forex glossary

Sir Francis Bacon had the right idea back in 1597 when he came up with “Knowledge is Power”. In the forex markets, knowledge usually translates into profits, so here’s some knowledge you don’t want to be without.

Ask (Offer) Price
The price at which a market participant is willing to sell a specific instrument. In the case of the forex market, the ask price is the price at which a market maker is prepared to sell a particular currency pair. The ask price is displayed on the far right of any currency quotation.

Aussie
Dealer term for the AUD/USD currency pair.

Base Currency
Also known as the Primary Currency, the base currency is the first currency represented in a quotation for a particular currency pair. For example, in the EUR/USD, the base currency is the Euro.

Bear
An investor who enters into a transaction with the expectation that the value of the traded instrument will fall.

Bear Market
A market where prices for a particular instrument are falling.

Bid Price
The price at which a market participant is willing to buy a specific instrument. In the case of the forex market, the bid price is the price at which a market maker is prepared to buy a particular currency pair. The bid price is displayed on the left of any currency quotation.

Bull
An investor who enters into a transaction with the expectation that the value of the traded instrument will rise.

Bull Market
A market where prices for a particular instrument are rising.

Cable
Dealer term for the GPB/USD currency pair.

Cleared Funds
Funds that are freely available, resulting from settlement of a trade.

Closed Position
A currency trade that has been settled by selling or buying an amount equal to the original trade but in the opposite direction.

Clearing
The process of settling a trade.

Commission
The fee charged on a transaction by a broker.

Consumer Price Index (CPI)
A comparison of the average purchase price paid by a consumer for a pre-determined selection of goods or services at different periods throughout the year.

Counter Currency
The second currency listed in a currency pair (appears to the right of the particular currency pair). For example in the EUR/USD, the counter currency is the USD.

Counterparty
A participant in a financial transaction.

Crawling Peg
Also known as an Adjustable Peg. The level a country's exchange rate is set at in relation to another currency.

Credit Risk
Risk of default by a debtor. In the forex markets Credit Risk is usually associated with the risk of a counterparty not being able to deliver a promised currency.

Cross Rate
The exchange rate between two currencies, neither of which are the official currency of the country where the exchange rate is quoted.

Currency
Any form of money accepted as legal tender in a country. Typically issued by the country's Government or Central Bank.

Currency Basket
A selected group of currencies where the weighted average is used to measure the value of a financial obligation.

Currency Pair
The two currencies used in a foreign exchange quote. For Example, GBP/USD.

Currency Risk
The risk of unfavourable fluctuations in exchange rates.

Currency Symbols
Three-letter identifiers created by the ISO (International Organization for Standardization) and typically used in place of the full currency names.

Day Trader
A trader who opens and closes positions within the same trading day.

Delivery Risk
The possibility that a counterparty to a trade will not be able to complete his side of the transaction.

Depreciation
The fall in the value of a currency due to market forces.

Desk
A group of traders dealing with a specific currency or currencies.

Economic Indicator
A statistic issued by a country’s government, indicating current economic growth.

EFT
Electronic Funds Transfer

End Of Day Order (EOD)
An order to buy or sell an instrument at a specified price that remains open until the end of trading.

EOE
European Options Exchange.

EURO
The currency of the European Union.

European Central Bank (ECB)
The Central Bank of the European Monetary Union.

European Union
Formerly known as the European Economic Community (EEC).

Fed
The United States Federal Reserve.

Federal Reserve System
The central banking system of the United States of America.

Fiscal Policy
Government policy on taxation and public spending.

Fixing
The practice of setting a price for goods or commodities, regardless of market influences or conditions and their actual effect on the fixed price.

Flat
A dealer term for a position that has already been reversed.

Floating Exchange Rate
As opposed to a fixed exchange rate, floating rates are decided upon by market sentiments and influences.

FOMC
Federal Open Market Committee.

Forex
Or FX. Short form for Foreign Exchange. The simultaneous buying of one currency and selling of another.

Fundamental Analysis
The analysis of economic and political information in an attempt to predict movements or trends in the financial markets.

Gold Standard
Original system used to support the value of issued currencies.

Going Long
Buying stocks, commodities or currencies in the expectation that the price will rise.

Going Short
Selling stocks, commodities or currencies in the expectation that the price will fall.

Gross Domestic Product (GDP)
The total value of all goods and services produced in a country over a specific period of time.

Hedging
Offsetting the risk of a particular investment by taking an opposite position in an instrument related to the original investment.

IMF
International Monetary Fund. Established in 1946 to provide short and medium term international loans.

Inflation
The rise in prices of consumer goods, directly related to the reduction in purchasing power.

Interbank Rates
Foreign Exchange rates quoted between international banks.

Kiwi
Dealer term for the NZD/USD currency pair.

Leverage
The ration of actual capital deposited with a broker to the value of open positions traded with the broker.

Loonie
Dealer term for the USD/CAD currency pair.

Lot
A unit used to measure the value of a transaction. Transactions are referred to by the number of lots traded, rather than their monetary value.

Margin
A cash amount deposited with a broker as security for a client’s trading positions.

Pip
The smallest price movement possible for a given exchange rate. Most currency pairs are quoted to 4 decimal points, so the smallest change possible is the last decimal point.

Price Trend
The consistent movement of prices in a certain direction.

Rate
The price of one currency in terms of another.

Risk Capital
Money allocated to high-risk investments. Typically referred to as money which an investor can afford to lose without suffering any changes to their financial situation.

Spread
The difference between the bid and ask price of a currency.

Stop Loss Order
An order where an open position is automatically closed at a pre-determined price. Stop Loss Orders are used to minimize losses if the market moves against a trader’s positions.

Swissy
Dealer term for the USD/CHF currency pair.

Take Profit Order
An order which automatically closes an open position at a pre-determined price, locking in a specific amount of profit.

Technical Analysis
Forecasting prices using historical and current market information and charts. Technical Analysis assumes future price movements can be predicted by analysing past performance.

Virtual Balance
The balance on your account that would result from closing all open transactions.