Forex market jargon
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CompassFX Glossary A Adjustment Normally an official action by either change in economic policies or correction to an imbalance or currency rate. Appreciation A currency is said to appreciate when it strengthens in price in response to market demand. Arbitrage The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets. Ask Offer Price Ask is the market selling price, the price at which the market is prepared to sell a specified Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation, for instance 1. Asset An item having commercial or exchange value. At or Better An order to deal at a specific rate or better. Back to Top B Back Office The departments and processes related to the jargon of financial transactions. Balance of Trade The value of a country's exports minus its imports. Bar Chart A type of chart consisting of vertical bars which have four significant points: Base Currency The first currency in a Currency Pair. A currency against which the exchange rate is applied. Usually, it stands first in the codes of currency rates. It shows how much the base currency is worth as measured against the second currency. Bear Market A market distinguished by declining prices. Bid or Bid Price Bid is the market buying price, the price at which the market is prepared to buy a specified Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can sell foreign exchange. It is shown in the left side of the quotation, for example: Big Figure Dealer expression 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. Broker An individual or firm that acts as an intermediary between buyers and sellers for a fee or commission. The agreement lasted untilwhen President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies. Bull Market A market distinguished by rising prices in an upward trend. Bundesbank Germany's Central Bank. Buy Limit order An order to execute a trade at a specific limit price or lower. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 's. Candlestick Chart A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded. Carry A credit or debit associated with maintaining a foreign exchange position overnight derived from the difference in interest rates for each currency. Cash Market The market in the actual financial instrument on which a futures or options contract is based. Cash Settled The closing out of currency contracts with the exchange of cash based upon the difference in the value of when the position was opened and the value of when it is closed, rather than the delivery of currency. Central Bank A government or quasi-governmental organization that manages a country's monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank. Cleared Funds Funds that are freely available, sent in to settle a trade. Clearing The process of settling a trade. Closed Position Exposures in Foreign Currencies that no longer exist. The process of closing a position is the selling or buying a certain amount of currency to offset an equal amount of open positions. This will "square" the open position. Commission A fee charged by an instution to transact a trade on behalf of a customer. Confirmation A notification sent by a dealer to the customer describing the terms of a trade. Contract The standard unit of trading. Also referred to as a Lot. Counter or Cross Currency The second listed currency in a currency pair. Counterparty An opposing participant in a financial transaction. Cross Currency Pairs A foreign exchange transaction in which one foreign currency is traded against a second foreign currency. Cross Rate An exchange rate between two non-US currencies. Currency Risk The probability of an adverse change in exchange rates. Back to Top D DAY order An order that will expire automically at the end of the trading day for which it is entered. DAY TRade A trade opened and closed on the same trading day. Dealer An individual or firm who acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a profit by closing out the position in a subsequent trade with another party. Deficit A negative balance of trade or payments. Delivery A Forex trade where both parties make and take actual delivery of the currencies traded. Depreciation A fall in the value of a currency due to market forces. Derivative A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument. Devaluation The downward adjustment of a currency's price. Dollar Value The amount of lawful currency of the United States which at any moment in time would be generated by the conversion of the relevant Foreign Currency into U. Dollars at the broker then prevailing exchange rates for buying or selling such Foreign Currency. Back to Top E ECB eUROPEAN CENTRAL bANK The Central Bank for the European Monetary Union. Equity The amount currently held in a customer's account calculated as if all the opened positions will be closed at the current market quotes. The account is comprised of Unrealized gains, less Unrealized Losses and plus or minus storage. Euro The currency of the European Monetary Union EMU. Euro Zone The group of fifteen countries that have combined their currencies into a single currency Euro. They still have separate sovereignties, but also have a combined central bank ECB which handles economic policy issues for them as one group. EuroPean Central Bank ECB The Central Bank for the European Monetary Union EMU. Execution The process of completing an order or transaction. Back to Top F Federal Reserve Fed The Central Bank for the United States. Fill Price The price at which a buy or sell order was executed. Filled Trade A trade that is fully executed on behalf of a Customer's Account pursuant to an Order. Once filled, an Order cannot be cancelled, amended or waived by Customer. Floating profit loss Unrealized profit loss in an open position. Flat Trade jargon which describes a position that has been completely reversed thereby creating a neutral or "flat" position. Free margin Available funds in the client's account not currently being used to support existing trading positions, which can be used to open new positions. Foreign Currency The legal tender issued by and acceptable for the payment of obligations under the laws of one or more countries, other than the United States of America. Foreign Exchange Contract A Spot Contract for the purchase or sale of a Foreign Currency. Foreign Exchange Rate the price relationships between two currencies that are freely determined by the forces of supply market demand. Foreign Exchange Forex Trading Buying and selling foreign currencies. Forward The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved. Forward Points The pips added to or subtracted from the current exchange rate to calculate a forward price. Forward Price Rate The resulting net price from subtracting the forward points from the existing spot rate. This rate is the rate for which a currency can be purchased or sold for future delivery. Market Analysis Analysis of economic and political information with the objective of determining future movements in a financial market. Back to Top G G7 The seven leading industrial countries, being USGermany, Japan, France, UK, Canada, Italy. Going Long The purchase of a stock, commodity, or currency for investment or speculation. Going Short The selling of a currency or instrument not owned by the seller. Good Till Cancelled Order GTC A trade Order placed for a specific amount of time to buy or sell a foreign currency. Gross Domestic Product GDP Total value of a country's output, income or expenditure produced within the country's physical borders. Gross National Product GNP Gross domestic product plus income earned from investment or work abroad. Back to Top H Hedge A position or combination of positions to reduce the risk of adverse price movements of a primary position. Back to Top I Initial Margin Requirement Opening Margin Requirement The minimum Margin required to establish a new Open Position. Interbank Rates The Foreign Exchange rates at which large international banks quote other large international banks. Intervention Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates. Back to Top K Kiwi Trade jargon for the New Zealand dollar. Back to Top L Leading Indicators Statistical information used predict future economic activity. Leverage The ratio of the amount used in a transaction to the required security deposit margin. Limit Order An order to buy or sell Foreign Currency, or pairs of Currencies, at a specified price or exchange rate. A Limit Order to buy generally will be executed when the ask price equals or falls below the price or exchange rate specified in the Limit Order. A Limit Order to sell generally will be executed when the bid price equals or exceeds the price or exchange rate specified in the Limit Order. Customers should note, however, that market conditions may often prevent forex of an individual Customer's Limit Order despite other dealing activity at that price level. Liquidating Order An Order to close out one or more Open Positions. Liquidity The ability of a market to accept large transaction with minimal to no impact on price stability. Long Position In foreign exchange trading, when the base currency in the pair is bought, the position is said to be long in that currency. It is understood that when the base currency in the pair is 'long', the second currency will be 'short'. Loss Loss incurred as a result of a transaction. Lot A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots. Also referred to as a Contract. Margin The amount of cash or other eligible collateral that the broker requires a Customer to deposit or maintain in the customer's account in connection with the customer's trading activity. Margin Call A demand for the deposit of additional margin. Mark-To-market The assumed valueof an open position at the current market price. Since the Forex is a hour market, there is no official market close. Market Order An order to buy or sell the identified currency, or pairs of currencies, at the current market price. An order to buy is executed at the ask price; and order to sell is executed at the bid price. Market risk The risk associated with market pressure on the value of a position. Market Value The Dollar Value, determined by the current foreign exchange rates that the Customer would receive if the position were liquidated for immediate delivery in the relevant market. Maturity The date for settlement or expiry of a financial instrument. Momentum The preceived strength of price movement in an upward or downward trend. Back to Top N Net Position The amount of currency bought or sold that is not offset by opposite transaction. Back to Top O Offer ask The rate at which a dealer is willing to sell a currency. See Ask offer price Offsetting transaction A trade with which serves to cancel or offset some or all of the market risk of an open position. One Cancels the Other Order OCO A type of trade using two orders whereby when order is executed the other order is automatically cancelled. Open order An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders. Open position Any deal that has not been offset by an equal and opposite deal. Over the Counter OTC Used to describe any transaction that is not conducted over an exchange. Overnight Position Trader's open long or short position that is not closed by the end of a trading day. Opening Transaction An order that, when executed, establishes a Long Position or Short Position, or increases an existing position. Order Generally, an instruction by a Customer or Customer's authorized agent to the broker to attempt to execute a trade for Customer's Account. Back to Top P Pip The smallest unit of price for any Foreign Currency e. PIP is an abbreviation for Price Interest Point. Posted Margin That part of the Margin Balance that is posted to the broker in support of the Customer's Open Position and Unrealized Losses. Pound Trade jargon for the Great British Pound. Premium In the currency markets, describes the amount by which the forward forex futures price exceed the spot price. Price The value at which the base currency can be bought or sold. Dollars resulting from trading activities on Closed Positions, plus the theoretical gain or loss on Open Positions that have been Marked to Market. Back to Top Q Quote A simultaneous bid and offer in a currency pair. Back to Top R Rally A substantial rise in price after a period of decline. Range The difference between the highest and lowest price recorded during a given trading session. Rate The price of market currency in terms of another, typically used for dealing purposes. Resistance A term used in technical analysis indicating the inability for price to rise higher than a specific level. Revaluation An increase in the exchange rate for a currency as a result of central bank intervention. Risk Exposure to uncertain change, most often used with a negative connotation of adverse change. Rollovers The process of extending an existing market position through one or more Spot Settlements. Round trip Buying and selling of a specified amount of currency. Back to Top S Jargon limit order An order to execute a trade at a specified price limit or higher. Settlement The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another. Short Margin The client's account forex when Equity becomes smaller than the amount required to keep the positions open. Short position Selling a currency in which you have no position in anticipation of it falling in value. At that point you will be able to "cover" your short by buying back the currency at a lower price. If physical delivery of the currency is involved, the short seller will need to borrow the currency in order to make the delivery to the buyer. In foreign exchange, when the base currency in the pair is sold, the position is said to be short in that currency. It is understood that when the base currency in the pair is 'short', the second currency will be 'long'. Spot Contract A Contract where settlement is in two Business Days. Spot Price Rate The rate of exchange between two Foreign Currencies for "Spot" value normally settlement in two Business Daysgenerally quoted either in "U. Terms" price of one unit of Foreign Currency expressed in U. Dollars and Cents or in "European Terms" price of one U. Dollar expressed in units and decimals of the Foreign Currency. Spread The difference between the ask offer and bid price in a market quote. The spread is the reason why a newly opened position's mark to market, or valuation, will likely be negative. If a trader buys a particular currency he will pay the ask offer price, but the current mark to market will be based upon what the marketplace is presently paying for this currency. That price would be found on the bid side of the market quote, 5 pips lower than where she just bought the currency. Sterling Trade jargon for the Great British Pound. Stop-Loss Order An order to buy or sell at a specified Foreign Exchange Rate away from the current market for the purpose of liquidating all or part of an Open Position during market conditions in which the Open Position has declined in value. Execution of such an order can occur at rates below or above the specified Foreign Exchange Rate. Support A term used in technical analysis indicating the inability for price to drop lower than a specific level. Swap A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate. Back to Top T take profit order An order to buy or sell a currency pair thus liquidating part or all of an open position resulting in a profit on that position. Tick The minimum change in price, up or down. Trade Date with respect to any Contract, the date on which the Contract is entered into between the broker and Customer, except in the case of any Contract entered into after the Daily Cut-off following, but before the next relevant Business Day, in which case the Trade Date shall be the next following Business Day. Transaction Cost the cost of buying or selling a financial instrument. Transaction Date The date on which a trade occurs. Turnover The total money value of all executed transactions in a given time period; volume. Two-Way Price When both a bid and offer rate is quoted for a FX transaction. Uptick a new price quote at a price higher than the preceding quote. Jargon Margin The amount in the client's account required to support all the current positions. Back to Top V Value Date The date on which counterparts to a financial transaction agree to settle their respective obligations, i. For spot currency transactions, the value date is normally two business days forward. Also referred to as maturity date. Variation Margin Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements. Volatility Vol A statistical measure of a market's price movements over time. Back to Top W Whipsaw Trade jargon for an occurrence when price moves sharply in one direction then followed by a sharp reversal, usually in highly volatile market. Back to Top Y Yard Trade jargon for a billion. Navigate CompassFX Basics of Forex Trading Economic Indicators Fundamental vs. CompassFX Trade Desk FXCM Trade Desk FXDD Trade Desk Forex.
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