Forex Dictionary

The jargon of seasoned traders use can be very confusing to a newcomer. Here’s a list of commonly used words that you’ll encounter as a forex trader.

A

Adjustment - Official action normally occasioned by a change either in the internal economic policies to correct a payment imbalance or in the official currency rate.

Analyst - A financial professional who has expertise in evaluating investments and puts together buy, sell and hold recommendations for clients.

Arbitrage - The simultaneous purchase or sale of a financial product in order to take advantage of small price differentials between markets.

Asian central banks - Refers to the central banks or monetary authorities of Asian countries. These institutions have been increasingly active in major currencies as they manage growing pools of foreign currency reserves arising from trade surpluses. Their market interest can be substantial and influence currency direction in the short-term.

Ask Price - The price at which the market is prepared to sell a specific currency pair. Also known as the ‘offer’, ‘ask’ and ‘ask rate’. You can buy at this price immediately because you’re taking the market’s sell price.

At Best - An instruction given to a dealer to buy or sell at the best rate that he can achieve.

At or Better - An order to deal at a certain rate or better.

Aussie – Trader slang for the AUS/USD currency pair.

B

Balance of Trade - The value of a specific 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 to the right of the bar.

Barrier level - Any number of different option structures (such as knock-in, knock-out, no touch, double-no-touch-DNT) that attaches great importance to a specific price trading. In a no-touch barrier, a large defined payout is awarded to the buyer of the option by the seller if the strike price is not 'touched' before expiry. This creates an incentive for the option seller to drive prices through the strike level and creates an incentive for the option buyer to defend the strike level.

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 market, 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.

Base rate - The lending rate of the central bank of a given country.

Basing - A method used in technical analysis – a chart pattern that shows when demand and supply of a product are almost equal. It results in a narrow trading range and the merging of support and resistance levels.

Bear Market - A market distinguished by falling prices.

Bearish / Bear market - Negative for price direction; favoring a declining market. For example, "We are bearish EUR/USD" means that we think the Euro will weaken against the dollar.

Bid Price - The price at which the market is prepared to buy a specific currency. You can sell immediately at this price because you’re taking the market’s buy price.

Bid/ask spread - The difference between the Bid and the Ask (Offer) price.

Big figure - Refers to the first 3 digits of a currency quote, such as 117 USD/JPY or 1.26 in EUR/USD. If the price moves by 1.5 big figures, it has moved 150 pips.

Black box - The term used for systematic, model-based or technical traders.

BOC - Bank of Canada, the central bank of Canada.

BOE - Bank of England, the central bank of the UK.

BOJ - Bank of Japan, the central bank of Japan.

Bollinger bands - A tool used by technical analysts. A band plotted two standard deviations on either side of a simple moving average, which often indicates support and resistance levels.

Bond - A name for debt which is issued for a specified period of time.

British Retail Consortium (BRC) shop price index - A British measure of the rate of inflation at various surveyed retailers. This index only looks at price changes in goods purchased in retail outlets.

Broker - An individual or firm that acts as an intermediary, who executes orders to buy and sell currencies for a commission or spread.

Buck - Market slang for 1 million units of a dollar-based currency pair or for the US dollar in general.

Bullish / Bull market - Favoring a strengthening market and rising prices. For example, "We are bullish EUR/USD” means that we think the Euro will strengthen against the dollar.

Bulls - Traders who expect prices to rise and who may be holding long positions.

Bundesbank - Germany's central bank.

Buy - Taking a long position on a product.

Buy dips - Looking to buy 20-30-pip/point pullbacks in the course of an intra-day trend.

Buy Limit – A pending order to buy a currency at a lower price than the current one

Buy Stop – A pending order to buy a currency at a higher price than the current one.

C

Cable - Commonly referring to the Sterling/US Dollar (GBP/USD) exchange rate.

CAD - The Canadian dollar, also known as Loonie or Funds.

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 trade - A trade strategy that captures the difference in the interest rates earned from being long a currency that pays a relatively high interest rate and short another currency that pays a lower interest rate. For example: NZD/JPY has been a famous carry trade for some time. NZD is the high yielder and JPY is the low yielder. Traders looking to take advantage of this interest rate differential would buy NZD and sell JPY, or be long NZD/JPY. When NZD/JPY begins to downtrend for an extended period of time, most likely due to a change in interest rates, the carry trade is said to be ‘unwinding’.

Cash market - The market in the actual underlying markets on which a derivatives 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.

CFDs - A Contract for Difference (or CFD) is a type of derivative that gives exposure to the change in value of an underlying asset (such as an index or equity). It allows traders to leverage their capital (by trading notional amounts far higher than the money in their account) and provides all the benefits of trading securities, without actually owning the product. In practical terms, if you buy a CFD at $10 then sell it at $11, you will receive the $1 difference. Conversely, if you went short on the trade and sold at $10 before buying back at $11, you would pay the $1 difference.

Chartist - A person who uses charts to attempt to predict prices by analyzing historical price movements.

Closing a Position – The process in which a trader buys or sells a forex position, resulting in liquidation of the position.

Closing - The process of stopping (closing) a live trade by executing a trade that is the exact opposite of the open trade.

Closing price - The price at which a product was traded to close a position. It can also refer to the price of the last transaction in a day trading session.

Clearing - The process of settling a trade.

Collateral - An asset given to secure a loan or as a guarantee of performance.

Commission - A fee that is charged for buying or selling a product.

Commodity currencies - Currencies from economies whose exports are heavily based in natural resources, often specifically referring to Canada, New Zealand, Australia and Russia.

Correlation – The mathematical relationship between two or more currencies

Counter Currency - The second listed Currency in a Currency Pair. For example, the dollar is the counter currency in EUR/USD.

CPI - A measure of inflation – short for Consumer Price Index.

Cross (e.g. Yen cross) - A pair of currencies that does not include the US Dollar.

Crown currencies - Refers to CAD (Canadian Dollar), Aussie (Australian Dollar), Sterling (British Pound) and Kiwi (New Zealand Dollar) – countries off the Commonwealth.

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

D

Day Trade – A trade position that is opened and closed on the same day.

Day Trader – A trader who attempts to profit from short term price movements. Closing and opening trades frequently, often within the same day.

Deal - A term that denotes a trade done at the current market price. It is a live trade as opposed to an order.

Dealer - An individual or firm that operates out of there own portfolio, buying and selling assets. They act as a principal or counter-party to a transaction.

Deficit – Defined in economics as when the balance of trades or payments are negative.

Delivery - A foreign exchange trade where both sides make and take actual delivery of the currencies traded.

Derivative - A financial contract whose value is based on the value of an underlying asset. Some of the most common underlying assets for derivative contracts are indices, equities, commodities and currencies.

E

ECB - European Central Bank, the central bank for the countries using the Euro.

Economic Indicator – A statistic issued by the government that allows traders to gauge current economic conditions.

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.

Elliot Wave Theory – A principle used to try and explain market activity, by ascribing a pattern of eight waves to any complete cycle.

EST/EDT - The time zone of New York City, which stands for United States Eastern Standard Time/Eastern Daylight time.

Euro- The currency of the European Monetary Union (EMU).

European Monetary Union (EMU) - An umbrella name for the group of policies that aims to coordinate economic and fiscal policies across EU Member States.

F

Fed - The Federal Reserve Bank, the central bank of the United States, or the FOMC (Federal Open Market Committee), the policy-setting committee of the Federal Reserve.

Flat - Dealer jargon used to describe a position that has been completely reversed, for example: you bought $200,000 then sold $200,000, thereby creating a neutral (flat) position.

Foreign exchange (forex, fx) – The simultaneous buying of one currency and selling of another. The global market for such transactions is referred to as the “forex” or “FX” market.

Forward – A transaction that will settle on a future date.

FTSE 100 - The name of the UK 100 Index.

Fundamental Analysis - Analysis of economic and political information with the hope of predicting future currency price movements.

Funds - Refers to hedge fund types active in the market; also used as another term for USD/CAD pair.

G

GMT - Greenwich Mean Time - The most commonly referred time zone in the forex market. GMT does not change during the year, as opposed to daylight savings/summer time.

Going Long - The purchase of a currency pair.

Going Short - The selling of a currency pair by first borrowing it, then ending the transaction at a later time by buying it back (hopefully at a lower price).

Gross Domestic Product - Total value of a country’s output, income or expenditure produced within a country’s borders.

Good Till Cancelled Order (GTC) - An order to buy or sell a currency pair at a specified price. Remains in effect until it is either cancelled or executed by the trader.

H

Hedge - A position or number of positions that reduces the risk of your primary position.

Holder – Buyer of a currency pair.

I

Inflation – Where prices for consumer goods rise, in a specific country, eroding purchasing power.

Intraday Trading – When positions are opened and closed on the same day.

Interest Rate – The rate charged, or paid for the use of money. Released by the Central Bank of a specific country

Introducing broker - A person or corporate entity which introduces accounts to a broker in return for a fee.

ISM manufacturing index - An index that assesses the state of the US manufacturing sector by surveying executives on expectations for future production, new orders, inventories, employment and deliveries. Values over 50 generally indicate an expansion, while values below 50 indicate contraction.

ISM non-manufacturing - An index that surveys service sector firms for their outlook, representing the other 80% of the US economy not covered by the ISM Manufacturing Report. Values over 50 generally indicate an expansion, while values below 50 indicate contraction.

J

Japanese Yen – Currency of Japan. Also called the Yen.

K

Kiwi – Trader slang for the New Zealand dollar.

L

Leading Indicators - Statistics that traders consider to predict future economic movement and activity.

Leverage - The ratio of margin to the maximum position size. For example a deposit of $100 with 100:1 leverage would give a buying power of $10,000.

Limit order – An order to terminate a transaction at a specified price or better.

Liquid market - A market which has sufficient numbers of buyers and sellers for the price to move in a smooth manner.

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

Liquidity – Describes a market where lots of buyers and sellers generate a lot of volume.

Long position – When you purchase a currency pair, it is called going long. When a currency pair is long, the first currency is purchased, whilst the second is sold short.

Lot - A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.

M

Margin - The required minimum deposit for a trader to open a position.

Margin Call - A request from a broker or dealer for additional funds to be deposited in order to cover the size of existing positions. Usually because the value of the account has fallen below the minimum margin needed.

Market Maker - A dealer who frequently quotes both bid and ask prices and is ready to make a two-sided market for any currency pair.

Market Order – An instruction to buy or sell a currency immediately, at the best available price

Momentum - A series of technical studies (e.g. RSI, MACD, Stochastics, Momentum) that assesses the rate of change in prices.

N

NAS100 - A name for the NASDAQ 100 index.

Net Position – Forex currency positions that have not yet been offset with opposite positions.

NZD – The currency symbol for the New Zealand Dollar.

O

Offer - The rate at which a dealer is willing to sell a currency. Also called the ask price.

Open order – A Forex open trade, either buy or sell that does not expire until it is cancelled.

Open position - An active trade, either long or short that is subject to market movements, therefore profit and losses.

Option - A derivative which gives the right, but not the obligation, to buy or sell a product at a specific price before a specified date.

Oscillator – A  technical indicator characterized by the fact that it shows overbought and oversold conditions of the market

P

Pips - The smallest upward or downward price for any foreign currency. E.g. In EUR/USD, 1 pip is equal to 0.0001

Political Risk - Exposure to changes in governmental policy which may have an effect on a currency and therefore a traders position.

Position – A trade that is still In effect.

Profit - The difference between the cost price and the sale price, when the sale price is higher than the cost price.

Purchasing managers index services (France, Germany, Eurozone, UK) - Measures the outlook of purchasing managers in the service sector. Such managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries and inventories. Readings above 50 generally indicate expansion, while readings below 50 suggest economic contraction.

Put option - A product which gives the owner the right, but not the obligation, to sell it at a specified price.

Q

Quote - An indicative market price, when both bid and ask price are provided for a certain currency pair.

R

Rally - A recovery in price where a currency will surge upwards.

Range - The difference between the highest and lowest price during a trading period.

Rate - The price of a currency can be purchased by a trader, or sold against another.

RBA - Reserve Bank of Australia, the central bank of Australia.

RBNZ - Reserve Bank of New Zealand, the central bank of New Zealand.

Real money - Traders of significant size including pension funds, asset managers, insurance companies, etc. They are viewed as indicators of major long-term market interest, as opposed to shorter-term, intraday speculators.

Resistance - A term used in technical analysis, where analysts predict people will sell.

Retail investor - An individual investor who trades with money from personal wealth, rather than on behalf of an institution.

Risk - Exposure to uncertain change, most often used with a negative connotation of adverse change.

Roll-Over – When a trader extends the settlement value date on a current open position to the next trading day.

S

Sell - Taking a short position in expectation that the market is going to go down.

Sell Limit – A pending order to sell a currency pair at a higher price

Sell Stop – A pending order to sell a currency pair at a lower price

Short – Selling a currency pair,

Slippage - The difference between the price that was requested and the price obtained typically due to changing market conditions.

Spot market - A market whereby products are traded at their market price for immediate exchange.

Spot Price - The current market price. Settlement of spot transactions usually occurs within two business days.

Spread – The difference between the bid and ask price of a currency pair.

SPX500 - A name for the S&P index.

Sterling - Nickname for GBP/USD. Also known as Pound or British Pound.

Stop Loss Order – An order by a trader to buy or sell once a given price is reached. This is used to close an already open trade.

Stop-Out - Is the event when a broker automatically liquidates all open positions of a trader in margin-traded instruments after the trader's margin has decreased to a level where it can no longer sustain the open positions.

Support - 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.

SWISSIE - The nickname for USD/CHF.

T

Take Profit Order – An order used by a trader to lock in profit at a certain level by closing his/her trade.

Technical Analysis - An effort to forecast currency prices by analyzing market data.

Tick - A minimum change in price, up or down. Also known as a pip.

Tomorrow Next (Tom/Next) – The act of closing a currency then immediately reopening within the current trade date so the settlement date is pushed forward.

Trade balance - Measures the difference in value between imported and exported goods and services. Nations with trade surpluses (exports greater than imports), such as Japan, tend to see their currencies appreciate, while countries with trade deficits (imports greater than exports), such as the US, tend to see their currencies weaken.

Trade size - The number of units of product in a contract or lot.

Trading bid - A pair is acting strong and/or moving higher; bids keep entering the market and pushing prices up.

Trend - Price movement that produces a net change in value. An uptrend is identified by higher highs and higher lows. A downtrend is identified by lower highs and lower lows.

Turnover - The total money value of all executed trades in a given time period.

Two-Way Price - When both a bid and offer rate is quoted for a Forex transaction. Also know as quote.

U

Unemployment rate - Measures the total workforce that is unemployed and actively seeking employment, measured as a percentage of the labor force.

US Dollar – The currency of the United States of America.

Uptick - A new price that must be executed at a higher price than the previous trade.

V

Value Date – The settlement date for a currency contract.

Variation Margin - Funds a broker must request from the client to have in their account to meet the required margin deposit.

Volatility (Vol) - A statistical measure of a market’s price movements over a set period of time.

W

Whipsaw – Expression when a position is opened and a stop loss is created. The market moves and triggers this stop loss, then turns around and moves back up again.

X

XAG/USD - Symbol for Silver Index.

XAU/USD - Symbol for Gold Index.

XAX.X - Symbol for AMEX Composite Index.

Y

Yuan - The Yuan is the base unit of currency in China. The Renminbi is the name of the currency in China, where the Yuan is the base unit.

Z