the EURO in addition to maintaining their own unique currency: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain.
European Central Bank, ECB

The Central Bank for the new European Monetary Union.

European Monetary Union, EMU The principal goal of the EMU is to establish and maintain a single European currency called the Euro.
Exchange Rate The price of one country’s currency expressed in another country’s currency.
Exchange Rate Risk The potential loss that could be incurred from a movement in bid/ask prices, or exchange rates.
Exposure The risks that an investor accepts when holding an open position. When an investor buys EUR/USD, he exposes himself to risks associated with changes in the valuation of the EURO and/or USD markets.

F

Federal reserve system, Fed, FRS

The central bank of the USA.

Flat/square Dealer slang used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.
Foreign Exchange Market, FOREX The international exchange market, the market for conversion exchange operations of specified amounts of one country’s currency into the currency of another country according to an agreed rate for a given date. Turnover in this market is approximately $1.5 trillion USD daily, making it the largest, most liquid financial marketplace.
Forward The pre-set exchange rate for an FX contract that settles at a pre-determined future date. The forward rate is based upon the interest rate differential between the two currencies involved. Forward rates can be calculated easily given the fixed term interest rates of each currency and their current spot rates.
Forward Points The PIPS added to or subtracted from the current exchange rate to calculate a forward price. If points are added, then the forward is priced at a premium. If points subtracted, then the forward is priced at a discount.
Fundamental Analysis Analysis of economic, political and social data/events with the objective of forecasting future financial market movements.

G

Gap A  situation when the price of an instrument at opening of the trading session varies form the price at closure of the preceding one with formation of an unfilled price range.
Gearing (refer to margin trading or leverage)
Going long To go long is to buy a currency / security for investment or speculation purposes. For example, if an investor believes that the Japanese economy is getting stronger and that, as a result, the Japanese Yen will appreciate in value, then he/she may want to buy Japanese Yen and take what is called a long position.
Going short To go short is to sell a currency / security. For example, if an investor believes that the Japanese economy is getting weaker and that, as a result, the Japanese Yen will depreciate in value, then he/she may want to sell Japanese Yen and take what is called a short position. It is not necessary to own the quote currency prior to selling, as it is sold short.
Good ‘Til Cancelled Order (GTC) An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.

H

Hedging A policy of risk neutralization by means of opening a position in the opposite direction for the same financial asset type and with the same lot amount to the given one.

I

Indicator Mathematical conversion of the price and/or financial instrument amount for prediction of future price changes. On the basis of technical indicator signals, decisions when and how to open positions are made.
Inflation Economic condition where there is an increase in the price of consumer goods, thereby eroding purchasing power.
Initial margin The initial deposit of collateral required to enter into a position as a guarantee on future performance.
Interbank Prices Currency prices/rates quoted between the large international banks, typically on transactions of US $1 million or more. These rates differ and are often more favorable than those quoted for smaller, retail transactions.
Interest Rate Differential In FX trading, interest rate charges are determined by the difference between the interest rate on the base currency less the interest rate on quote currency. Interest rates are only paid on positions held over night.
Intervention Action by a central bank to effect the value of a particular currency by entering the market.

L

Leverage Ratio of the transaction to the required security deposit. Refers to margin trading or gearing. The use of credit or borrowed funds to increase ones buying power.
Letter of credit A document issued by a bank which guarantees the payment of a customer’s drafts for a specified period and up to a specified amount.
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 102.00/05, then a limit order to buy USD would be at a price below 102. (ie 101.50)
Liquidity Refers to the ability to buy and sell with little or no impact on price stability. The number of players in a market/security has a direct impact on this ability. The FX market is the most liquid market in the world.
Long position A position to purchase more of an instrument than is sold, hence, an appreciation in value if market prices increase.
Lot A unit to measure the amount of the deal. The value of the deal always corresponds to a decimal fraction of the lot.

M

Margin The required equity that an investor is required to keep on deposit to cover potential losses. If the margin requirement is 10% and a speculator wishes to buy $1 million EURO/USD, that speculator must have $100 thousand EUROS in value in his/her account.
Margin Call The state of a trading account when the Client loses an opportunity to manage it. ln case of a margin call all the positions would be closed by the Broker on any immediate quotation. Margin call comes, when a Margin level reaches 30% and lower.
Margin trade The principle of Margin trade is that the Client pays only a part of the transaction, the rest of the amount is provided by the Broker as credit.
Market Maker A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices.
Market Order An order to buy/sell at the best price available when the order reaches the market.
Marking to Market Common valuation method for calculating ones foreign exchange exposure at current market prices. Adjusting book value of holdings to reflect current market value.

O

Offer The rate at which a dealer is willing to sell a currency.
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 Position A deal not yet reversed or settled with a physical payment.
Order A request, from a Client to a Broker, that a trade should be made automatically when the exchange rate of the specified currency pair crosses a specified threshold. . An order can be placed at a specific price or at the market price.
Oscillator

A curve of temp, which fluctuates around the zero line (or between 0 and 100%), a technical indicator that shows the overbought or oversold market state.

Over-The-Counter Market (OTC) A market, such as the FX market, in which counterparties trade via telephone, fax or electronic distribution network rather than from a physical exchange location.
Overnight A trade that remains open until the next business day.

P

Pip, point The term used in currency market to represent the smallest incremental move an exchange rate can make. Usually it is the second or fourth decimal point, 0,01 or 0,0001 respectively.
Position The netted total holdings of a given currency. If the position is open, it is exposed to market risk. If a position is closed, profit/loss has been realized.
Profit Gains exceeding over losses.

Q

Quotation Often shortened to quote and also referred to as bid-asked. The highest bid or lowest offer price currently available on a security/commodity.
Quote An indicative market price, normally used for information purposes only.

R

Rally Recovery of the rates after a fall.
Rate The price of one currency in terms of another.
Realized and Unrealized P/L Realized P/L is equal to the value in an investor/speculators balance minus the amount of funds he/she has transferred into the account. Unrealized P/L is the amount of profit or loss that is held in current open positions. If one were to clear all open positions, then this amount would be added to the Realized P/L amount.
Resistance level A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
Risk The degree of uncertainty or exposure associated with an investment. Investments with greater inherent risk must promise higher expected returns if investors are to be attracted to them. The main types of foreign exchange risk are: 1) exchange rate risk 2) interest rate risk 3) credit risk (aka counterparty) 4) country risk (includes political). (each of these risks can be referred to in other sections of this document).
Risk Management The process of actively monitoring /controlling exposure to various types of risks while attempting to maximize returns. Typically involves utilizing a variety of trading techniques, models and financial analyses.
Roll-Over Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies.
A rise in the price or value of a currency (or other asset) over time.

S

Settlement A trade is settled when the trade and its counterparts have been entered into the books/records. In regards to FX trading, it is important to note that settlement may or may not involve the actual physical exchange of currencies.
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.
Spot A transaction that occurs immediately, but the funds will usually change hands within two days after the transaction took place.
Spot Price

The current market price. Settlement of spot transactions usually occurs within two business days.

Spread Spread – the difference between the bid and ask prices.
Stochastic oscillator A technical indicator which compares a stock’s closing price to its price range over a given period of time. The belief is that in rising market stocks will close near their highs, while in a falling market they will close near their lows.
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.
Stop Out Condition when the Client is no longer able to manage their account and one or several of its open positions are compulsorily closed at any nearest available price for preserving a positive account balance. Stop Out takes place when the account balance percentage indicator (Margin Level) drops to 30% of the initial deposit or lower.
Support Level A technique used in technical analysis that indicates a specific price level at which a currency will have the inability to cross below. Opposite of resistance.
Swap The simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate that takes place during transmission of the position to the following day.
Swissy Slang for Swiss Franc.The departments and processes related to the settlement of financial transactions.

T

Take-Profit Order An order to automatically liquidate a position if the exchange rate reaches a specified level. Take profit orders are typically used to lock-in profit.
Technical Analysis Studying charts that display the historic behavior of market data/statistics (price open, high, low and close, volume, open interest, etc.) in order to forecast future performance.
Tick A price movement.
Trader

A natural or legal person who sells and buys currencies or securities or in the market.

Trading Buying and selling currencies, securities or goods on a short-term basis for obtaining profit.
Trading Session

A continuous period of time during which trading operations are run.

Transaction Cost The cost of buying or selling a financial instrument.
Trend A prevailing price movement direction. Ascending tops and bottoms form an uptrend, descending – a downtrend.
Turnover The total money value of all executed transactions in a given time period; usually daily or yearly.
Two-Way Price When both a bid and offer rate is quoted for a FX transaction.

U

Uptick A new price quote at a price higher than the preceding quote.
Uptrend Prices increase accompanied by a number of ascending maximums and minimums.
Unrealized and Realized P/L Unrealized P/L is the amount of profit or loss that is held in current open positions. If one were to clear all open positions, then this amount would be added to the Realized P/L amount. Realized P/L is equal to the value in an investor/speculators balance minus the amount of funds he/she has transferred into the account.The departments and processes related to the settlement of financial transactions.

V

Value Date The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date.
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 A statistical measure of a market or a security’s price movements over time and is calculated by using standard deviation. Associated with high volatility is a high degree of risk.

W

Weighted Moving Average

A sliding average, during calculation of which every price value is given a certain weight. Usually the last indicator is allocated the bigger weight.

Whipsaw Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

Y

Yard Slang for a billion.