Forex Glossary
Equity – the secure part of the client account, considering the open positions, bound with the balance and floating rate (profit/loss) by the following formula: Balance + Floating rate + Swap, i.e. the funds on the client account less the current amount for the open positions, plus the current earnings for the open positions.
Free margin – the funds, which are not used for the security of the opened positions. It is calculated by the formula: Free Margin = Equity – Margin.
Margin – The required equity that an investor must deposit to collateralize a position equal to 1% (when leverage = 1:100) of an open position deposit.
Margin level – determines the condition of an account. Calculated according to the formula: (Equity / Margin) * 100%.
Base currency – currency unit in which an account, balances, commission fees and payments are designated and calculated.
Balance – the total financial result of all fully executed transactions and deposits/withdrawals to/from an account.
Broker – the firm that provides crediting services and trader support.
Bulls – traders that count on currency rate escalation.
Bull market – market that tends toward escalating rates.
Currency pair – The two currencies that make up a foreign exchange rate. For Example, EUR/USD.
Rising trend – every time the highest value of a curve appears, compared to previous rate values. The lowest curve points are connected by a straight line – trend line.
Intraday trade – trade oriented at gaining profit within one day.
Dealing – non-cash currency trading.
Dealing centre – company that provides access to the money market.
Account history – list of complete transactions and non-trading operations for a trading account.
Client – physical or legal party executing operations with the company.
Client terminal – MetaTrader 4.xx software product lets the client get information about financial market trades in real time terms (quantity defined by the company), perform technical analysis of markets, operate, set/change/cancel orders and receive messages from the dealer and the company as well.
Trend lines – These are straight lines, with a positive slope, drawn on a graph through low points when tendencies are rising, and with a negative slope, drawn through the high points when tendencies are on the decline. These lines define the current trends. Trend line gaps usually signal tendency changes.
Client log file – file, created by the client terminal, which records all requests and orders sent from the client to a dealer with 1 second accuracy.
Server log file – file, created by the server, which records all requests and orders received from the client to a dealer, as well as the processing result, with 1 second accuracy.
Margin trading – using borrowed money to buy securities, with the expectation of increasing profits. Margin trading can bring big returns, but is also risky.
Market-makers – major banks and financial firms that pledge to provide liquidity by accepting the other side of a trade in a currency, security or futures contract.
Initial margin - The initial deposit of collateral required to enter into a position as a guarantee on future performance.
Non-trading operation – depositing or withdrawing funds from a trading account, or extending credit.
Normal market conditions – condition of a market that meets the following requirements:
- absence of noticeable breaks in relation to the trading platform quotes;
- absence of rushing price dynamics;
- absence of essential price gaps.
Trade operation volume – number of lots multiplied by lot size.
Open position – the first part of a complete transaction result; at the opening position, the client accepts the following obligations:
- to close reverse trading of equal amount;
- to maintain equity no lower than 10% of the necessary margin.
Market opening – trade re-opening after a weekend, holidays or after a rest interval during trading sessions.
Pending order – the client instructs the dealer to buy or sell once the price reaches the order level.
Complete closed transaction – consists of two opposite and equal trading operations (opening and closing positions): buying followed by selling or selling followed by buying.
Quote tread – a block of numerical data that describes the meaning of the price at a specific time period.
Pips (points) – The smallest unit of price for any foreign currency, also referred to as points.
Lot Size – number of assets, products, or base currency defined in the contract per one lot.
Developer – “MetaQuotes Software Corp.” is the trading platform developer.
Accounting currency – currency unit in which deposit/withdrawal operations are performed.
Range – the distance between levels of support and levels of resistance.
Swap – money resources reduced or added to a client’s account for passing a position overnight.
Adviser – kind of trading account management algorithm in form of a program based on MetaQuotes Language 4. This program sends requests and orders to a server using the client terminal.
Spike – see “Non-market quoting”.
Contract specifications – main trading terms (such as spread, lot size, minimal trading operation quantity, change in trading operation volume move, initial margin, lock margin etc.) for each instrument.
Spread – The difference in pips between the Bid and the Ask quote.
Account – a special personal account opened with the company by a client. This account is used to offset the obligations of the client and dealer, resulting from the deals concluded under the present agreement.
Ticker – unique identification number given to every opening position or pending order within the trading platform.
Trading operation – When a client buys or sells any instrument.
Trading platform – the set of software and technical resources that support financial market trading information to be received in real time; processes trading operations, takes into account mutual obligations between the client and the dealer, and observes conditions and restrictions as well. For the purposes of the present regulation, it consists of the “Server” and “Client” terminals.
Trading Account – unique personalized stock-taking operations register on the trading platform, where complete closed transactions, opened positions, non-market operations and orders are reflected.
Transaction – trade operations where money resources move from base currency into quoting currency and vice versa.
Trader – person, who trades currency on the Forex market in order to earn profit.
Trend – current general direction of price movement.
Order level – price given in order.
Support level – lowest channel’s borderline.
Resistance level – highest channel’s borderline.
Figure – price change for 100 pips. For example, price change EUR/USD from 1.3770 to 1.3870 – this means figure increase.
Force major circumstances – occurrences which could not be foreseen or prevented. These include: natural disasters; wars; acts of terrorism; government actions, actions of executive and legislative government authority, hacker attacks, and other unlawful acts toward servers.
Hedging – operation that protects an asset or liability against a fluctuation in the foreign exchange rate.
Price prior to non-market quoting – closing price of minute bar, prior to minute bar with non-market quoting. Price Gap – either of the following situations:
- Present quoting Bid is greater than prior quoting Ask;
- Present quoting Ask is less than prior quoting Bid.
Market opening price gap – either of the following situations:
- Market opening quote Bid is greater than market closing quote Ask;
- Market opening quote Ask is less than market closing quoteBid.
Obvious mistake – opening/closing client positions or executing client order at a price that greatly differs from price quoted per instrument in present flow quoting at the moment of processing. Or some other dealer activity or inactivity that deals with mistaken determination of marketprices at the present moment.
A Complete Forex Glossary
A
Accrual - The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (Interest Arbitrage) deals, over the period of each deal.
Adjustment - Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or. Adjustment - Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or.
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 - The price at which the market is prepared to sell a specific 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 example, in the quote USD/CHF 1.4527/32, the ask price is 1.4532; meaning you can buy one US dollar for 1.4532 Swiss francs.
At Best - An instruction given to a dealer to buy or sell at the best rate that can be obtained.
At or Better - An order to deal at a specific rate or better.
B
Balance of Trade - The value of a country’s exports minus its imports.
Bar Chart - A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the
bar.
Base Currency - The first currency in a Currency Pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.6215 then one USD is worth CHF 1.6215 in the FX markets, the US Dollar is normally considered the ‘base’ currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.
Bear Market - A market distinguished by declining prices.
Bid Price - The bid is the price at which the market is prepared to buy a specific Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can sell the base currency. It is shown on the left side of the quotation. For example, in the quote USD/CHF 1.4527/32, the bid price is 1.4527; meaning you can sell one US dollar for 1.4527 Swiss francs.
Bid/Ask Spread - The difference between the bid and offer price.
Big Figure Quote - Dealer expression referring to the first few digits of an exchange rate. These digits are often omitted in dealer quotes... For example, a USD/JPY rate might be 117.30/117.35, but would be quoted verbally without the first three digits i.e. «30/35».
Book - In a professional trading environment, a ‘book’ is the summary of a trader’s or desks total positions.
Broker - An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a ‘dealer’ 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.
Bretton Woods Agreement of 1944 - An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when 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.
Bundesbank - Germany’s Central Bank.
C
Cable - Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800’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.
Cash Market - The market in the actual financial instrument on which a futures or options contract is based.
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.
Chartist - An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.
Cleared Funds - Funds that are freely available, sent in to settle a trade.
Closed Position - Exposures in Foreign Currencies that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will ‘square’ the position.
Clearing - The process of settling a trade.
Contagion - The tendency of an economic crisis to spread from one market to another. In 1997, political instability in Indonesia caused high volatility in their domestic currency, the Rupiah. From there, the contagion spread to other Asian emerging currencies, and then to Latin America, and is now referred to as the ‘Asian Contagion’.
Collateral - Something given to secure a loan or as a guarantee of performance.
Commission - A transaction fee charged by a broker.
Confirmation - A document exchanged by counterparts to a transaction that states the terms of said transaction.
Contract - The standard unit of trading.
Counters Currency - The second listed Currency in a Currency Pair.
Counterparty - One of the participants in a financial transaction.
Country Risk - Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
Cross Currency Pairs or Cross Rate - A foreign exchange transaction in which one foreign currency is traded against a second foreign currency. For example; EUR/GBP.
Currency symbols :
- AUD - Australian Dollar
- CAD - Canadian Dollar
- EUR - Euro
- JPY - Japanese Yen
- GBP - British Pound
- CHF - Swiss Franc
- USD - American Dollar
Currency - Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
Currency Pair - The two currencies that make up a foreign exchange rate. For Example, EUR/USD
Currency Risk - the probability of an adverse change in exchange rates
D
Day Trader - Speculators who take positions in currency which are then liquidated prior to the close of the same trading day.
Dealer - An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Deficit - A negative balance of trade or payments.
Delivery - An FX trade where both sides 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 deliberate downward adjustment of a currency’s price, normally by official announcement.
E
Economic Indicator - A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.
End Of Day Order (EOD) - An order to buy or sell at a specified price. This order remains open until the end of the trading day which is typically 5PM ET.
European Monetary Union (EMU) - The principal goal of the EMU is to stablish a single European currency called the Euro, which will officially replace the national currencies of the member EU countries in 2002. On Janaury1, 1999 the transitional phase to introduce the Euro began. The Euro now exists as a banking currency and paper financial transactions and foreign exchange are made in Euros. This transition period will last for three years, at which time Euro notes a coins will enter circulation. On July 1, 2002, only Euros will be legal tender for EMU participants, the national currencies of the member countries will cease to exist. The current members of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Greece, Spain and Portugal.
EURO - the currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).
European Central Bank (ECB) - the Central Bank for the new European Monetary Union.
F
Federal Deposit Insurance Corporation (FDIC) - The regulatory agency responsible for administering bank depository insurance in the US.
Federal Reserve (Fed) - The Central Bank for the United States.
First In First Out (FIFO) - Open positions are closed according to the FIFO accounting rule. All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.
Flat/square - Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.
Foreign Exchange - (Forex, FX) - The simultaneous buying of one currency and selling of another.
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.
Fundamental Analysis - Analysis of economic and political information with the objective of determining future movements in a financial market.
Futures Contract - An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contacts - ETC), versus forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.
FX - Foreign Exchange
G
G7 - The seven leading industrial countries, being: US, Germany, 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.
Gross Domestic Product - Total value of a country’s output, income or expenditure produced within the country’s physical borders.
Gross National Product - Gross domestic product plus income earned from investment or work abroad.
Good ‘Til Cancelled Order (GTC) - An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.
H & I
H
Hedge - A position or combination of positions that reduces the risk of your primary position.
«Hit the bid» - Acceptance of purchasing at the offer or selling at the bid.
I
Inflation - An economic condition whereby prices for consumer goods rise, eroding purchasing power.
Initial Margin - The initial deposit of collateral required to enter into a position as a guarantee on future performance.
Interbank Rates - The Foreign Exchange rates at which large international banks quote other large international banks.
Intervention - Action by a central bank to affect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.
K & L
K
Kiwi - Slang for the New Zealand dollar.
L
Leading Indicators - Statistics that are considered to predict future economic activity.
Leverage - Also called margin. The ratio of the amount used in a transaction to the required security deposit.
LIBOR - The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.
Limit order - An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 117.00/05, then a limit order to buy USD would be at a price below 102. (i.e. 116.50)
Liquidation - The closing of an existing position through the execution of an offsetting transaction.
Liquidity - The ability of a market to accept large transaction with minimal to no impact on price stability.
Long position - A position that appreciates in value if market prices increase. When the base currency in the pair is bought, the position is said to be long.
Lot - A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.
M & N
M
Margin - The required equity that an investor must deposit to collateralize a position.
Margin Call - A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer.
Market Maker - A dealer who regularly quotes both bid and asks prices and is ready to make a two-sided market for any financial instrument.
Market Risk - Exposure to changes in market prices.
Mark-to-Market - Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements.
Maturity - The date for settlement or expiry of a financial instrument.
N
Net Position - The amount of currency bought or sold which have not yet been offset by opposite transactions.
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 designation for two orders whereby one part of the two orders is executed the other 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 - An active trade with corresponding unrealized P&L, which 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 - A trade that remains open until the next business day.
Order - An instruction to execute a trade at a specified rate.
P
Pips - The smallest unit of price for any foreign currency. Digits added to or subtracted from the fourth decimal place, i.e. 0.0001. Also called Points.
Political Risk - Exposure to changes in governmental policy which will have an adverse effect on an investor’s position.
Position - The netted total holdings of a given currency.
Premium - In the currency markets, describes the amount by which the forward or futures price exceed the spot price.
Price Transparency - Describes quotes to which every market participant has equal access.
Profit /Loss or «P/L» or Gain/Loss - The actual «realized» gain or loss resulting from trading activities on Closed Positions, plus the theoretical «unrealized» gain or loss on Open Positions that have been Mark-to-Market.
Q & R
Q
Quote - An indicative market price, normally used for information purposes only.
R
Rally - A recovery in price after a period of decline.
Range - The difference between the highest and lowest price of a future recorded during a given trading session.
Rate - The price of one currency in terms of another, typically used for dealing purposes.
Resistance - A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
Revaluation - An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation.
Risk - Exposure to uncertain change, most often used with a negative connotation of adverse change.
Risk Management - The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.
Roll-Over - Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies.
Round trip - Buying and selling of a specified amount of currency
S
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 Position - An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.
Spot Price - The current market price. Settlement of spot transactions usually occurs within two business days.
Spread - The difference between the bid and offer prices.
Square - Purchase and sales are in balance and thus the dealer has no open position.
Sterling - Slang for British Pound.
Stop Loss Order - Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor’s position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49?
Support Levels - A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.
Swap - A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.
Swissy - Market slang for Swiss Franc.
T & U
T
Technical Analysis - An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.
Tick - A minimum change in price, up or down.
Tomorrow Next (Tom/Next) - Simultaneous buying and selling of a currency for delivery the following 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.
U
Unrealized Gain/Loss - The theoretical gain or loss on Open Positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains’ Losses become Profits/Losses when position is closed.
Uptick - A new price quote at a price higher than the preceding quote.
Uptick Rule - In the US, a regulation whereby a security may not be sold short unless the last 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.
V & W & Y
V
Value Date - The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known 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.
W
Whipsaw - Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Y
Yard - Slang for a billion.
