Forex Glossary
Welcome to the ForexTips.com Glossary. Here you will find all the definitions you will hear/see while trading in the forex market. To sort terms by starting letter, click the corresponding letter below. To view the full definition click on the term name. To go back to a full view of all terms click the "ALL" link at the head of the alphabet.
- Account
- Account Balance
- Agent
- Aggregate Demand
- All or None
- Appreciation
- Arbitrage
- Ask Rate
- Ask Size
- Asset Allocation
- Attorney in Fact
- Back Office
- Balance
- Balance of Payments
- Base Currency
- Basis
- Basis Point
- Bear
- Bear Market
- Bid
- Bid/Ask Spread
- Big Figure
- Bonds
- Book
- Bretton Woods Accord of 1944
- Broker
- Bull
- Bull Market
- Bundesbank
- Cable
- Candlestick Chart
- Capital Markets
- Central Bank
- Chartist
- Clearing
- Close a Position (Position Squaring)
- Commission
- Confirmation
- Contagion
- Contract (Unit or Lot)
- Convertible Currency
- Cost of Carry
- Counter party
- Country Risk
- Credit Checking
- Credit Netting
- Cross Rates
- Currency
- Currency Risk
- Day Trading
- Dealer
- Deficit
- Delivery
- Deposit
- Depreciation
- Derivative
- Devaluation
- Economic Exposure
- Economic Indicator
- Efficient Market
- End Of Day
- Estimated Annual Income
- Euro
- European Central Bank
- Exchange Rate Risk
- Federal Deposit Insurance Corporation (FDIC)
- Federal Reserve (Fed)
- Fixed Exchange Rate
- Fixed Interest
- Flat (or Square)
- Floating Rate Interest
- Foreign Exchange (or Forex or FX)
- Foreign Exchange Risk
- FOREX
- Forex
- Forex Trader
- Forward
- Forward Points
- Forward Rate Agreements (FRA's)
- Front Office
- Futures
- GTC
- Hedge
- High/Low
- Inflation
- Initial Margin
- Interbank Rates
- Interest Rate Swaps (IRS)
- ISDA
- Leading Indicators
- LIBOR
- LIFFE
- Limit Order
- Liquid and Illiquid Markets
- Liquid Assets
- Liquidation
- Long
- Margin
- Margin Call
- Mark to Market
- Market Maker
- Market Order
- Market Risk
- Maturity
- Mine/Yours
- Money Markets
- Net Worth
- Offer
- Offsetting Transaction
- One Cancels Other Order (O.C.O. Order)
- Open Order
- Open Position
- Options
- Order
- Over The Counter (OTC)
- Overnight
- Pegging
- Pip (or Point)
- Political Risk
- Position
- Premium
- Price Transparency
- Quote
- Rate
- Re-purchase (or Repo)
- Realized Profit/Loss
- Resistance
- Revaluation Rates
- Risk
- Risk Capital
- Risk Management
- Rollover
- Settlement
- Short Position
- Short Selling
- Spot
- Spot Price
- Spread
- Sterling
- Stop Order
- Support Levels
- Swap
- Technical Analysis
- Tick
- Ticker
- Tomorrow Next (Tom/Next)
- Trading system
- Transaction Cost
- Transaction Date
- Turnover
- Two Way Price
- Uptick
- Uptick Rule
- US Prime Rate
- Value Date
- Variation Margin
- Volatility
- Volume
- Warrants
- Whipsaw
- Yard
A record of all transactions.
See balance.
An individual employed to act on behalf of another (the principal).
The sum of government spending, personal consumption expenditures and business expenditures.
A limit price order that instructs the FCM to fill the whole order at the stated price or not at all.
An increase in the value of an asset; the rising of a price in response to market demand.
The use of countervailing prices in different markets to profit from small price differentials via the purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market.
The lowest price at which a financial instrument is offered for sale.
The amount of shares being offered for sale at the ask rate.
The distribution of funds among different markets (such as Forex, stocks, bonds, commodities and real estate) to achieve diversification for risk management purposes and/or expected returns.
A person who, by virtue of having power of attorney, is allowed to transact business and execute documents on behalf of another person.
The departments and processes related to the settlement of financial transactions.
The amount of money in an account.
The record of a nationâ??s claims regarding transactions with the rest of the world over a particular time period. This includes merchandise, services and capital flows.
1) The currency in which an investor or issuer maintains his/her book of accounts; the currency against which other currencies are quoted. In the Forex market, the US Dollar is normally considered the "base" currency for quotes, meaning that quotes are expressed as a unit of one USD per the other currency quoted in the pair. 2) The first currency quoted in a pair.
The difference between the spot price and the futures price.
One hundredth of a percent.
An investor who believes that market prices will decline.
A trend distinguished by a prolonged period of declining prices accompanied with widespread pessimism.
The price at which a buyer is prepared to purchase; the price offered for a currency.
See spread.
A dealer phrase 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 as, "30/35".
Tradable instruments (debt securities) issued by a borrower to raise capital. They pay either fixed or floating interest, known as the coupon. As interest rates fall, bond prices rise and vice versa.
The summary of a traderâ??s or a deskâ??s total positions.
An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets and set the price of gold at USD 35 per ounce. The agreement lasted until 1971.
An individual or firm that acts as an intermediary between buyers and sellers, usually for a fee or commission. A dealer, by contrast, performs the same service but 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.
An investor who believes that market prices will rise.
A trend distinguished by a prolonged period of rising prices; the opposite of bear market
The central bank of Germany
Trader jargon referring to the Sterling/US Dollar exchange rate. The term originated in the mid 1800â??s, when the rate was transmitted via a transatlantic cable.
A chart that indicates the trading ranges for the day as well as the opening and closing price. If the close price is lower than the open price, the rectangle is shaded or filled. If the open price is higher than the close price, the rectangle is not filled.
Markets intended for medium- to long-term investment, such as US government bonds and Eurobonds
A government or organization that manages a country's monetary policy. For example, the US central bank is the Federal Reserve, while others include the ECB, BOE and BOJ.
An individual who interprets historical data to find trends, predict future movements and aid in technical analysis.
The process of settling a trade.
To eliminate an investment from one's portfolio by either buying back a short position or selling a long position.
The fee a broker charges for a transaction.
A document exchanged by participants in a transaction that confirms the terms of said transaction.
The tendency of an economic crisis to spread from one market to another. For example, in 1997, financial instability caused high volatility in Thailand's domestic currency. This triggered a contagion that affected other emerging East Asian currencies and spread as far as Latin America. This event is now referred to as the "Asian Contagion."
The standard unit of trading on certain exchanges.
A currency which can be exchanged freely for other currencies at market rates, or gold.
The cost associated with borrowing money in order to maintain a position. It is based on the interest parity, which determines the forward price.
The opposite party in a given transaction; e.g., the buyer as opposed to the seller or vice versa.
The risk run by a currency trader that a given country's government may intervene in the market (does not include central bank intervention). This may occur during extreme political situations such as war or civil unrest.
A check performed to be sure both parties have the credit to cover the trade they wish to transact.
An arrangement that maximizes free credit and speeds the dealing process by reducing the need to constantly re-check credit. Large banks and trading institutions may have agreements to net outstanding deals.
An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a non-standard rate; whereas in the UK or Switzerland, GBP/CHF would be one of the primary currency pairs traded.
A countryâ??s official unit of exchange, issued by its government or central bank, whose value is the basis for trade.
The risk of incurring loss due to an adverse change in exchange rates.
The opening and closing of a position within the same trading session.
One who acts as a principal or counterpart to a transaction; places the order to buy or sell.
A negative balance of trade or payments.
The process by which both sides transfer possession of the currencies traded.
The borrowing and lending of cash. The rate at which money is borrowed/lent is known as the deposit rate (or depo rate). Certificates of Deposit (CD'S) are also tradable instruments.
A decline in the value of a currency due to market forces.
A contract between two or more parties that establishes the value of underlying assets. Examples of derivative instruments include Options, Interest Rate Swaps, Forward Rate Agreements, Caps, Floors and Swap options.
The deliberate downward adjustment of a currencyâ??s value versus the value of another currency.
Risk to which a companyâ??s cash flow can by exposed due to foreign exchange fluctuations.
A statistic that measures economic growth and stability; e.g., Gross Domestic Product (GDP), employment rates, trade deficits, industrial production and business inventories.
A market in which the current price reflects all available information from past prices and volumes.
The process of valuing a trader's book at the end of each market day, using the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start the next day with a net position.
Projected yearly earnings.
The currency of the European Monetary Union (EMU), which replaced the European Currency Unit (ECU).
The Central Bank for the European Monetary Union.
See Currency Risk.
The regulatory agency responsible for administering bank depository insurance in the US.
The Central Bank of the United States.
An official exchange rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.
An interest rate that remains constant for the term of the deal, as in bonds or fixed-rate mortgages.
The state of being neither short nor long. A â??flat bookâ? would contain no positions, or positions that cancel one another out.
An interest rate that fluctuates with market or benchmark rates, as in a standard mortgage.
The simultaneous buying of one currency type and selling of another in an over-the-counter market.
See Currency Risk.
The global currency exchange market
An abbreviation for "Foreign Currency Exchange." Common misspellings include FORX, 4X and FourX
The global currency exchange market
An abbreviation for "Foreign Currency Exchange." Common misspellings include FORX, 4X and FourX
A person or company who buys and sells currency to make a profit.
A deal that will commence at an agreed-upon date in the future. Unlike in the futures market, forward trading can be customized according to the needs of the two parties and involves more flexibility. Also, there is no centralized exchange.
The pips added to or subtracted from the current exchange rate to calculate a forward price.
Sales and corporate finance personnel at a financial institution.
A method of trading financial instruments, currencies or commodities for a specific price at a specific date in the future. Unlike options, futures entail the obligation (not the option) to buy or sell instruments at a later date. They can be used to both protect and speculate against the future value of the underlying product.
An acronym for "Good Til Cancelled," which is an order left with a dealer to buy or sell at a fixed price. The GTC will remain in place until executed or cancelled.
An investment position or combination of positions that reduces the volatility of oneâ??s portfolio value.
The highest traded price and the lowest traded price for a given period.
An increase in the price of consumer goods that erodes purchasing power.
The required initial deposit to enter into a trade position.
The Foreign Exchange rates at which large international banks quote other large international banks.
An exchange of two debt obligations that have different payment streams. The transaction usually exchanges two parallel loans; one fixed the other floating.
An acronym for "International Swaps and Derivatives Association," which is the body that sets terms and conditions for derivative trades.
Economic variables that are considered to predict future economic activity; e.g., unemployment, Consumer Price Index, Producer Price Index, retail sales, personal income, Prime Rate, Discount Rate and Federal Funds Rate.
An acronym for "London Interbank Offer Rate," which is the interest rate that the largest international banks will lend to each other.
An acronym for the "London International Financial Futures Exchange," which consists of the three largest UK futures markets.
An order to buy at or below a specified price, or to sell at or above a specified price.
Investors' ability to buy and sell at ease with minimal impact on price stability. A market is described as "liquid" if the spread between the bid and the offer is small. Another measure of liquidity is the volume of buyers and sellers, with more players creating tighter spreads.
Assets that can be easily converted into cash. Examples: money market fund shares, US Treasury Bills, bank deposits, etc.
To close an open position by executing an offsetting transaction.
A position characterized by purchasing more of an instrument than is sold in hopes that the value will appreciate.
Funds deposited as collateral to cover any potential losses from adverse movements in prices.
A request by a broker or dealer for additional funds or other collateral in order to guarantee performance on a position that has moved against the trader.
See end of the day.
A dealer who supplies prices and is prepared to buy or sell at those prices. A market maker runs a trading book.
An order to buy/sell at the best price available when the order reaches the market.
Risk relating to the market in general that cannot be extinguished by hedging or holding a variety of securities.
The date a debt becomes due for payment.
Jargon used in buying and selling. A prospective buyer might say or type, "Mine." The seller might then reply, "Yours" to confirm the sale.
Short-term investment opportunities (e.g. under one year.) Participants include banks and other financial institutions. Examples include Deposits, Certificates of Deposit, Repurchase Agreements, Overnight Index Swaps and Commercial Paper.
Amount of assets that exceed liabilities. For an individual, this refers to the total value of all possessions such as houses, stocks, bonds and other securities; minus all outstanding debts, such as mortgage and loans. May also be known as "stockholders' equit" or "net assets."
The price at which a seller is prepared to sell.
A trade that serves to offset the market risk of an open position.
A contingent order in which the execution of one part of the order automatically cancels the other part
An order to buy or sell when the market moves to a pre-designated price.
A deal, not yet reversed or settled, in which the investor is subject to exchange rate movements.
An agreement that allows the holder to have the option to buy/sell a specific security at a set price within a set time period. Two examples of options are "call" and "put." A call is the right to buy, while a put is the right to sell.
An instruction from a client to a broker to trade. An order can be placed at a specific price or at the market price. It can be good until filled or until close of business.
Any transaction that is not conducted over an exchange.
A trade that remains open until the next business day.
A form of price stabilization that fixes one countryâ??s exchange rate to that of another.
The smallest incremental move an exchange rate can make. Depending on context, this is normally one basis point (0.0001 in the case of EUR/USD, GBD/USD and USD/CHF; and .01 in the case of USD/JPY).
Changes in a country's governmental policy that may have an adverse effect on an investorâ??s position.
A trading viewpoint expressed by buying or selling. Can also refer to the amount of a currency either owned or owed by an investor.
The number of points added to the spot price to determine a forward or futures price.
Condition in which every market participant has equal access to the description of quotes.
Summation that shows the highest bid and/or lowest ask price available on a security at any given time.
The price of one currency in terms of another.
Involves the sale of an instrument to be re-purchased at a specified time and date. Occurs in the short-term money market.
Profit or loss that occurs when shares are sold.
A term used in technical analysis indicating a specific price level above which a currency is unable to cross. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line.
Market rates used when a trader runs an end-of-day to establish profit and loss.
Exposure to uncertain change.
The amount of money that an individual can afford to invest that, if lost, would not affect his/her lifestyle.
To hedge one's risk by employing financial analysis and trading techniques.
The interest rate variation between the two currencies when the settlement of a deal is rolled forward to a different date.
The finalizing of a transaction.
An investment position that results from short selling.
To sell an instrument without actually owning it in hopes that the price will decline so it can be bought back in the future at a profit.
A transaction that occurs immediately. The funds will usually change hands within two days after deal is struck.
The current market price.
The difference between the bid and offer (ask) prices, which is used to measure market liquidity. Narrower spreads usually signify high liquidity.
Another term for the Great British Pound.
An order to buy/sell at an agreed-upon price.
A term used in technical analysis indicating a specific price level below which a currency is unable to cross. Recurring failure for the price to move below that point produces a pattern that can be displayed using an approximate straight line.
The temporary holding of a security that is then exchanged after a fixed period of time. To calculate the swap, find the interest rate differential between the two currencies. The value may be used for speculative purposes to exploit anticipated movement in the interest rates.
An effort to forecast future market activity by analyzing market data such as charts, price trends, and volume.
Minimum price move.
An instrument that shows current and/or recent history of a currency in either graph or table format.
Simultaneous buying and selling of a currency for delivery the following day.
A strategy for trading the forex market
The cost associated with buying or selling of a financial instrument.
The date at which the trade occurs.
The volume traded over a specified period.
Both the bid and offer rates quoted for a Forex transaction.
A new price quote that is higher than the preceding quote for the same currency.
In the U.S., a regulation stating 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 was executed.
The interest rate at which US banks will lend to their prime corporate customers.
The date that both parties of a transaction agree to exchange payments.
An additional margin requirement that a broker will need from a client due to market fluctuation.
A statistical measure of a market or a security's price movements over time, calculated by using standard deviation. Associated with high volatility is a high degree of risk.
The value of securities traded during a specific period.
A form of traded options; rights to purchase shares or bonds issued by a company at a specific price within a specific time span.
A condition in a highly volatile market characterized by a sharp price movement quickly followed by a sharp reversal.
Another term for a billion.
