FxPros.net -Forex Trading Glossary (A-Z)
What is ADX (Average Directional Index)?
ADX is a technical analysis indicator measuring the strength of a trend.
What is the Appreciation of a Currency?
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 for domestic currency appreciation is called a “Hard-Currency Policy”. The opposite situation is called currency depreciation.
What is Arbitrage?
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.
What is Ask and Bid?
Ask means the price that you may buy a financially traded asset and bid means the price that you may sell it.
■ Example: Buying at 80.00 (bid) and Selling at 80.02 (ask)
What is the Aussie?
Aussie is a slang name that is used for the Australian dollar (AUD).
What is the Bank of Canada (BOC)?
The Bank of Canada is the Central Bank of Canada responsible for the Canadian monetary policy.
What is the Bank of England (BOE)?
Bank of England is the Central Bank of England responsible for the UK monetary policy.
What is the Bank of Japan (BOJ)?
The Bank of Japan is the Central Bank of Japan responsible for the Japanese monetary policy.
What is the Balance of Trade?
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.
What is a Bank Rate?
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 the money supply in the economy.
What is a Bar Chart?
A Bar Chart is a very popular chart type where prices are indicated as bars and lines.
What is a Base Currency?
In a currency pair, the base currency corresponds to the first quote.
What is a Bear Market or Bearish Market?
Bear or the Bearish market is a market that is expected to trend downwards.
What is the Beige Book?
The Beige Book is a collection of US FED (Federal Reserve) reports containing important reviews regarding the US economy.
What is a Breakout?
Breakout is a technical analysis term describing the breakdown of a trend below support levels or above resistance price levels. When a breakout occurs usually traders react nervously and the result is high volatility and high liquidity.
What is a Broker
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.
What is Brokerage?
Brokerage is the act of buying and selling financial assets on behalf of third parties.
What is a Bull Market or Bullish Market?
A bull market or bullish market is a market that is expected to trend upwards. The opposite is a bearish market.
What is the Bundesbank?
Bundesbank is the Central Bank of Germany. As Germany is a member of the eurozone, Bundesbank is coordinated with the policies of the European Central Bank (ECB).
What is Cable?
The Cable is a Forex slang used for the British Pound against the US Dollar (GBP/USD currency pair).
What is a Candlestick Chart?
A Candlestick chart is a technical analysis chart where prices are indicated using ‘Japanese Candles’.
What is Carry Trade?
Carry trade means keeping a trading position with a positive overnight interest return. Individuals who are practicing curry trading are called curry traders.
What is Cash Flow?
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.
Which are the Categories of Forex Pairs?}
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.
What is CCI (Commodity Channel Index)?
CCI is a cyclical technical indicator identifying when a market is overbought/oversold.
What are Central Banks?
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.
What is a CFD?
A contract for difference (CFD) is a specialized trading instrument that provides speculation on stocks, indices, commodities, and other financial assets.
What is the Chain Store Sales Indicator?
It is an economic indicator for measuring the dynamics of retail sales.
What is the Clearing Process?
The clearing is the process of trade settlement.
What is Collateral?
The term collateral describes the amount that is deposited by a trader as insurance in order to trade.
What is Commission?
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 the bid and ask.
What is Confirmation in TA?
Confirmation in technical analysis is the process when some indicators are used to confirm the results of another indicator.
What is Correction?
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.
What is the Counter Currency?
In Forex trading the counter currency is the second currency of a Forex pair. For example in EURUSD, the counter currency is USD.
What is CPI?
CPI stands for the 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.
What is a Currency Option?
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 between 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)
What is a Currency Pair?
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.
What is a Currency Rate?
A currency rate is the price rate of a particular currency against another particular currency.
What is a Currency Symbol?
A Currency Symbol (ie USD, NZD) is indicating a particular currency.
What is a Day Order?
A Day Order is an order to buy or sell a financially traded asset that will stay active until the end of the trading day.
What is Divergence?
Divergence in the technical analysis means that the charts produced by indicators differ from price charts.
What is Double Top / Bottom Formation?
This is a technical analysis pattern that 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.
What is an Economic Indicator?
An economic indicator is a fundamental indicator describing important trends in an economy (GDP change, unemployment, inflation, etc).
What is an ECN Broker?
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 the best choice to trade Forex.
Compare ECN Brokers at FxPros: https://fxpros.net/Brokers
What is the Efficient Market Theory?
It is a market theory that assumes that all-important economic and other factors are already incorporated into the current prices.
What is the European Central Bank (ECB)?
The European Central Bank is the financial institution authorized by the European Union to regulate Eurozone and implement Europe’s monetary policy.
What is an Exchange Rate?
In Forex an exchange rate is the rate that which a currency can be bought or sold for another.
What is an Expert Advisor?
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 Custom Creation: EA Builder (Custom EAs)
What is the Fed?
FED or Federal Reserve Bank is the central bank of the United States of America.
What is a Flat Market?
A Flat Market is a market without a particular direction. Flat markets are a common phenomenon during periods when trading activity is minimized (for example during July or August).
What is the Fibonacci Retracement?
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 23.6%, 32.8%, 50.0%, and 61.8% of the current trend range.
The Fibonacci Levels: 23.6% | 32.8% | 50.0% | 61.8%
What is Forex?
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.
What is Free Float?
Free Float in stock trading is the number of free shares available to the investing public as a percentage of the total shares capital outstanding.
What is Fundamental Analysis?
Fundamental Analysis is the financial analysis that is based only on fundamental news and events. Fundamental Analysis includes economic factors such as the change in inflation, GDP, unemployment, interest rates, etc.
What is G8?
G8 is a group of the 8 most developed countries in the world, including the US, Japan, the United Kingdom, Germany, Russia, France, Italy, and Canada.
What is a Gap?
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).
What is the GDP?
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.
What is GNP?
The Gross National Product (GNP) is measuring the total gross domestic product (GDP) plus income, gained from investments or work abroad.
What is a Greenback?
A Greenback is the Forex slang for the US Dollar.
What is a Hard-currency policy?
A monetary policy imposed by Central Banks aims for domestic currency appreciation against other currencies. This policy is achieved usually via an increase in the level of domestic interest rates.
What are Hedge Funds?
Hedge Funds are investment funds that hedge their investment positions against risk.
What is Hedging?
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’.
What is the Home Sales Indicator?
It is a macroeconomic indicator measuring the sales of real estate in the secondary housing market.
What are the Housing Starts and Permits?
It is an index measuring the current number of houses under construction and the current number of construction permits.
What is IFO?
IFO is the German business optimism index measured by the German Institute of Economic Research.
What is the Industrial Production Index?
It is an important macroeconomic index measuring the total output of industrial production in a certain time period.
What are Interbank Rates?
Interbank Rates are the currency rates imposed by large International Banks in order to lend capital to other banks.
What is Intraday High?
It is the highest price of trading activity on a particular day.
What is Intraday Low?
It is the lowest price of trading activity on a particular day.
What is Intraday Trading?
Intraday-Trading or Day-Trading means buying and selling a financially traded asset (for example a currency pair) during the same day.
What is Inflation?
Inflation is an economic index measuring changes in the level of prices of goods and services. Inflation is often called the ‘hidden tax’ as it diminishes the purchasing power of consumers. In general, higher levels of inflation constitute ‘bad news for the economy.
What is the Japanese Economy Watchers Survey?
It is a survey measuring the business climate in Japan.
What is the Japanese Machine Tool Orders Indicator?
It is an indicator measuring the total value of new orders placed with machine tool manufacturers.
What is the Jobless Claims?
It is an important macroeconomic indicator measuring the number of registered unemployed.
What is the JPN225?
The JPN225 is the name of the Japanese index NIKKEI-225 index.
What is Kiwi?
Kiwi is the Forex slang of the NZD (New Zealand Dollar).
What is the Knock-Ins Strategy?
It is an options trading strategy that requires the underlying asset to reach a certain price level before a previously bought option becomes active
What are the Leading Indicators?
A leading indicator refers to an index containing the most crucial macroeconomic indicators.
What is Leverage?
The 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 is usually 2:1
□ Forex Trading: Leverage is usually 200:1
What means Liquidity / Liquid Market?
A liquid market is a market that which 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).
What means Long?
Go Long means buying a financial asset. The opposite of Go Long is to Go Short (Selling).
What is a Lot?
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
What is Margin and Margin Call?
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 is 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 for the position to remain active.
What is Momentum?
Momentum is a technical analysis term that means that the price of a financial asset shows strength to move in a particular direction (uptrend or downtrend).
What is Moving Average (MA)?
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
What are Net Factory Orders?
Net Factory Orders are measuring the net change of industrial activity (industrial orders).
What are the Nonfarm Payrolls?
The Nonfarm Payrolls measure the aggregate number of employees on the payroll in an economy except for the agricultural sector.
What is the Old Lady?
Old Lady is a Forex slang that corresponds to the Bank of England (BOE).
What is an Open Order?
An open order is an order that will stay active until it is filled or canceled
What is an Open Position?
An open position is an active trading position.
What is an Oscillator?
An Oscillator is a technical analysis tool used for price movement forecasts.
What is an Output Index?
An output index is an index measuring the production volume output.
What is a PAMM Account?
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 Managers can’t withdraw their funds.
What is the Personal Spending Indicator?
The personal spending indicator measures the change in individual spending in an economy. When individual spending is increased then the market expects higher growth and higher inflation in the future.
What is a Pip?
Pip is a 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.
What is a Pivot Point?
A Pivot Point is an average price that is calculated based on the previous High, Low and Close and it is considered an important support/resistance level.
What is PPI (Producer Price Index)?
PPI is the index of producer prices. When PPI increases it means ‘bad news’ for the corresponding economy.
What is a Premium?
A premium measures the amount at which future prices will surpass the current spot prices. The opposite of a premium is a discount.
What is a Price Channel?
A price channel is a range that sets the limits of price movement.
What is a Quotation?
A quotation is a process of indicating the value of a currency in the units of another currency.
What is Quote?
The quote is a market price.
What is the Quote Currency?
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.
What is the Retail Price Index (RPI)?
It is a UK macroeconomic indicator measuring the change in retail prices.
What is Rollover?
Rollover has much meaning in finance when trading derivatives it means moving the delivery date forwards.
What is RSI?
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=70-80
■ Oversold below RSI=20-30
What is Scalping?
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.
What is Slippage?
Slippage in the execution of an order means opening or closing a trading position at a different price than expected. It is a delay in order execution that can highly disturb short-term traders and especially scalpers.
What is Spot?
The spot is a transaction that is carried out immediately but the payment is settled within two days.
What is Spread?
The spread is the difference between the ask and bid of the price of an asset and it is measured in Pips.
What is a Square?
It is a situation when the total profits materialized in a certain trading period are equal to the total losses.
What is Sterling?
Sterling corresponds to the British Pound (GBP).
What is an STP Execution?
STP means Straight-Through-Processing and it is a type of Forex Execution that doesn’t involve manual intervention or order execution.
What is Support & Resistance?
Resistance is a price level of important expected supply and support is a price level of important expected demand.
What is Swap?
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.
What is the Swissy?
Swissy is the Forex slang name for Swiss Franc (CHF).
What is a Take-Profit Order?
A Take Profit Order is a trading order that will close a certain trade when it will reach a particular price level.
What is Technical Analysis?
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.
What is a Tick?
Tick is the minimum one-time price change of a financially traded asset.
What are Time Cycles?
Time Cycles are used to describe the repetition of price movements forming a pattern in particular time frames.
What is a Trader?
A trader is an individual who is buying and selling financial assets in order to make a profit.
What is a Trading platform?
A trading platform is a software program that can be used for trading the financial markets.
What is a Trailing Order?
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.
What is Transaction Cost?
Transaction cost is the incorporated trading cost when buying or selling a financial asset.
What is a Trend?
A Trend is a strong market direction that may be either an Uptrend or a Downtrend.
What is an Uncovered Transaction?
An uncovered position is a position that isn’t yet filled (open position).
What is the Unemployment Rate?
The unemployment rate is a very important macro-economic figure which indicates the percentage of the unemployed population against the total number of labor-able populations in an economy.
What is an Uptick?
An uptick is called the new price quote if it is higher than the previous price quote.
What is an Uptrend?
An uptrend is an ascending price trend that is usually found in bullish markets
What is Value Date?
The value date is the date of settlement of a spot or a forward transaction.
What is Value Spot?
Value Spot means a settlement after two working days from today.
What is Volatility?
Market Volatility is a statistical measure that calculates the number of price changes in a market for a given period of time.
What is Volume?
Volume measures the level of trading activity in a financial market.
What is a VPS?
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 VPS hosting is that it allows trading 24/5 without having your PC open.
What is Wash-Trade?
Wash Trade means to trade with neutral results, no profit no loss.
What means the Wholesale Prices Index?
The wholesale Prices Index is a macroeconomic index measuring the rate of change in wholesale prices.
What is Yard?
Yard in Forex Trading is slang that means 1 billion US Dollars.
What is ZEW?
ZEW is the Center of European economic research. It was founded in 1990 and it is located in Germany (Hamburg).
■ Forex Trading Glossary