Forex Terms

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Pegging - A form of price stabilization; typically used to stabilize a country’s currency by making it fixed to the exchange rate with another country.

Pip (or Points) - The term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).

Political Risk - Changes in a country’s governmental policy, which may have an adverse effect on an investor`s position.

Position - A position is a trading view expressed by buying or selling. It can refer to the amount of a currency either owned or owed by an investor.

Premium - In the currency markets, it is the amount of points added to the spot price to determine a forward or futures price.

Price Transparency - Every market participant has equal access to the description of quotes.

Quote - An indicative market price; shows the highest bid and/or lowest ask price available on a security at any given time.

Rate - The price of one currency in terms of another.

Realized and Unrealized Profit and Loss - One using an accrual type accounting system has an “unrealized profit” until he sells his shares. Upon the sale of one’s shares, the profit becomes “realized.”

Re-purchase (or Repo) - This type of trade involves the sale and later re-purchase of an instrument, at a specified time and date. Occurs in the short-term money market.

Resistance - A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross above. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line.

Revaluation Rates - The revaluation rates are the market rates used when a trader runs an end-of-day to establish profit and loss for the day.

Risk - Exposure to uncertain change, the variability of returns significantly the likelihood of less-than-expected returns.

Risk Capital- The amount of money that an individual can afford to invest, which, if lost would not affect their lifestyle.

Risk Management - To hedge one’s risk they will employ financial analysis and trading techniques.

Rollover - The settlement of a deal is rolled forward to another value date with the cost of this process based on the interest rate differential of the two currencies.

Settlement - The finalizing of a transaction, the trade and the counterparts are entered into the books.

Short - To go `short` is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit.

Short Position - An investment position that results from short selling. Benefits from a decline in market price because the position has not been covered yet.

Spot - A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck.

Stop Order - An order to buy/sell at an agreed price. One could also have a pre-arranged stop order, whereby an open position is automatically liquidated when a specified price is reached or passed.

Spot Price - The current market price. Spot transaction settlements usually occurs within two business days.

Spread - The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity.

Support Levels - A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross below. Recurring failure for the price to move below that point produces a pattern that can usually be shaped by a straight line.

Swaps - A swap occurs when one currency is temporarily exchanged for another, then the currency is held and exchanged later after a fixed period of time. To calculate the swap take the interest rate differential between the two underlying currencies, thus it may be used for speculative purposes to exploit anticipated movement in the interest rates.

Sterling - Another term for the Great British Pound.

Technical Analysis - An effort to forecast future market activity by analyzing market data such as charts, price trends, and volume.

Tick - Minimum price move.

Ticker - Shows current and/or recent history of a currency either in the format of a graph or table.

Tomorrow Next (Tom/Next) - Simultaneous buying and selling of a currency for delivery the following day.

Transaction Cost - The cost associated with buying or selling of a financial instrument.

Transaction Date - The date on which the trade occurs.

Turnover - The volume traded, or level of trading, over a specified period, usually daily or yearly.

Two Way Price - Both the bid and offer rate is quoted for a Forex transaction.

Uptick - A new price quote that is higher than the preceding quote for the same currency.

Uptick Rule - In the U.S., a regulation which states that a security may not be sold short unless the trade prior to the short sale was at a price lower than the price at which the short sale is executed.

US Prime Rate - The interest rate at which US banks will lend to their prime corporate customers.

Value Date - The date that both parties of a transaction agree to exchange payments.

Variation Margin - An additional margin requirement that a broker will need from a client due to market fluctuation.

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.

Volume - The number, or value, of securities traded during a specific period.

Warrants - Warrants are a form of traded option. They are the right to purchase shares or bonds issued by a company at a specific price within a specified time span.

Whipsaw - A term used to describe a condition in a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

Yard - Another term for a billion.