FOREX GLOSSARY
We have provided you with a glossary of terms related to trading to help you better understand the market. You only need to click the first letter of the word you want to query to quickly find the word annotation you want to know.
Asset Class
An asset class is a category of valuable items or investments such as stocks, options, or foreign exchange (forex).
Adjustable Peg
An adjustable peg refers to a pegged (fixed) exchange rate system where a currency’s exchange rate is tethered to a strong currency (like the US Dollar or Euro). The pegged rate is occasionally adjusted to enhance the country’s competitive position. For instance, the Chinese Yuan sometimes pegs to the US Dollar.
At Best
“At best” is an instruction given to a broker to execute trades at the best available price in the current market.
Aggregate Risk
Aggregate risk refers to the total exposure of a bank or broker to risk in spot and forward foreign exchange contracts with a client.
Agio pertains to the fee charged for exchanging money from one currency to another, also known as a premium or discount.
Arbitrage involves exploiting hedge prices in different markets, buying or selling credit instruments, while taking an opposite position in the corresponding market, aiming to profit from minute price discrepancies.
The “ask” is the current price at which a seller is willing to sell a currency pair. It is also known as the offer price, sell price, or ask price. Buyers must accept the ask price to facilitate a transaction.
An authorised dealer is a trader authorized to deal in forex, with specific authorizations depending on regulatory bodies.
Back Office
The back office refers to the settlement system used by banks and brokers for managing and reporting trades.
Balance-of-Payments
The balance of payments is a record-keeping system of a country’s economic transactions.
Bank Notes
Bank notes are credit currency issued by a bank to serve as a substitute for commercial notes.
Bank Rate
The bank rate is the interest rate charged by a central bank when lending to commercial banks or discounting.
Banking Day
The days of the week when commercial banks are open for business in the country where the particular currency is traded.
Bar Chart
A bar chart is a common charting method consisting of four significant points: the high and low forming a vertical bar, the opening price marked by a small horizontal line to the left of the bar, and the closing price marked by a small horizontal line to the right.
Base Currency
The base currency is the currency used as the base in an exchange rate quote, expressed as one unit of that currency exchangeable for another currency.
Basis Point
A basis point is one-hundredth of a percentage point, or 0.0001.
Basket of USD Short
A basket of USD short involves a series of operations selling the US Dollar against various currencies.
Bear (Bearish)
A bear or bearish perspective involves traders “going short” or selling when anticipating a decrease in a currency price.
Bid
The “bid” is the current price at which a buyer is willing to purchase a currency pair. Sellers must accept the bid price to facilitate a transaction.
Bid/Ask Spread
The bid/ask spread is the difference between the buying and selling prices of a forex pair.
Bollinger Bands
Bollinger Bands are a widely-used technical analysis tool introduced by John Bollinger in 1980, plotting price standard deviation channels to measure price volatility and provide upper and lower price bounds.
Breakaway Gap
A breakaway gap appears in price when a new trend starts, often at the conclusion of a lengthy consolidation period, or after major chart formations are complete.
Broker
A broker acts as an intermediary, utilizing relevant tools to execute orders for buying and selling currencies, charging commissions or spreads. Brokers profit through commissions rather than trading on the market themselves. In the forex market, brokers often act as intermediaries between banks, facilitating trade between buying and selling parties and collecting the spreads paid by both parties.
Bull (Bullish)
A bull or bullish perspective involves traders “going long” or buying when anticipating an increase in a currency price.
Buy Limit Order
A buy limit order is an instruction to execute a trade at a specified price (limit) or lower.
Buy on Margin
Buying on margin refers to purchasing a currency pair where the client pays part of the overall value of the position in cash. “Margin” refers to the investor’s portion, not the borrowed part.
Candlestick Chart
A candlestick chart is a type of chart that indicates the trading range for the day as well as the opening and closing price. If the opening price is higher than the closing price, the rectangle between the opening and closing price is shaded. If the closing price is higher than the opening price, that area of the chart is not shaded.
Carry trade
A carry trade involves going long on a relatively higher-interest-rate currency and shorting another with a lower interest rate to profit from the interest rate differential.
Central Bank
A central bank provides financial and banking services for a country’s government and commercial banks. It also executes the government’s monetary policy by altering interest rates.
Closed Position
When you buy (or sell) an asset, you hold an open position.A closed position occurs when you execute an opposing trade to your open position. The profit or loss from the trade is calculated based on the difference between the opening and closing prices.
Correlation
Correlation, a statistical term, denotes the relationship between two seemingly independent things. In forex trading, one might perceive a high correlation between the Euro and the British Pound, more than between the Euro and the Brazilian Real.
Counterparty
In forex trading, the counterparty refers to the other party involved. In online spot forex trading, the counterparty is the market maker.
Currency
Currency is the money used in a country. Currency can be exchanged for other currencies on the forex market, hence each currency has a value relative to another currency.
Currency Pair
A currency pair, in forex trading, represents two currencies being traded against each other, e.g., buying Euros while selling US Dollars is called “buying EURUSD”.
Currency Risk
Currency risk involves the potential risk of monetary loss from fluctuating currency exchange rates that may devalue the foreign currency value of overseas investments in US dollars or any other currency.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) represents the average change over time in the prices paid by consumers for a predetermined “basket” of goods and services. Changes in prices over time are used to assess inflation and deflation and evaluate living costs. The CPI encompasses housing, food, transportation, and medical care, among other elements, typically dependent on the nation/region and calculation method.
Day Order
A day order is a buy or sell instruction that will automatically expire at the end of the trading day on which it is entered.
Day Trade
Day trading involves opening and closing trades within a trading session, without positions being “rolled over” to the following day.
Day Trader
A day trader seeks to profit from short-term price fluctuations, frequently opening and closing orders within the same trading day.
Demo Account
A demo account, set up through a broker, allows you to practice and familiarize yourself with the trading platform while conducting “trades” with virtual funds.
Deal Ticket/Deal Slip
A deal ticket or deal slip is a primary method of recording basic information related to a trade.
Dealer
A dealer, an individual or firm acting as a principal rather than an agent in forex trades, trades on their own account and assumes ownership risk.
Delivery Date
This is the expiration date of the contract when performing currency exchange. This date is also referred to as the value date in the foreign exchange or currency market.
Depreciation
Depreciation refers to a decline in a currency’s value due to market forces rather than a government or central bank policy.
Drawdown
A measure of the decline from a peak to a trough in the value of an account, usually described in percentage terms.
Deflation
A sustained and significant decrease in the prices of goods and services within an economy. It is the opposite of inflation and can lead to a deflationary spiral where falling prices lead to lower employment demand, in turn leading to further drops in demand during the cycle without a corresponding drop in nominal wage income.
Derivative
A derivative pertains to a financial contract related to the underlying economic variable changes. For example, the value change of an option is dependent on and based on its underlying asset.
Done
A term used by traders to signal that a contract has been agreed upon and is now concluded.
Easier
A term used to indicate that a currency has depreciated in value compared to a prior quote.
Easing
Monetary Easing. Refers to a small fall in currency prices or actions taken by a central bank to stimulate spending, an example of easing policy would be reducing interest rates.
ECN（Electronic Communication Network）
A computerized system used in the financial sector to facilitate trading of financial products outside of stock exchanges. Main products traded on the ECN are stocks and currencies. Forex ECN brokers can access an electronic trading network, providing streaming quotes from top-tier banks worldwide.By trading through an ECN broker, currency traders typically benefit from greater price transparency, faster processing, higher liquidity and more availability in the market.
Economic Indicator
An economic indicator is a statistical measurement or dataset that reflects overall economic performance and trends.
Effective Exchange Rate
A weighted average exchange rate index calculated using a variable as a weight. It is the sum of the weighted average of the exchange rates of a country’s currency against a sample of national currencies for the reporting period, calculated using selected variables as weights, compared with the exchange rate for the base period.
Elliot Wave Principle
An attempt to explain market activity in a complete cycle using an eight-wave pattern.
Exotic Currencies
Currencies of smaller countries that do not have a developed international market and are traded less than major currencies.
Exchange
A venue where trading activities take place. Some well-known examples include the New York Stock Exchange and the Chicago Mercantile Exchange.
Exit
Exiting a position. In the case of a long position, selling the long currency, and in the case of a short position, buying the short currency, leading to the closure of the position.
Expiration Date
The last day on which a financial option is valid.
European Monetary System
In the 1970s and 1980s, many European countries linked together to prevent the deployment of their national currencies with large fluctuations in value. This was one of several initiatives that led to the creation of the euro.
Exchange Control
Various mechanisms used by a central bank to control the movement of foreign exchange to ensure that the country’s foreign exchange reserves are not depleted.
Firmer
A term to describe a currency that is strengthening or has strengthened compared to a previous quote.
Forward Contracts
A transaction with a settlement date that lies beyond a certain point in the future, bound by a contract between the buyer and seller.
Forward Exchange Rate
An indication of the value of one currency against another, where the settlement date is more than 2 business days after the date of the transaction. The forward rate is the spot rate of the currency on the date of the transaction adjusted for forward points.
Forward Points
The value of the interest rate differential for a currency pair from spot settlement to the forward delivery date, expressed as an adjustment to the spot exchange rate.
Forward Settlement Date
The settlement date of a forward transaction, which is more than two business days from the transaction date.
Fundamentals
Basic economic determinants of exchange rates, such as inflation, interest rates, commodity prices, and economic activity.
Futures
The right and obligation to trade an instrument or commodity at a set price on a future date. Unlike forward contracts, futures are often traded on exchanges (non-deliverable) while forward contracts are mainly traded OTC (Over The Counter) and can be rolled over.
Fill Or Kill
An order that must be executed immediately in its entirety based on certain criteria such as price and quantity or else it is cancelled. It is also manifested in trades as execute or re-quote.
Fisher Effect
The effect of interest rates on international capital movement; money tends to flow from countries with low interest rates to countries with higher interest rates.
Fixed Exchange Rate
A foreign exchange policy where a central bank maintains an official rate for their currency against another currency, regularly intervening to keep the exchange rate within permissible bands.An example is the linked exchange rate between Hong Kong and the US dollar.
Gearing
A term related to margin trading, where you control a position value larger than the amount of your deposit.
G7
Seven major industrialized countries: United States, Germany, Japan, France, United Kingdom, Canada, and Italy.
Goldilocks Economy
A term describing an economy that has stable growth and acceptable inflation.
Going Short
Selling a currency pair with the hope to buy it back at a lower price in the future.
Going Long
Buying stocks, futures, or currency for investment or speculation purposes.
Good Until Cancelled
An order given to a broker that does not expire at the end of the trading day, although it typically terminates at the end of the trading month.
Gross Domestic Product (GDP)
A measure of the market value of all the final goods and services produced within a country in a specific period. GDP is measured in monetary terms, such as dollars.
Gold Standard
A commitment by certain countries to fix the price of their currencies at a specified amount of gold, also known as the Bretton Woods system, the gold standard began in 1946 with the creation of a system that allowed the U.S. government’s Treasury Department to implement a fixed exchange rate for the sale of gold at a fixed price.On August 15, 1971, President Nixon ended the Bretton Woods system.
Golden Cross
“Golden Cross” refers to a scenario in technical analysis where two moving averages intersect, such as when a short-term 20-day moving average crosses above a longer 40-day moving average. This is considered a positive sign, and the associated currency is expected to move in the same direction as the moving averages.
Hard Currency
“Hard Currency” refers to a currency in which investors have confidence, such as the U.S. Dollar or the Euro.
Head and Shoulders
“Head and Shoulders” describes a price movement pattern with three peaks, where the middle one is higher than the two surrounding it, forming a configuration that appears to be a head with two shoulders. This pattern is regarded as an indicator of a trend reversal.
Hedging
“Hedging” is a strategy used to offset market risk, wherein one position protects another.
Holder
A “Holder” refers to the purchaser and subsequent owner of a currency pair.
IFEMA
“IFEMA” stands for the International Foreign Exchange Master Agreement.
Inconvertible Currency
“Inconvertible Currency” refers to a foreign currency that cannot be exchanged for other currencies because it is prohibited by foreign exchange regulations.
Indicative Quote
An “Indicative Quote” is a price from a market maker that serves as an indicator of the price and is not tradable.
Inflation
“Inflation” is the sustained rise of overall price levels while purchasing power decreases. It is sometimes referred to as excessive fluctuation of price levels.
Initial Margin
“Initial Margin” is the first deposit from a client, which determines the maximum trading size corresponding to it.
Introducing Broker（IB）
An “Introducing Broker” (IB) is an individual or company that introduces clients to forex dealers to earn commissions or partial spread rebates.
Interest Rate
“Interest Rate” refers to the cost or payment of interest for the use of money, expressed as an annual percentage rate of the principal. Interest rates often change due to inflation and central bank policies.
Intervention
“Intervention” refers to actions taken by central banks to influence the value of their currency by entering the market. Coordinated intervention involves actions by multiple central banks to control exchange rates.
Jobber
A “Jobber” is a trader who trades in a session for small short-term profits and rarely holds positions overnight.
Japanese Housewives
“Japanese Housewives” is a term coined by financial news to describe Japanese households that engage in carry trade, becoming a major player in yen trades, arising from the numerous Japanese housewives trading in forex, having substantial impact.
Kill Or Fill
“Kill Or Fill” is an order that must be executed immediately based on certain criteria, such as price and quantity. If it cannot be executed, the order is immediately canceled, manifesting in trade as either being filled or re-quoted.
Key Currency
A “Key Currency” is one that is widely accepted internationally, used most in a country’s international payments, and makes up the largest part of foreign exchange reserves. USD, Euro, and Yen are key currencies for most countries.
Leading Indicators
“Leading Indicators” are economic indicators used to predict future economic activity, such as the level of the S&P 500 index.
Leverage
“Leverage” is the margin ratio that allows for opening orders of maximum size.
Lots
“Lots” refer to the standardized method in forex trading, which involves trading 100,000 units of a specific currency.
Limit Order
A “Limit Order” is an order to trade at a specified or better price.
Line Chart
A “Line Chart” is the simplest form of chart, which connects price levels at specified times with lines.
Liquid
“Liquid” is a term used to describe the trading demand generated by a large number of buyers and sellers in the market.
Liability
“Liability” refers to the obligation to deliver, which is part of the physical currency transaction. In speculative forex trading, the currency is not delivered, and all profits and losses are deducted from the margin.
Long Position
A “Long Position” refers to buying more than what is sold or having foreign currency assets exceeding liabilities.
Margin
“Margin” is the minimum deposit required to maintain an open position. For instance, for an open order of $250,000 market value with 50:1 leverage, the required margin would be $5,000.
Margin Call
A “Margin Call” is a notification for the deposit of additional funds into a margin account to meet margin requirements due to unfavorable future price movements.
Market Maker
A “Market Maker” is an individual or company authorized to create and maintain a market in a currency or CFD.
Market Order
A “Market Order” is an order to execute immediately at the current best price.
Moving Average
“Moving Average” refers to smoothing out data on a price chart, making it easier to identify trends. An average refers to a mathematical or statistical mean, derived from the original curve.
Maintenance Margin
“Maintenance Margin” is the minimum margin that must be present in an account to support all open orders.
Monetary Easing
“Monetary Easing” is the moderation of monetary constraints through changes in interest rates, money supply, and reserve ratios.
Monetary Policy
“Monetary Policy” refers to various controls and adjustments to money supply and credit quantity employed by a central bank to achieve specific economic objectives. It essentially involves the national supply of money adopting different policy directions such as “tight”, “loose”, or “moderate” according to the economic development situation at different times.
Negative Carry Pairs
“Negative Carry Pairs” refers to a type of arbitrage trade where you go long on a lower-interest-rate currency and short a higher-interest-rate currency. This type of trade might be part of a hedging strategy.
NAV（Net Asset Value）
“NAV” or “Net Asset Value” is the total value of assets minus liabilities. In a trading account, the net asset value equals cashed and uncashed profits/losses plus deposit balance and interest minus withdrawals.
Net Position
“Net Position” refers to a currency position that has not been offset against opposing positions.
News Trader
A “News Trader” is an investor who makes decisions based on the results of news announcements and their impact on the market.
Odd Lot
An “Odd Lot” refers to a non-standard trading size. In forex trading, a standard lot is typically 100,000 units of a specific currency.
Offer
An “Offer,” also known as the Ask price, is the price at which the seller is willing to sell.
Open Position
An “Open Position” is an active long or short order that is subject to market fluctuations, resulting in profits or losses.
Outright Deal
An “Outright Deal” refers to a forward transaction that does not belong to a swap operation.
Overbought
“Overbought” describes a currency pair that is believed to be traded above its intrinsic value and may be subject to a price pullback.
Oversold
“Oversold” refers to a currency pair that is believed to be traded below its intrinsic value and might be subject to a price upward correction.
Overnight
“Overnight” refers to trades that are extended into the next trading day.
Oscillators
“Oscillators” are quantitative methods designed to provide signals regarding overbought and oversold conditions.
OTC
“OTC” or “Over The Counter” refers to a market where traders and principals trade directly through telephone and computer networks
Par
The term applies when the forward price for purchasing or selling a currency is the same as the spot price.
Pegged
Pegging. A system where the value of one currency is pegged to the value of another currency. For example, the Chinese Yuan against the US Dollar. Most pegs allow a small deviation within a certain range.
Pip（Point）
Stands for “price interest point”. It is a measure of a currency pair’s price change expressed in decimals and is the smallest tradable amount quoted on the market by traders and brokers.
Political Risk
A situation where government policy changes to a certain extent. Government instability can negatively impact a currency.
Position
A market convention where the initial part of a buy or sell contract is committed, with the buyer of the contract being long, in a bullish position; and the seller of the contract being short, in a bearish position.
Premium
In the forex market, when the forward exchange rate is higher than the spot exchange rate, it is referred to as “premium”.
Quote
Indicative price. A quote is for reference only and is not used for trading.
Quote Currency
The second of the two currencies in a currency pair. For the EUR/USD, the US dollar is the quote currency. The quoted rate tells how much of the second currency one unit of the base currency will buy.
Rally
A recovery in price after a period of decline.
Range
The difference between the highest and lowest prices traded for a currency pair within a given period.
Realized P/L
Realized profit/loss. Profits and losses generated by closing a position.
Resistance Point or Level
A price level that technical analysts think could cause resistance but, if breached, could lead to significant price movement.
Rollover
An overnight swap, specifically the swap from the next working day to the next business day (also known as Tomorrow next, abbreviated as Tom next).
Short Position
Sales exceed purchases or foreign currency liabilities exceed assets.
Spread
The difference between the bid and ask prices, representing one type of cost in forex trading.
Settlement
The contract expiration time for physically delivering a currency. In the forex market, it is typically two days after opening a position. In practice, traders do not take delivery, but profits and losses are directly reflected in their account balances.
Short Covering
Buying an equivalent unit of a currency pair to offset an earlier short sell order.
Stop Loss
An order to close a trade when the loss reaches a predetermined amount to avoid larger losses. Its purpose is to limit losses to a smaller range when an investment goes wrong.
Take Profit Order
An order that limits maximum profits. It triggers automatically when the market price reaches or exceeds the take profit level, buying or selling the currency at the best executable price to secure expected profits.
Technical Analysis
Predictive analysis of price trends based on market data, such as historical price trends, moving averages, volume, open interest, etc.
Technical Correlation
Technical resistance and support levels, as well as overbought and oversold levels, determine price trends rather than market sentiment determining prices.
Technical Indicators
Functional tools used by technical analysts to predict future price movements of securities or commodities.
Trading Model
A complex algorithm that provides professional buy/sell currency advice. A trading model, which evaluates the basis of historical analysis, future price predictions, and your trading history, recommends actions related to currency positions and uses these actions to predict fluctuations in the forex market.
Trend
The current market direction, whether up, down, or sideways.
Two-Way Price
Providing both a buy and sell quote for a forex transaction simultaneously.
Transaction Cost
The cost involved in buying and selling a currency pair. Some consider transaction cost to be the actual value of the contract, while others consider it the price of facilitating the trade, like commissions and spreads.
Unconvertible Currency
A currency that cannot be converted due to foreign exchange management regulations.
Unit
A widely used denomination of currency. In forex trading, one unit of US dollar equals one US dollar, and one unit of Euro equals one Euro. For Japanese yen, one unit equates to one yen. A unit is the smallest trade size in forex trading.
Up-Tick
A trade executed at a price higher than the previous trade.
Value Date
The actual date agreed upon by the buyer and seller to deliver currency in a forex trade. It is a financial term that describes the actual date when a forex transaction takes place.
Value Today
A trade where the settlement date is the same as the trade date.
Value Tomorrow
A trade where the settlement date is the day after the trade date.
Virtual Balance
Also known as virtual net value. Your current potential account balance that can be realized by closing positions. For example, if your actual account balance is $575 and an open order has a profit of $25, your virtual account balance would show $600.
Volatility
A measure of the degree to which an exchange rate changes over a given period.
Working Day
A day on which banks in the primary financial centers for a currency are open for business. For forex transactions, a working day only occurs when both banks (or in the case of a cross, all relevant currency centers) are open for business.
Whipsaw
Describes a condition of the market where there is a sharp price movement followed by a sharp reversal.
Wedge Chart Pattern
A gradually narrowing chart pattern that resembles a “wedge”. In a rising wedge, the highs of prices are consistently becoming smaller; conversely, in a falling wedge, the lows of prices are shrinking. Rising wedges typically occur after a downtrend, while falling wedges typically occur after an uptrend.
Yard
A term used by traders for one billion US dollars.
