FOREX GLOSSARY

Aggressor: A trader dealing on an existing price in the market.


Ask: The price at which a currency pair or security is offered for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'offer', 'ask price', and 'ask rate'.


Base Currency: In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency. 


Bear Market: An extended period of general price decline in an individual security, an asset, or a market. 


Bid: The price at which an investor can place an order to buy a currency pair; the quoted price where an investor can sell a currency pair. This is also known as the 'bid price' and 'bid rate'. 


Bid/Ask Spread: The point difference between the bid and offer (ask) price. 


Broker: An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries. 


Bull Market: A market which is on a consistent upward trend. 


Buy Limit Order: An order to execute a transaction at a specified price (the limit) or lower. 


Cable: The British pound/US Dollar exchange rate GBP/USD. 
Candlestick Chart: A chart that displays the daily trading price range (open, high, low and close). A form of Japanese charting that has become popular in the West. A narrow line (shadow) shows the day's price range. A wider body marks the area between the open and the close. If the close is above the open, the body is white (not filled); if the close is below the open, the body is black (filled). 


Carry (Interest-Rate Carry): The income or cost associated with keeping a foreign exchange position overnight. This is derived when the currency pairs in the position have different interest rates for the same period of time. 


Chartist: A person who attempts to predict prices by analyzing past price movements as recorded on a chart. 


Closing a Position: The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of the position. 


Commission: The fee that a broker may charge clients for dealing on their behalf. 


Confirmation: Written acknowledgment of a trade, listing important details such as the date, the size of the transaction, the price, the commission, and the amount of money involved. 


Cross-Rate: The exchange rate between 2 currencies where neither of the currencies are USD. 


Currency: Money issued by a government. Coins and paper money. It is a form of money used as a unit of exchange within a country. 


Currency Pair: The two currencies in a foreign exchange transaction. The “EUR/USD” is an example of a currency pair. 


Day Trading: Refers to a style or type of trading where trade positions are opened and closed during the same day. 


Dealer: An individual or firm that buys and sells assets from their portfolio, acting as a principal or counterpart to a transaction. 
Desk: Term referring to a group dealing with a specific currency or currencies.


Execution: The Process of completing an order or deal.


Federal Reserve (Fed): The Central Bank of the United States. 


Fill: The process of completing a customer's order to buy or sell a currency pair. 


Fill Price: The price at which a buy or sell order was executed.

 
Financial Risk: The risk that a firm will be unable to meet its financial obligations. 


Flat: Term describing a trading book with no market exposure. 
Foreign Exchange: The purchase or sale of a currency against sale or purchase of another. 


Forex: Term commonly used when referring to the foreign exchange market. 


Forward: A transaction that settles at a future date. 


Fundamental Analysis: Analysis of economic and political information with the objective of determining future movements in a financial market. 


FX: Foreign Exchange.


Hedge: A transaction that reduces the risk on an existing investment position.


Limit Order: An order to execute a transaction at a specified price (the limit) or better. A limit order to buy would be at the limit or lower, and a limit order to sell would be at the limit or higher. 


Liquidity: Refers to the relationship between transaction size and price movements. For example, a market is "liquid" if large transactions can occur with only minimal price changes. 


Liquidation: The closing of an existing position through the execution of an offsetting transaction. 


Long Position: In foreign exchange, when a currency pair is bought, it is understood that the primary currency in the pair is 'long', and the secondary currency is 'short'. 


Margin: The amount of money needed to maintain a position. 


Margin Account: An account that allows leverage buying on credit and borrowing on currencies already in the account. Buying on credit and borrowing are subject to standards established by the firm carrying the account. Interest is charged on any borrowed funds and only for the period of time that the loan is outstanding. 
Margin Call: A call for additional funds in a margin account either because the value of equity in the account has fallen below a required minimum (also termed a maintenance call) or because additional currencies have been purchased (or sold short). 


Market Close: This refers to the time of day that a market closes. In the 24 hour-a-day foreign exchange market, there is no official market close. 5:00 PM EST is often referred to and understood as the market close because value dates for spot transactions change to the next new value date at that time. 


Market-Maker: A person or firm that provides liquidity making two-sided prices (bids and offers) in the market. 


Market Order: A customer order for immediate execution at the best price available when the order reaches the marketplace. 


Market Rate: The current quote of a currency pair. 


OCO-One Cancels the Other Order: A combination of two orders in which the execution of either one automatically cancels the other. 
Open Order: Buy or sell order that remains in force until executed or cancelled by the customer. 


Open Position: Any position (long or short) that is subject to market fluctuations and has not been closed out by a corresponding opposite transaction. 


Order: A customer's instructions to buy or sell currencies. 
Overnight Position: Trader's long or short position in a currency at the end of a trading day. 


Pip: The smallest increment of change in a foreign currency price, either up or down. 


Price: The price at which the underlying currency can be bought or sold.


Quote: A simultaneous bid and offer in a currency pair.


Rate: Price at which a currency can be purchased or sold against another currency. 


Resistance: Price level at which technical analysts note persistent selling of a currency. 


Risk (Foreign Exchange Risk): The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced. 


Risk Management: The employment of financial analysis and use of trading techniques to reduce and/or control exposure to financial risk. 


Roll-Over: The process of extending the settlement value date on an open position forward to the next valid value date.


Sell Limit Order: An order to execute a transaction only at a specified price (the limit) or higher. 


Selling Short: A situation where a currency has been sold with the intent of buying back the position at a lower price to make a profit.

 
Short: See short position. 


Short position: In foreign exchange, when a currency pair is sold, the position is said to be short. It is understood that the primary currency in the pair is 'short', and the secondary currency is 'long'. 


Slippage: It's the experience of not getting filled at (or even very close to…) your expected price when you place a market order or stop loss. This can happen because either: market price is simply moving too fast, the market is not liquid or you're talking to an unmotivated broker. 


Spot Market: Market where people buy and sell actual financial instruments (currencies) for two-day delivery. 
Spot/Next or S/N roll: The process of moving the spot settlement value date on an open position forward to the next valid value date. This process will affect the profit or loss on the overnight position. The forward points reflect the difference in interest rates between the currencies being rolled over. 


Spot Price: The current market price of a currency that normally settles in 2 business days (1 day for Dollar/Canada). 


Spread: This point or pip difference between the bid and ask price of a currency pair. 


Stop (loss) Order: Order to buy or sell when a given price is reached or passed to liquidate part or all of an existing position. 


Stop Order (or stop): An order to buy or to sell a currency when the currency's price reaches or passes a specified level. 


Support Levels: A price at which a currency or the currency market will receive considerable buying pressure. 


Swap: A transaction which moves the maturity date of an open position to a future date.


Take Profit Order: A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on said position.

 
Technical Analysis: An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc. 


Tick: The smallest possible change in a price, either up or down. 
Volatility (VOL): Statistical measure of the change in price of a financial currency pair over a given time period.