Forex Glossary

Forex Glossary

A

AML ― Anti Money Laundering, a set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions.

Appreciation ― a currency is said to "appreciate" when it's price increases against a specific currency or group of currencies 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.

Around ― jargon used by dealers in quoting when the forward premium/discount is near parity. For example, "two-two around" would translate into 2 points to either side of the present spot price.

Ask ― the higher price in the Quote being the price at which the Customer may buy. The Ask is the lowest current price on the market for buyers.

Asset ― a fiat or crypto currency or any other asset available for trading as a CFD through the Platform.

Asset Allocation ― division of funds among different markets, instruments or investments to diversify risk and/or create exposure to areas considered attractive, consistent with an investor’s objectives.

Available Volume ― a volume of a certain Asset available for exchange. It is calculated as difference between Asset Volume and Locked Volume.

 


B

Back Office ― the departments and processes related to the settlement of financial transactions.

Balance of Trade ― the value of a country’s exports minus its imports.

Base Currency ― the base currency is usually the currency in which an investor or issuer maintains its book of accounts. In the Forex 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 main exceptions to this rule are the Sterling, the Euro and the Australian Dollar.

Bear Market ― a market in which prices decline.

Bid ― the lower price for the financial instrument being the price at which the Customer may sell. The BID is the highest current price on the market for sellers.

Bid/Ask Spread ― the difference between the bid and offer price, and the most widely used measure of liquidity.

Big Figure ― the first few digits of an exchange rate, as referred to by dealers for simplicity. These digits change relatively slowly, and are omitted in dealer quotes, especially in times of high market activity when time is tight. For example, a USD/JPY rate might be 107.30/107.35, but would be quoted verbally without the first three digits i.e. "30/35".

Book ― in a professional trading environment, the "book" is the net positions of a dealing desk.

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

Bretton Woods Agreement of 1944 ― the 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 in which prices rise.

Bundesbank ― Germany’s Central Bank.

Business Day ― any day between Monday and Friday, according to Server time.

 


C

Cable ― trader slang referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800s.

Candlestick Chart ― a chart indicating the trading range for the period 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.

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 ― someone who uses charts and graphs and interprets historical data to find trends to predict future movements. Also referred to as Technical Trader.

Churning ― unethical practice employed by some brokers to increase their commissions by excessively trading in a client's account. It is also referred to as "churn and burn", "twisting" and "overtrading".

Clearing ― the process of settling a trade.

Contagion ― the tendency of an economic situation to spread from one market to another.

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 the parties to a transaction that states the terms of said transaction.

Contract ― the standard unit of trading.

Contract Specifications ― trading terms (Spread, Lot Size, Initial Margin etc.) for each financial Instrument.

Counterparty ― participant in a financial transaction.

Country Risk ― risk associated with an international transaction, including but not limited to legal and political conditions.

Cross Rate ― the exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/JPY quote would be considered a cross rate, whereas in UK or Japan it would be one of the primary currency pairs traded.

Currency ― form of money issued by a government or central bank and used as legal tender and a basis for trade.

Currency Risk ― the likelihood of an adverse change in exchange rates.

CFD ― Contract For Differences, a financial derivative contract that allow traders to take advantage of prices moving on underlying financial instruments stipulating that the one party to the contract will pay to the other the difference between the current value of a financial instrument and its value at contract time.

 


D

Day Trading ― refers to taking positions which are opened and closed on the same trading day.

Dealer ― someone who acts as a principal or counterparty to a transaction, hoping to earn a spread (profit) by closing out the position in a subsequent trade. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

Delivery ― an Forex trade where both sides make and take actual delivery of the currencies traded.

Depreciation ― fall in the value of a currency against another currency or group of currencies.

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 ― deliberate downward adjustment of a currency’s price, normally by official announcement.

Dormant Account ― in general, a low–balance account which has shown no activity (Deposits and/or Withdrawals) over a long period of time, other than posting of the interest and/or service charges.

 


E

Economic Indicator ― a government-issued statistic on the state of an economy, which might affect market prices. 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.

Equity ― in a margin account, it's an accounting equation, which defines the amount currently held in a customer’s account calculated as if all the opened positions will be closed at the current market quotes. It's usually calculated as the account balance plus unrealized gains and minus unrealized losses.

European Monetary Union (EMU) ― EMU created the single European currency called the Euro, which replaced the national currencies of the member EU countries in 2002. The current members of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal.

Euro ― the currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).

Exchang ― the Central Bank for the new European Monetary Union.

Exchange ― a marketplace in which securities, commodities, derivatives, crypto currencies and other financial instruments are traded.

Exchange Fee ― the commission charged by the Company or making exchange transactions available to Customer.

Expert Advisor ― an automated trading system (ATS) this robot written in the Meta Quotes Language (MQL4) and linked to a Chart on the Meta Trader 4 platform.

 


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.

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) ― 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.

Free Margin ― funds on the Trading Account, which may be used to open a position. It is calculated as Equity less Initial Margin.

Freeze Level ― defined by Company the range between the current Quote and the Order Level. When Customer places any Order in this price range, the server would reject such Request.

Freeze Time ― defined by Company the period of time before the event announcement. The Company has the right, at its sole discretion, to define the value of the Freeze Time depending on the situation on the currencies market and on the character of the event.

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.

 


G

Gold Lease Bid Rat (GLBR) ― the rate which bidders are willing to pay for leased gold to the bullion bank.

Gold Lease Offered Rate (GLOR) ― the rate at which bullion banks are willing to lease out gold.

Good Till Cancelled Order (GTC) ― an order to buy or sell at a specified price. This order remains open until filled or until the client cancels.

Gold Forward Offered Rate (GOFO) ― the rates at which contributors are prepared to lend gold on a swap against US dollars. Quotes are made for 1-, 2-, 3-, 6- and 12-month periods.

Gross account ― the type of account where all positions, including the opposite ones, under the same Instrument are separate positions and have separate records. Gross accounts are available on MT4 (ECN, STP, CRYPTO), MT5 (ECN) and Tick Trader (ECN).

 


H

Hedge ― a position or combination of positions that reduces the risk of your primary position.

Hedged Margin ― a special low-margin for hedgers. The hedge margin is lower because of offsetting positions. The details for each Instrument are in the Contract Specifications.

Hedged Positions ― Long and Short Positions of the same Transaction Size opened on the Trading Account for the same Instrument.

 


I

If–Done Order ― An "If Done" Order is placed in conjunction with a Stop or Limit order. After the initial Stop or Limit order has been executed, the If–Done order becomes active.

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.

Instant Execution ― an Order that is executed at the price that appears on the screen at the time that the Customer sends the Instruction for trading through MetaTrader4.

Instrument ― a derivative financial instrument having including without limitations the following base active currency pair, crypto currency, security, index, precious metal in relation to which the respective FX contract or CFD shall be executed.

Interbank Rates ― the Foreign Exchange rates at which large international banks quote other large international banks.

Introducing Broker (IB) ― an entity who has a direct relationship with Customers, but delegates the work of trade execution to Company. The relationship between Company and IB is built on the premium commission base..

 


L

Leading Indicators ― statistics that are considered to predict future economic activity.

Leverage ― ratio in respect of Transaction Volume and Initial Margin. 1:200 ratio means that in Order to open a position the Initial Margin is two hundred times less than Transaction Size..

LIBID ― London Interbank Bid Rate – interest rate at which London banks are willing to borrow from one another in the inter-bank market.

LIBOR ― 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/JPY is 102.00/05, then a limit order to buy USD would be at a price below 102. (i.e. 101.50)

Liquidity ― the ability of a market to accept large transaction with minimal to no impact on price stability.

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

Locked Volume ― a total volume of certain Assets reserved to support all active Exchange orders of a Client.

Long Position ― a position that appreciates in value if market prices increase.

Lot ― a unit of Base Currency in the Trading Platform.

 


M

Market Depth ― real-time Quotes that provides with the aggregated volume of all Orders available at each of the top five (optional) price levels Buy and Sell for each Instruments. .

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.

Margin Level ― the percentage of Equity to Initial Margin. This ratio is calculated as (Equity / Initial Margin) * 100%.

Market Maker ― a dealer who regularly quotes both bid and ask 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.

Money Manager ― Money managers give you personalized service, an individualized portfolio and ongoing management. A professional money manager does not receive commissions on transactions and is paid based on a percentage of Assets under management.

 


N

Necessary Margin ― the amount of money which a trader needs to open a position of a particular size. The Necessary Margin is a kind of guarantee that the trader places on a broker’s or dealing center’s account. The size of the necessary margin depends on the leverage provided.

Net account ― the type of ECN account where all long and short positions under the same Instrument shall be aggregated to the one net position. Net accounts are available on MT5 and TickTrader only.

New York session ― 8:00am – 5:00pm (New York time).

 


O

Offer ― the rate at which a dealer is willing to sell a currency.

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 Till Cancelled Orders.

Open Position ― a deal not yet reversed or settled with a physical payment.

Order ― an Instruction from the Customer to the Company to open or close a position.

Order Book ― a system used to show market depth of traders willing to buy and sell at prices beyond the best available.

Over the Counter (OTC) ― asked to describe any transaction that is not conducted over an exchange.

Overnight ― a trade that remains open until the next business day.

 


P

Pending Order ― an Instruction from the Customer to the Company to open a position once the price has reached the level of the Order. All of the following order types fall under that category: Buy Stop, Sell Stop, Buy Limit and Sell Limit.

Pips ― 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.

Precious Metals ― financial instrument with base assets as Gold, Silver, Platinum, etc.

Premium ― in the currency markets, describes the amount by which the forward or futures price exceed the spot price.

Price Gap on the Market Opening ― the first Ask/Bid of the current trading session is equal or higher/lower than the last Ask/Bid of the previous session in four spreads in particular Instrument.

Price Transparency ― describes quotes to which every market participant has equal access.

 


Q

Quote ― an indicative market price, normally used for information purposes only.

Quote Currency ― the second currency in the Currency Pair.

Quotes Flow ― the stream of Quotes in the Trading Platform for each Instrument.

 


R

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.

Rollover ― 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.

 


S

Scalping ― a trading strategy that attempts to make many profits on small price changes.

Security ― any financial Instrument such as share, future, option, commodity, interest rate, bond or stock index.

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.

Slippage ― the difference between the expected price of a trade, and the Order Level price. Slippage often occurs during periods of higher volatility, when Market Orders are used, and also when large orders are executed when there may not be enough interest at the desired price level to maintain the expected price of trade.

Slippage Control ― ECN platform procedure. It is designed to protect Customers from high Slippage occurring. Slippage Control mechanism applies to Market (Buy and Sell) Orders, as well as Pending Sell and Pending Buy, Stop Orders.

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.

Sterling ― slang for British Pound.

Stop Loss 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. The forex swap is an investment strategy that is a combination purchase and sale of the same amount of one currency, while purchasing a different currency that carries two different value dates. This essentially creates a situation in which the investor offsets the sale with the purchase, and also positions the investor to earn a return in both a short and a long position. A forex swap is not the same as a currency trade, which is a simple exchange of currencies based on the current performance of one currency against the other.

 


T

Take Profit ― the price to close an opened position at a more profitable price than the current price.

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

Thin Market ― a market with a low number of buyers and sellers; few Transactions take place in a thin market, prices are often more volatile and assets are less liquid.

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.

Trading Account ― the account, which has a unique number, maintained by a Customer for the purposes of trading financial Instruments through the trading platform(s).

Trading Platform ― the software through which traders can open, close and manage Transactions.

Trailing Stop ― an Order entered with a stop parameter that creates a moving or “trailing” activation price. Note: Trailing Stop works on a Customer’s terminal and not on a Server. Thus, it will not work if a Customer is not logged in.

Transaction Date ― the date on which a trade occurs.

Transaction Volume ― the transaction’s size multiply to number of Lots of Transaction.

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 Forex transaction.

 


U

Uptick ― new price quote at a price higher than the preceding quote.

Uptick Rule ― in the U.S., 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

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.

Virtual Private Server (VPS) ― a virtual environment hosted on a dedicated server that can be used to run the programs independent on the user's PC. Forex traders use VPS to host trading platforms and run expert advisors without unexpected interruptions.

Volatility (Vol) ― a statistical measure of a market’s price movements over time.

VWAP ― volume-weighted average price, is a measure of the average price at which an asset is traded over a given period of time. To calculate VWAP, you use the following equation: VWAP = ∑(amount of asset bought x asset price)/total shares bought that day.

 


W

Whipsaw ― slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

White Label ― a service created by one company that other companies rebrand under varying brand names to make it appear as if they made it.

 


Y

Yard ― slang for a billion.

Yield ― the percentage return from an investment. 

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