Trading Glossary

A
Arbitrage Profiting from differences in the price of a single currency pair that is traded on more than one market.
Ask The price at which sellers are willing to sell a currency pair, also known as the ‘offer’, ‘ask price’.
Aussie Dealer slang for the AUD/USD currency pair.
B
Bar Charts A popular format for studying the price action of currency pairs
Base Currency In terms of Forex Market trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency.
Bear Market An extended period of general price decline in the market.
Bid The price at which an investor can place an order to buy a currency pair; the quoted price where an investor can sell a currency pair. This is also known as the ‘bid price’ and ‘bid rate’.
Big Figure The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 108.05/10 the
big figure is 108. EUR/USD price of 1.1325/28 the big figure is .13
British Pound The term British pound is commonly used in less formal contexts, although it is not an official name of the currency of the United Kingdom. The full, official name, pound sterling, (plural: pounds sterling) is used mainly in formal contexts and also when it is necessary to distinguish the United Kingdom currency from other currencies with the same name.
Broker An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the Forex market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries.
Bull Market A market which is on a consistent upward trend.
Buy Limit Order An order to execute a transaction at a specified price (the limit) or lower.
C
Cable Cable is a slang Forex Market term used for the GBP/USD currency pair rate (British pound vs the US dollar). The name is derived from when the British Pound was more dominant and the currency was continually wired between North America and Europe via transatlantic cable.
Candlestick Chart A chart that displays the daily trading price range (open, high, low and close). A form of Japanese charting that has become popular in the West. A narrow line (shadow) shows the day’s price range. A wider body marks the area between the open and the close. If the close is above the open, the body is white (not filled); if the close is below the open, the body is black (filled).
Commission The fee that a broker may charge clients for dealing on their behalf.
Consumer Price Index (CPI) A month to month economic indicator which gauges changes in the cost of living by measuring price changes in a common basket of goods and services that most people use, such as food, clothing, transportation, and entertainment.
Correlation A statistical term that refers to a relationship between two seemingly independent things. In forex for example, one could argue that the Euro and the Sterling have a higher correlation than, for example, the Euro and the Brazilian Real.
Currency Pair The two currencies in a foreign exchange transaction. The “EUR/USD” is an example of a currency pair.
D
DAX Deutsche Aktien Xchange, Germany’s primary stock index.
Day Trader A trader who tries to profit from short-term price movements, often taking and closing a position within the same trade day.
Dealing Desk Used loosely as the place where dealers facilitate pricing and executing trades.
Depreciation When the value of a particular currency falls substantially.
Depth of Market The volume of buy and sell orders waiting to be transacted for a particular currency pair at a particular point in time.
E
Electronic Communication Network (ECN) An electronic communication network (ECN) is the term used in financial circles for a type of computer system that facilitates trading of financial products outside of stock exchanges. The primary products that are traded on ECNs are stocks and currencies. FX ECNs broker provide access to an electronic trading network, supplied with streaming quotes from the top tier banks in the world. By trading through an ECN broker, a currency trader generally benefits from greater price transparency, faster processing, increased liquidity and more availability in the marketplace.
European Central Bank (ECB) Established in Frankfurt in 1998, the ECB is responsible for all monetary policy decisions that influence the Euro currency. Based on the Maastricht Treaty, the ECB’s main responsibility is to ensure price stability. To this end, it is authorized to issue the Euro and is responsible for setting interest rates for those countries that have converted to the Euro.
Exotic As opposed to the major currencies which are heavily traded, exotics are the less traded currencies.
F
Federal Open Market Committee (FOMC) Committee made up of Federal Reserve members who meet eight times a year to discuss current monetary policy and its effect on the present economy, and to address any possible changes needed.
Federal Reserve The Central Bank of the United States.
Federal Reserve Board
Forward A transaction that settles at a future date.
Fundamental Analysis The study of economic factors (GDP, Trade Balance, Employment, and so on) that can influence prices in financial markets.
Futures An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange while forwards are traded over the counter (OTC).
G
G7 The seven leading industrialized countries.
G8 G7 and Russia.
GBP The GBP is currency code for British Pound, commonly called the pound. The currency symbol for pound is £.
Good-Till-Сancelled order (GTC) A type of limit order that remains in effect until it is either executed (filled) or cancelled, as opposed to a day order, which expires if not executed by the end of the trading day. A GTC option order is an order which if not executed will be automatically cancelled at the option’s expiration.
H
Hedge A term used to describe reducing risk associated with adverse market movements by using two counterbalancing investments, thereby minimizing any losses caused by price fluctuations. For example, if you sell a house in Holland to relocate to the UK (your new base currency), you are in a long Euro (EUR) position and short Pounds Sterling (GBP). To offset this position you would need to sell the equal amount of EUR to make up for the short GBP position.
I
Initial Margin The first deposit by a customer which determines a corresponding maximum trade size.
Initial Margin Requirement When entering a position, the minimum amount that must be paid in cash.
Interest Rate The rate charged or paid for the use of money. An interest rate is expressed as an annual percentage of the principal. Interest rates often change as a result of inflation and Central Bank policies.
Introducing Broker A person or firm that introduces customers to the broker often in return for commission or a portion of the spread.
J
JPY Japan’s currency code.
K
Kiwi Traders term for the New Zealand Dollar.
L
Leverage The ratio of margin to the maximum position size. With a deposit of $5000 and a leverage of 50:1, a trader could enter a position with a face value of $250,000. The high degree of leverage can work against you as well as for you. Trading leveraged products is not suitable for all investors.
Limit Order An order to transact at a specified price or better.
Line Chart The simplest form of charting, a line chart plots a series of lines connecting the various price levels over a specified time period.
Liquidity Term used to describe a market where there are lots of buyers and sellers generating a great deal of volume.
Long When a currency pair is long, the first currency is bought while the second currency is sold short. To go long on a currency means that you buy it.
Lot Standardized method of trading in forex which requires a trade of 100,000 units of a particular currency.
M
Margin The minimum deposit required to maintain an open position. For example, with an open position of $500,000 and a leverage of 100:1, the required margin would be $5,000.
Margin Call A notification that more funds must be deposited into an account because the value of the account has fallen below the minimum margin needed to cover the size of existing positions.
Maximum Leverage The biggest position that a margin deposit would cover. At a leverage of 50, one could enter a maximum leveraged position of $100,000 by depositing $2,000 worth of margin.
MetaTrader 4 MetaTrader 4 is the cutting-edge online trading platform designed by MetaQuotes Software Corp. to provide brokerage services to customers in Forex, CFD and Futures markets.
Monetary Policy Central bank attempts to influence the economy through money supply levels.
Moving Average Method of smoothing out data on price charts so that trends are easier to spot. Average refers to a mathematical average or a statistical mean that is plotted over the original curve.
N
Net Position Currency positions that have not been offset with opposite positions.
News Trader An investor who bases his/her decisions on the outcome of a news announcement and its impact on the market.
NFP Non-Farm Payroll. Reported monthly, this figure represents the total number of paid U.S. workers of any business, excluding farm employees, general government employees, private household employees, and employees of nonprofit organizations that provide assistance to individuals. The NFP report also includes estimates of the average work week and average weekly earnings of all non-farm employees.
NOK Currency symbol for the Norwegian Krone.
NZD NZD is the currency symbol for the New Zealand Dollar.
O
Offer Also known as the Ask Price, it is the price at which a seller is willing to sell.
Options The right, but not the obligation, to buy (long call) or sell (long put) an underlying asset.
Order Instructions to buy or sell.
Oscillators Technical analysis tools that provide buy and sell signals, characterized by a signal that oscillates between overbought and oversold levels.
One Cancels the Other Order (OCO) Two orders that are submitted simultaneously. If either one is executed, the other one is automatically canceled.
P
Pip The smallest upward or downward price movements quoted in forex. In EUR/USD, a movement of 0.0001 is one pip. In USD/JPY, a movement of 0.01 is one pip (for example, from 116.32 to 116.31 yen).
Producer Price Index (PPI) An economic indicator that gauges the month-to-month price change that producers receive for their output.
Q
Pip When both a bid and ask price are provided for a currency pair.
R
Rate Price at which a currency can be purchased or sold against another currency.
Resistance Price level at which technical analysts note persistent selling of a currency.
Risk Management The use of strategies to control or reduce financial risk. An example is a stop-loss order that minimizes maximum loss.
S
Sell Limit Order An order to execute a transaction only at a specified price (the limit) or higher.
Sell Stop A limit order with a limit placed below the current market price. Once triggered, the limit order becomes a market order.
Short Selling a currency pair that involves being short the base currency and long the quote currency, with the intent of buying the currency pair at a later time when prices are lower in order to make a profit.
Short Position In Forex Market, when a currency pair is sold, the position is said to be short. It is understood that the primary currency in the pair is ‘short’, and the secondary currency is ‘long’.
Spot Buying and selling forex with the current date’s price for valuation, but where settlement usually takes place in two days.
Spread The value difference between the bid and ask price of a currency pair.
Sterling Another name for the British Pound (GBP). The full, official name, pound sterling, (plural: pounds sterling).
Stop Loss Order Order to buy or sell when a given price is reached or passed to liquidate part or all of an existing position.
Sterling Another name for the British Pound (GBP). The full, official name, pound sterling, (plural: pounds sterling).
Stop Loss A limit order to close a position when a given limit is reached. When long, the stop loss order is placed below the current market price. When short, the stop loss order is placed above the current market price.
Stop-buy A buy order for a currency price that is above the current market, or current price. It becomes a market order when the specified price is reached.
Swap A transaction that moves the maturity date of an open position to a future date.
T
Take Profit A limit order that is placed above the market with a long position or below the market with a short position. When the market reaches the limit price, the position is closed thereby locking in a profit.
Technical Analysis An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.
Trading Platforms A software application used for trading forex, usually over the Internet.
Trailing Stop Loss Similar to a stop loss in that it limits potential losses in an open order. But unlike a simple stop loss where the threshold does not change, a trailing stop loss can be instructed to automatically adjust the limit price closer to the market price when the market price moves in your favor.
Transaction Buying or selling a currency pair.
Trend The current direction of the market, whether up or down or sideways (which is sometimes referred to as non-trending or trading market).
U
Unit A widely used quantity of currency. In Forex, one unit of USD is equal to one United States dollar, while one unit of EUR is one euro. For JPY, one unit is equivalent to one yen. One unit is the smallest trade size in Forex.
US Dollar The currency of the United States of America.
V
Volatility Measure of how much the price of a currency changes over time.
W
Whipsaw Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Wire Transfer Electronic transfer of funds from one bank to another.
X
XAG A currency symbol of silver. It is precious metal with the highest electrical conduction properties of any metal. It is used mainly in jewelry, photography, and for scientific and industrial purposes. It has been used as the basis for currencies in the past. Silver is traded as a commodity on various security exchanges. Like many precious metals, silver is volatile but generally maintains relatively high prices.
XAU XAU is the currency code for gold. By popular demand, here are live gold bullion prices in eleven major currencies, US Dollars XAU/USD, Pounds Sterling XAU/GBP, Euros XAU/EUR, Australian Dollars XAU/AUD, Canadian Dollars XAU/CAD, Hong Kong Dollars, Rands XAU/ZAR, Rubles XAU/RUB, Rupees XAU/INR, Swiss Francs XAU/CHF, Yen XAU/JPY.
XAU/USD XAU/USD exchange rates for Gold to U.S. Dollar Starting July 15th, 2011
Y
Yard Traders’ term for a billion as in a billion dollars.
Z
ZAR Currency symbol for the South African Rand.

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