Forex Glossary

A

Aggressor -- Refers to a trader who deals on a current market price.

Appreciation -- The increase in an asset's commercial or exchange values.

Arbitrage -- The act of earning profits from discrepancies in the rates of a currency pair that's being traded on two or more markets.

Ask -- Also referred to as "ask rate," this term refers to the price quoted at which investors may purchase a security or currency pair.

Asset -- Any item or property that has exchange or commercial value.

B

Back Office -- Department or location where financial transactions occur.

Base Currency -- Refers to the currency to which exchange rates are quoted against in a specific country.

Bear Market -- An extended decline in the price of an asset, market, or invidividual security usually a 20% decrease for equity markets.

Bid -- The price that allows investors to order when purchasing a currency pair.

C

Candlestick Chart -- A useful chart that allows participants to view ranges of trading prices.

Carry (Interest-Rate Carry) -- Cost or income a participant has to deal with when holding a foreign exchange position depending on the interest rate differential.

Chartist -- An individual who tries to give out price predictions based on movements recorded through charts and price movement.

Closing Market Rate -- This is the rate in which a market position could be closed. This is in acordance with the ending market price.

Commission -- Refers to the fee a customer has to pay an institution who undertakes a market trade in his behalf.

Currency -- Government-issued money.

Currency Pair -- A set of two currencies involved in a foreign exchange rate.

D

Day Order -- An order that automatically expires when the day on which it was entered ends.

Day Trade -- A market trade opened and closed on a single day.

Dealer-- A dealer could be a firm or a person who purchases and sells assets coming from his or a firm's portfolio as a counterpart or principal to a financial transaction.

Depreciation -- A decrease in a currency's value as an effect of market-based elements.

Devaluation -- A reduction in the external value of a country's currency as initiated by a local government.

E

Execution -- The completion of a deal or an order.

F

Fill -- To fill is to complete an order made by a customer who wishes to purchase or sell a currency pair.

Fill Price -- The price that was used in the execution or completion of an order.

Financial Risk -- The risk faced by a firm when it's not able to meet its financial obligations.

Flat -- Refers to a trading book that has no market exposure.

Forward -- Refers to a financial transaction that is settled at a future date.

Forward Rates -- Prices that are results of the differences between the existing spot rate and forward points. This is also the rate used as a basis when buying or selling currency in the future.

G

Good Till Cancelled Order (GTC) -- An order (buy and/or sell) that is considered open until it is completed or canceled.

H

Hedge -- A useful transaction that lessens the risk on a current investment position via use of forward, futures or other derivatives.

I

Initial Margin -- The required deposit that allows a customer to be allocated with a trading limit.

Initial Margin Requirement -- The minimum required portion an investor must make a cash payment when assuming a position in a new security.

J

Jobber -- Refers to a market trader who participates in short-term deals for short-term earnings during a trading session.

L

Limit Order -- Refers to an order to complete a transaction at a given price limit or any better price.

Liquidity -- The relationship between price movements and transaction size. A market is said to be "liquid" if large transactions can be completed wuth minimal price changes on the underlying asset price.

Long Position -- The position of the primary currency in a currency pair that has been bought.

M

Maintenance -- The required minimum margin in order for a customer to maintain his account.

Margin Call -- Also known as "maintenance call," this refers to the request for more funding because additional currencies have been sold short or an account equity falls below the required minimum.

Mark-to-Market -- An open position's theoretical value based on the current market price.

Market-Maker -- A firm or an individual who creates market liquidity by initiating bids and offers.

Market Order -- An order placed by a customer for immediate completion at the best possible price as the order makes it through the marketplace.

Momentum -- Refers to a currency pair's tendency to continue with its one-sided movement.

O

Open Order -- An order done when buying or selling that is still active until canceled or completed by a customer.

Open Position -- Refers to a position that is affected by fluctuations in the market and is not yet closed out by an opposite financial transaction.
Order -- Refers to instructions given by a customer when buying or selling currencies.

Overnight Position -- Refers to the position of a trader as the trading day ends.

P

Pip -- The smallest measure of change -- whether up or down -- of a currency price (foreign).

Price -- Refers to the price that allows customers to buy or sell the underlying currency.

Price Transparency -- The ability of participants of market trading to actually deal at the same rate or price.

Principal Value -- Refers to the amount originally invested by a client.

Q

Quote -- A two sided offer and bid in a currency pair.

R

Rate -- Refers to the price that allows a currency to be bought or sold against a foreign currency.

Resistance -- This is what technical analysts refer to as the price level in which a currency has difficulty breaking out of.

Revaluation -- The every day calculation of possible losses or profits for open positions in accordance with the difference between the settlement price of the current and previous trading day.

Risk (Foreign Exchange Risk) -- A risk faced by an investor that triggers a reduction in the value of his investment.

S

Selling Short -- Refers to a circumstance in which a position is to be bought back -- after selling a currency -- at a lower price so as to make profits.

Settlement -- This occurs when currencies made on a trade's maturity date are actually delivered.

Short position -- Refers to the position of the primary currency once a currency pair is considered sold.

Short Squeeze -- Short sellers feel the short squeeze or pressure to protect their positions during sharp increases in prices.

Spot Market -- Refers to the place or market wherein participants can sell and purchase financial tools such as currencies for two-day deliveries.

Spot Price -- A currency's existing market price that will usually settle within a couple of business days.

Spread -- Refers to the point of difference between a currency pair's ask price and bid. Also called bid ask spread.

Support Levels -- A price that allows a currency or its market to feel the buying pressure.

Swap -- A swap refers to a financial transaction that allows an open position's maturity date to be moved to another date.

T

Tick -- Refers to the minimum change that can be allowed for a price and it can be either up or down.

T/N Roll -- A term that means tomorrow/ ext rolls; refers to the act of moving a settlement value date to the next possible value date from a business day right after the trade date.

V

Variation Margin -- A margin that is based on everyday calculations, it refers to funds that are needed so as to bring an account's equity back up to its maintenance margin level.

Volatility (VOL) --Refers to a statistical price change of a currency pair within a specific period.