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Forex Trading Glossary

FxPros.net -Forex Trading Glossary (A-Z) 

A

ADX is a technical analysis indicator measuring the strength of a trend.

A currency is appreciated when it earns value against another currency. This may be due to fiscal or monetary developments or simply due to market psychology. A monetary policy aiming domestic currency appreciation is called a “Hard-Currency Policy”. The opposite situation is called currency depreciation.

Arbitrage is a short-term trading type that aims to take advantage of market inefficiencies. That means buying an asset in a particular market and at the same time selling the same asset in another market.

Ask means the price that you may buy a financial traded asset and bid means the price that you may sell it.

■ Example: Buying at 80.00 (bid) and Selling at 80.02 (ask)

Aussie is a slang name that is used for the Australian dollar (AUD).

B

Bank of Canada is the Central Bank of Canada responsible for the Canadian monetary policy.

Visit the Bank of Canada

Bank of England is the Central Bank of England responsible for the UK monetary policy.

Visit the Bank of England

Bank of Japan is the Central Bank of Japan responsible for the Japanese monetary policy.

Visit the Bank of Japan

Balance of Trade measures the difference between the value of imports and exports of a country for a particular time frame (usually monthly or annually). When the outcome is negative Trade Deficit is created and when it is positive Trade Surplus is achieved.

A Bank rate is the interest rate charged by the central bank of a particular country when it lends capital to the domestic commercial bank institutions. It is used by central banks as a tool to control money supply in the economy.

A Bar Chart is a very popular chart type where prices are indicated as bars and lines.

In a currency pair, the base currency corresponds to the first quote.

Bear or Bearish market is a market that is expected to trend downwards.

The Beige Book is a collection of US FED (Federal Reserve) reports containing important reviews regarding the US economy.

Breakout is technical analysis term describing the breakdown of a trend below support levels or above resistance price level. When a breakout occurs usually traders react nervously and the result is high volatility and high liquidity.

A broker is the market participant who operates as the middleman between traders and commercial institutions. A broker may execute buy and sell orders on behalf of his clients charging a predefined commission.

» Compare Forex Brokers using the Rating Formula v4.0

Brokerage is the act of a buying and selling financial assets on behalf of third parties.

Bull Market or Bullish Market is a market that is expected to trend upwards. The opposite is a bearish market.

Bundesbank is the Central Bank of Germany. As Germany is a member of eurozone, Bundesbank is coordinated with the policies of European Central Bank (ECB).

Visit the German Bundesbank

C

Cable is a Forex slang used for the British Pound against US Dollar (GBP/USD currency pair).

A Candlestick chart is a technical analysis chart where prices are indicated using ‘Japanese Candles’.

Carry trade means keeping a trading position with a positive overnight interest return. Individuals who are practicing curry trading are called curry traders.

It is the difference between cash inflow and cash outflow of a company during a particular period from one month to one year. Cash flows are indicating the ability of a company to generate money and are highly valued by all investors.

There are three Main Categories of Forex Currencies:

(i) Forex Majors (the most popular Forex pairs)

(ii) Forex Minors (expensive to trade)

(iii) Forex Exotics (very expensive to trade)

The Forex majors include: EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD and NZD/USD.

CCI is a cyclical technical indicator identifying when a market is overbought / oversold.

Central Banks are authorized institutions by governments to regulate and to control the domestic banking sector. In addition central banks are implementing the national monetary policy.


A contract for difference (CFD) is a specialized trading instrument that provides speculation on stocks, indices, commodities and other financial assets.

It is an economic indicator for measuring the dynamics of retail sales.

Clearing is the process of trade settlement.

The term collateral describes the amount that is deposited by a trader as insurance in order to trade.

Trading Commissions are charged by brokers in order to offer their brokerage services. Some brokers do not charge commissions as they gain profits from the spread between bid and ask.

Confirmation in technical analysis is the process when some indicators are used to confirm the results of another indicator.

Correction means a pullback of the price of an asset after a strong movement has occurred. A normal correction should count no more than 10% of the master movement.

In Forex trading the counter currency is the second currency of a Forex pair. For example in EURUSD, the counter currency is USD.

CPI stands for consumer price index. CPI is the statistical measure of inflation and it is based upon the changes in the prices of specified goods and services.

A Currency Option is an option contract that has as its underlying asset a Forex currency pair (for example GBPUSD). In general a currency option provides its holder with the opportunity but not the obligation to buy or to sell one currency for another at an agreed quote and within an agreed time period.

Valuating a Currency Option:

As in the case of every other Option Contract the valuation relies on:

(i) Intrinsic Value (The difference of the Current Exchange Rate and the Pre-Agreed Exchange Rate)

(ii) Time to Maturity (More time adds value)

(iii) Volatility (The greater the volatility of the underlying asset the greater the value of the option contract)

A currency pair is a quote of two currencies. In any currency pair the purchased currency (First) is called the Base Currency (EUR) and the sold currency (Second) is called the Quote Currency.

A currency rate is the price rate of a particular currency against another particular currency.

A Currency Symbol (ie USD, NZD) is indicating a particular currency.

D

A Day Order is an order to buy or to sell a financial traded asset that will stay active until the end of the trading day.

Divergence in technical analysis means that the charts produced by indicators differ from price charts.

This is a technical analysis pattern which occurs when the price of an asset reaches twice a certain price level and then reverses its trend. There is also the Triple Top / Bottom Formation.

E

An Economic indicator is a fundamental indicator describing important trends in an economy (GDP change, unemployment, inflation etc).

An ECN broker is a Forex brokerage company that is able to provide its clients with direct access to the Electronic Network of Banks (ECN). ECN brokers usually offer the best terms to trade Foreign Exchange (tight spreads and no price manipulation). In addition most ECN brokers allow Forex scalping and hedging. ECN brokers don't trade against their clients as market makers and in general they are considered as the best choice to trade Forex.

Compare ECN Brokers at FxPros:

It is a market theory which assumes that all important economic and other factors are already incorporated in the current prices.

The European Central Bank is the financial institution authorized by the European Union to regulate Eurozone and implement Europe’s monetary policy.

Visit the European Central Bank

In Forex an exchange rate is the rate that a currency can be bought or sold for another.

An Expert Advisor (EA) is a piece of software (script) that plugs into a trading platform and it is designed to open and close positions automatically without human control.

Forex Robot Web-Sites:

F

FED or Federal Reserve Bank is the central bank of the United States of America.

The FED’s web-site

The Fibonacci Retracement is a popular technical analysis tool for trading Forex, Stocks, Indices etc. The Fibonacci Retracement indicates the crucial levels for a trend break or bounce. These levels are calculated as the 23.6%, 32.8%, 50.0% and 61.8% of the current trend range.

A Flat Market is a market without a particular direction. Flat markets are common phenomenon at periods when trading activity is minimized (for example during July or August).

The Fibonacci Levels: 23.6% | 32.8% | 50.0% | 61.8%

Forex means FOReign EXchange and it is a global market where the world’s currencies are traded, one currency against another. Central Banks, Commercial Banks, Large and Small Corporations, Institutional Investors, Individual Traders and Common Tourists occasionally need to exchange one currency for another.

Free Float in stocks trading is the number of free shares available to the investing public as a percentage of the total shares capital outstanding.

Fundamental Analysis is the financial analysis which is based only on fundamental news and events. Fundamental Analysis includes economic factors such is the change of inflation, GDP, unemployment, interest rates etc.

G

G8 is a group of the 8 most developed countries in the world, including the US, Japan, United Kingdom, Germany, Russia, France, Italy and Canada.

A Gap is the price difference between the previous period's closing and the next period's opening. Usually gaps are occurring after weekends (Friday's closing price and Monday's opening price).

The Gross Domestic Product (GDP) is measuring the aggregate value of goods and services produced by an economy during a certain time period. The Gross Domestic Product is a very important economic figure.

The Gross National Product (GNP) is measuring the total gross domestic product (GDP) plus income, gained from investments or work abroad.

A Greenback is the Forex slang for the US Dollar.

H

A monetary policy imposed by Central Banks aiming the domestic currency appreciation against other currencies. This policy is achieved usually via the increase of the level of domestic interest rates.

Hedge Funds are investment funds that hedge their investment positions against risk.

Find Hedge Funds at Capitalinvestor.org

Hedging is a method of diversifying risk when trading the world’s Financial Markets. Practical it means opening and maintaining a certain market position in order to offset the risk of another trading position. For example if you are long (buy shares) on Apple’s stock you may short (sell) the whole Nasdaq Index. Professional traders are always trying to hedge against their portfolio risk and avoid trading ‘naked’.

It is a macroeconomic indicator measuring the sales of real estate at the secondary housing market.

It is anindex measuring the current number of houses under construction and the current number of construction permits.

I

IFO is the German business optimism index measured by the German Institute of Economic Research.

Visit the German Institute of Economic Research

It is an important macroeconomic index measuring the total output of industrial production in a certain time period.

Interbank Rates are the currency rates imposed by large International Banks in order to lend capital to other banks.

It is the highest price of trading activity in a particular day.

It is the lowest price of trading activity in a particular day.

Intraday-Trading or Day-Trading means buying and selling a financial traded asset (for example a currency pair) during the same day.

Inflation is an economic index measuring changes in the level of prices of goods and services. Inflation is often called as the ‘hidden tax’ as it diminishing the purchasing power of consumers. In general, higher levels of inflation constitute ‘bad news’ for the economy.

J

It is a survey measuring the business climate in Japan.

It is an indicator measuring the total value of new orders placed with machine tool manufacturers.

It is an important macroeconomic indicator measuring the number of registered unemployed.

The JPN225 is the name of the Japanese index NIKKEI-225 index.

K

Kiwi is the Forex slang of the NZD (New Zealand Dollar).

It is an options trading strategy that requires the underlying asset to reach a certain price level before a previously bought option becomes active

L

By Leading Indicators we are referring to an index containing the most crucial macroeconomic indicators.

Leverage Rate describes the ratio between the owned capital and the total capital invested. The total capital invested incorporates the owned capital plus the borrowed capital.

□ Stocks Trading: Leverage usually 2:1

□ Forex Trading: Leverage usually 200:1

A liquid market is a market that a lot of buyers and sellers are participating. That high market activity is generating high trading volumes. Liquid markets offer the best terms for short-trading (tight spreads, easy entry, easy exit).

Go Long means buying a financial asset. The opposite of Go Long is to Go Short (Selling).

Lot is the standard unit size of a transaction. As concerns Forex Trading there are three lot sizes:

Micro Lot Size which equals $1,000

Mini Lot Size which equals $10,000

Standard Lot Size which equals $100,000

M

Margin is the minimum capital that an investor is obligated to keep in his trading account as insurance in order to maintain a trading position. If a position worth $10,000 and the margin level is 50% then the investor must maintain $5,000 cash on his account. If this position is losing money then his broker may issue a ‘Margin Call’ which means demand for more cash in order the position to remain active.

Momentum is technical analysis term which means that the price of a financial asset shows strength to move in a particular direction (uptrend or downtrend).

Moving Average is one of the most popular technical analysis indicators. The moving average is calculated as the average price of a series of periods. The most common moving averages are calculated by the average price of 50 and 200 periods. There are a lot of different ways to calculate a Moving Average:

1 Simple moving average

2 Exponential moving average

3 Weighted moving average

4 Cumulative moving average

N

Net Factory Orders are measuring the net change of industrial activity (industrial orders).

TheNonfarm Payrolls measure the aggregate number of employees on the payroll in an economy except the agricultural sector.

O

Old Lady is a Forex slang which corresponds to the Bank of England (BOE).

An open order is an order that will stay active until it is filled or canceled

An open position is an active trading position.

An Oscillator is a technical analysis tool used for price movement forecast.

An output index is an index measuring the production volume output.

P

PAMM means Percentage Allocation Management Module and it is an account type offered by some brokers allowing Professional Asset Managers to manage other’s trading funds. PAMM accounts offer reliability and security on behalf of traders as Money Mangers can’t withdraw their funds.

Compare PAMM Accounts at Forex Automatic

The personal spending indicator measures the change of individual spending in an economy. When individual spending is increased then the market expects higher growth and higher inflation in the future.

A Pip is the minimum level that a price can change. In Forex Trading a pip is the last digit of an exchange rate

■ if GBP/USD rate is 1.5001 then 1 pip equals 0.0001.

A Pivot Point is an average price that is calculated based on the previous High, Low and Close and it is considered as an important support / resistance level.

PPI is the index of producer prices. When PPI increases it means ‘bad news’ for the corresponding economy.

A premium measures the amount at which future prices will surpass the current spot prices. The opposite of a premium is a discount.

A price channel is a range that sets the limits of price movement.

Q

Quotation is the process of indicating the value of a currency in the units of another currency.

Quote is a market price.

In Forex Trading, the quote or counter currency is the second currency in a currency pair. For example, in EURUSD, USD is the quote currency.

R

It is a UK macroeconomic indicator measuring the change of retail prices.

Rollover has many meaning in finance, when trading derivatives it means moving the delivery date forwards.

RSI means Relative Strength Index and it is a very popular technical analysis indicator that measures the strength of a price movement and indicates overbought and oversold levels.

■ Overbought above RSI=70

■ Oversold below RSI=30

S

Scalping is a Forex Trading technique that means opening and closing many positions in tiny segments of time (maximum 1-2 minutes) and targeting returns of 5-20 pips. Those traders who scalp Forex are called Forex Scalpers.

Slippage on execution of an order means opening or closing a trading position in different price than expected. It is a delay on order execution that can highly disturb short-term traders and especially scalpers.

Spot is a transaction that is carried out immediately but the payment is settled within two days.

Spread is the difference between ask and bid of the price of an asset and it is measured in Pips.

It is a situation when the total profits materialized in a certain trading period are equal to the total losses.

Sterling corresponds to the British Pound (GBP).

STP means Straight-Through-Processing and it is a type of Forex Execution that doesn’t involve manual intervention or order execution.

Resistance is a price level of important expected supply and support is a price level of important expected demand.

SWAP charge is the overnight value for holding a trading position. In Forex trading, the SWAP value may be negative or positive based on the level of interest rates of the two currencies you buy and sell.

Swissy is the Forex slang name for Swiss Franc (CHF).

T

A Take Profit Order is a trading order that will close a certain trade when it will reaches a particular price level.

Technical Analysis is a popular method of forecasting the future price direction of an asset or a market based on historic price data and chart examination.

A thin Market is a market suffering from limited liquidity.

Tick is theminimum one time price change of a financial traded asset.

Time Cycles are used to describe the repetition of price movements forming a pattern in particular time frames.

A trader is an individual who is buying and selling financial assets in order to make a profit.

A Trading platform is a software program that can be used for trading the financial markets.

Compare Trading Platforms at ForexAutomatic.com

A trailing order is an order that changes as the price changes. This could be a trailing stop-loss or a trailing take-profit order.

Transaction cost is the incorporated trading cost when buying or selling a financial asset.

A Trend is a strong market direction that may be either an Uptrend or a Downtrend.

U

An uncovered position is a position that isn’t yet filled (open position).

The unemployment rate is a very important macro-economic figure which indicates the percentage of unemployed population against the total number of labor-able population in an economy.

An uptick is called the new price quote if it higher than the previous price quote.

An uptrend is an ascending price trend which is usually found in bullish markets

V

Value date is the date of settlement of a spot or a forward transaction.

Value Spot means a settlement after two working days from today.

Market Volatility is a statistical measure that calculates the number of price changes in a market for a given period of time.

Volume measures the level of trading activity in a financial market.

VPS means Virtual Private Server and it is a method of hosting a software application on an external server. VPS is commonly used for trading Forex via Expert Advisors (Forex Robots). The advantage of a VPS hosting is that it allows trading 24/5 without having your PC open.

W

Wash Trade means a trade with neutral results, no profit no loss.

Wholesale Prices Index is a macroeconomic index measuring the rate of change in the wholesale prices.

Y

Yard in Forex Trading is a slang that means 1 billion US Dollars.

Z

ZEW is the Center of European economic research. It was found in 1990 and it is located in Germany (Hamburg).

Visit the ZEW

 

Find more: » Forex Tips | » Fx Statistics | » Forex Guide | » FAQ for Traders

 

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