A


Asset

An item with commercial or exchange value. The commercial value of a resource is not fixed; it changes from time to time as a result of several factors that can cast an effect on the supply and demand of the resource. It is this change in the perceived value of the resource that confers on its economic and commercial importance. Financial markets provide a standardized template on which assets can be exchanged for a value bestowed on it by the concurrence of traders and the intermediaries (brokers) in such transactions.

Ask

The price at which a currency pair or security is offered for sale. The “ask” is the quoted price at which an investor or trader can buy a currency pair, or the price at which a dealer will sell a currency pair to a trader. This is also known as the "offer", "ask price", and "ask rate". In a price quote, there are two prices that are listed, and it is the price listed on the right hand side of a price quote that constitutes the “ask”. The ask price is always higher than the bid price. E.g. in a quote that is listed as 1.2346/1.2349, 1.2349 is the ask price.

B


Base Currency

In terms of foreign exchange trading, currencies are quoted in pairs for you cannot trade one currency on its own. A currency is always traded in exchange for another. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a currency pair. In expressing the exchange rate, the rate is quoted as the value of the other currency in relation to 1 unit of the basic currency. For instance, when a quote of EUR/USD is said to be 1.3109, it means that 1.3109 US Dollars can be used to purchase 1 unit of the base currency (Euro Dollar). Examples: USD/JPY, the US Dollar is the base currency.

Bear Market

A market distinguished by declining prices. In this market, a market operator, a trader or an investor speculates on the fall in value of an asset and will therefore sell an asset based on their sentiment of market expectations. When there are more ‘bears’ in the market place than there are buyers (bulls), then the market price of the asset will depreciate.

Bid

The price at which a dealer is prepared to purchase a currency from an investor or trader, or the price at which an investor or trader can sell a currency pair to a dealer. This is also known as the "bid price" and "bid rate". In a price quote, there are two prices that are listed, and it is the price listed on the left hand side of a price quote that constitutes the bid. The bid Price is always lower than the ask price. E.g. in a quote that is listed as 1.2346/1.2349, 1.2346 is the bid Price.

Breakout

A breakout is a situation when the momentum of the price action is so strong that it moves beyond key levels of support (downside breakout) and resistance (upside breakout). Breakouts usually occur as a result of high impact news releases or some other factors that cause traders in the market to generally place orders in one direction.

Broker

An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market, brokers tend to act as intermediaries between banks, bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries.

Brokerage

A company that offers trading services to the public.

Bull Market

A market distinguished by rising prices. In this market, investor speculates for a rise in prices of tradable instruments. The bulls will therefore buy an asset based on their sentiment or on their market expectations. When there are more bulls in the market place than there are sellers (bears), then the market price of the asset will appreciate.

Buy

An opening of a long position and a closure of a short position. Traders generally buy when there is an expectation that the price of the asset or that the exchange rate of the currency pair will increase. A buy order in Forex is an instant market order to purchase asset(s) at the market (current) price.

C


Central Bank

A government or quasi-governmental organization which regulates the behavior of financial institutions within its borders and carries out monetary policy. A central bank is responsible for issuing a nation’s currency, controlling its supply and in some cases, acting as a lender of last resort to provide emergency financing to the nation’s banking system. The US central bank is the Federal Reserve, and the China central bank is the People's Bank of China (PBC or PBOC).

Centralized Market

A centralized exchange where all orders in the market are routed to, with no other competing exchanges receiving any orders/quotes. As such, all price quotes obtained from that exchange are the same that are given to all participants in that market.

Closed position

Executing a security transaction that is the exact opposite of an open position, thereby nullifying it and eliminating the initial exposure. Closing a long position in a security would entail selling it, while closing a short position in a security would involve buying it back.

Collateral

A tool for safeguarding a loan or as a guarantee of performance.

Commission

Broker's bonus for facilitating transactions. A commission is different from the spread, which is usually the difference between the price that a broker is ready to pay for an asset and the price that the broker is ready to buy back the asset from a trader. A commission is a fee charged for enabling a transaction to occur. In the Forex market, commissions are only charged in an ECN environment to cover the cost of maintaining the FIX protocol on which the electronic communication network works.

Commodities

These are tradable financial instruments whose contracts are based on materials of value that are either extracted from the ground (hard commodities such as gold, natural gas, oil), or are based on agricultural products (corn, coffee, cocoa, wheat).

Consolidation

This refers to a period of time in the market when prices are restricted to a tight trading range. Consolidation occurs when the majority of traders sit on the sidelines, leading to very low trading volumes.

Contract

The standard unit of trading.

Currency

Money issued by a government. Currency has evolved over centuries from grains to other times that were considered stores of value, to gold and silver, and then graduated to the use of minted coins and paper money. It is a form of money used as a unit of exchange within a country. Money is known as currency because once the issuing agency (the central bank) has decided on the amount of money that is in circulation at any given time, the existing amount of money in a system flows from one person to another based on the exchange of goods or services for it, and this is likened to a river current that flows from one point to the other.

Currency Pair

A conversion operation object based on the change of one currency rate against another. The example of the currency pair is USD/JPY. Currency pairings are done because it is the rate of exchange of one currency to another currency that is measured in the Forex market. A currency cannot be traded against itself, and thus currencies are paired so that they reflect the rate of exchange of one currency against another. In a currency pair, the first listed currency is the base currency while the currency listed on the right is known as the counter currency.

D


Day Trading

Refers to a style or type of trading where trade positions are opened and closed within the same day. Day trading requires trader analyse the market using short term charts (e.g. the 1 minute, 5 minute, 15 minute and 1 hour charts), identify currency pairs that have the potential for moving between 10 and 100 pips, and then executing the trade using this pip range as the target and stop prices. A popular day trading technique is trading the price spike that follows market high-impact news releases, in which the trader aims to capture market movement resulting from the price spike following the news release.

Dealer

An individual who acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

Dealing Desk

This is the department in a market maker brokerage firm that is responsible for the execution of trade orders in the Forex market. Dealing desks act as intermediaries between the trader and the liquidity providers, matching buyers with sellers and fulfilling sell orders with buy orders. Dealing desks can also be found in banks and finance houses.

Delivery

An FX trade where both sides make and take actual delivery of the currencies traded.

Depreciation

A fall in the value of a currency due to market forces.

Devaluation

The deliberate downward adjustment of a currency's price, normally by official announcement.

Direct Quote

This is a quote that expresses the exchange rate in terms of how much of the domestic currency or the currency under reference can purchase one unit of another currency. So instead of the conventional quote for Euro vs US Dollar being expressed in terms of the base currency (EUR/USD = 0.9860), the direct quote is expressed in terms of the counter currency to the base currency.

Diversification

The acquisition of a wide range of securities in order to reduce risks: the drop of rate of certain securities is covered by the growth of price of others. The history of the Kimberly Clark Company is one of successful diversification. The company worked in a pulp and paper industry sector. At one point, company managers realized that it became difficult for the company to develop in this sector on the world scale. The major incentive was to find a new market, a new industry, and a new strategy. And Kimberly Clark developed Procter & Gamble Company in the sector of paper consumer goods. They began to produce "Haggies" diapers, cosmetics and by now they have successfully realized their goal.

E


EA (Expert Advisor)

An expert advisor or Forex robot is a software whose algorithm is based on a trading strategy of the trader’s or others’, which is translated into MQL and is programmed to open and close trades in the market automatically based on the trading strategy it has been programmed to work on.

Electronic Communication Network

An electronic communication network (ECN) is the term used in financial circles for a type of computer system that facilitates trading of financial products outside of stock exchanges. The primary products that are traded on ECNs are stocks and currencies. FX ECN brokers provide access to an electronic trading network, supplied with streaming quotes from the top tier banks in the world. By trading through an ECN broker, a currency trader generally benefits from greater price transparency, faster processing, increased liquidity and more availability in the marketplace.

ECN Broker

An ECN (electronic communications networks) broker is a broker that provides STP (straight through processing) for pricing and order executions to its clients without the intervention of a dealing desk. ECN brokers obtain pricing straight from the liquidity providers and offer the pricing to traders without interference or mark-up. ECN brokers therefore offer the most transparent pricing model in the market.

Equity

The balance of funds on the trade account. It is calculated using the following formula: Equity = Balance + (Floating Profit – Floating Loss). In other words, the equity in an account is calculated by adding the unused balance in the account to the difference between any floating profits made and floating losses in active trades.

European Monetary System (EMS)

EU countries relation in currency sphere, which has a goal to provide a stable national currencies rates ratio. Another goal is the facilitation of stabilization of foreign economic relations in general.

Exotic Currency

An exotic currency is one that is thinly traded and as such, has little liquidity and very wide spreads. Examples are the Swedish Krona (SEK), Norwegian Krone (NOK) and Turkish Lira. On the Forex platforms, the pairings of these currencies usually have very wide spreads. E.g. the EUR/SEK has spreads of up to 50 pips on some platforms. As a consequence, they also have wide intraday ranges. Examples of exotic currency pairings include EUR/SEK, EUR/NOK, and USD/ZAR etc.

F


Fill

The process of completing a customer's order to buy or sell a currency pair. In an ECN (electronic communications networks) environment, the trader’s fill is usually at the price that he has ordered from a liquidity provider. In a dealing desk environment, the trader’s fill may not necessarily be at the price which he ordered, especially in a situation of market volatility.

Fixed Spread

This is a situation where the difference between the bid and ask prices is always the same, irrespective of market demand or volatility. Fixed spreads are a feature of dealing desk trading in the Forex market.

Floating Profit and Loss

Unrecorded gains/losses on the open positions of a certain tool at current rates values. Another name for floating profit or loss is unrealized profit or loss. In so far as the positions are open, whatever profit or loss shown on the platform represents the floating profit/loss.

Foreign Exchange (Forex, FX)

Defines the simultaneous buying of one currency and selling of another. This is also used to describe the market in which currencies are bought and sold against each other with the aim of profiting from the change in the exchange rates between one currency and another. In everyday language, it’s used to connote foreign currency.

Forward

The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.

Futures Contract

An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a future and a forward is that futures are typically traded over an exchange (Exchange-Traded Contracts - ETC), versus forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.

G


Good 'Til Cancelled Order (GTC)

An order to buy or sell at a specified price. This order remains open until filled or until the client’s call for cancellation. It is used by a trader when he/she feels that the conditions under which the asset in trade worth the fill of an order and can bring favourable returns for the trader, irrespective of how long it takes.

H


Hard Currency

A currency that has wide acceptance and usage internationally as a result of the stability of the country of its origin as well as its reputed status among others in the international trade. As a result, hard currencies are widely traded due to the global demand and this translates into great liquidity for these currencies. An example of hard currency is US Dollar which is used for settlement of most international transactions. Notably, the value of hard currencies does not experience wild swings in fluctuation.

Hedge

A transaction that reduces the risk of an existing or primary investment position. A hedge is a transaction which is used to cover for any losses that may be incurred on another investment. An example of a hedge is using a short option on the currency futures market to cover for a long position on the spot Forex market. The way the hedge is constructed is such that if the investment is being hedged successfully, the losses from the hedging position will be far less than the profits from the hedged trade, and if the hedged trade ends in a loss, the hedge trade’s profits will outstrip the losses from the hedged trade.

Hedging

An insurance operation against adverse market changes through a counter-purchases or sales of assets. This is the active use of an opposing position in another market to cover for any losses that may be incurred from an investment in a certain market.

Hedged Margin

A hedged margin means holding an equal volume of trade on the buy and sell side of an active position simultaneously. This means that if a trader holds 0.5 lots on a long order on EURUSD and also holds 0.5 lots on a short order on EURUSD, the net gain/loss is neutralized until the trader closes one of the positions. This works well as a hedging strategy on well-funded accounts. It is used when the trader is suddenly unsure of the outcome of a trade and has no time to utilize a proper hedge on another market.

I


Indirect Quote

A system of currency price quotation where the quote is expressed in terms of the amount of units of a foreign currency for the purchase of a unit of the local currency. Put it in another way, indirect quote takes the countries involved in the quote as reference point. If a Canada trader intends to ‘indirect quote’ USD/CAD, that quote will be expressed as the amount of units of US Dollar required to exchange for a Canada Dollar e.g. 1.0078 USD = 1 CAD.

Inflation

In the study of economics, inflation refers to an economy where there is a continual rise in the general price level of goods and services within a certain period. Achieving moderate inflation is a major goal of economic policy, which is also the role of a central bank.

Interest

Borrowed funds and remuneration paid to the lender.

Introducing Broker (IB)

Any individuals and / or legal entities who forms business relationship with brokers through the introduction of customers.

Initial Margin

The deposit a customer needs to make before the allocation of trading limit bestowed upon him. Also, it can be understood as the initial capital a trader should have in his account to be used as collateral for every leveraged trade opened in the market, which is a mandate from a broker to a trader. The requirements for initial margin may vary with brokers’ and country’s standard of regulation. In the US, for instance, FINRA (Financial Industry Regulatory Authority) requires traders to have an initial margin of 25% of the amount obtained from the broker as a leverage for the trade.

Instant Execution

The provision of quotes to the trade system without a request. An instant execution is an instruction of trader to a broker to fill order at market price. It is used when the trader wants to get into a position immediately so as to benefit from that position.

Interbank Market

This is a financial market which features strictly bank-to-bank trading of currencies, money market and other financial instruments. To put it simply, this is the banks’ market, which allows no investors other than banks to trade. An example of an interbank market is the interbank currency auction where central banks sell foreign exchange to commercial banks, who now also provide services for other clients who are interested to buy them.

Interbank rates

The foreign exchange rates at which large international banks quote other large international banks.

J


K


L


Leverage

A ratio between the amount of funds in a customer’s account (deposit) and the offered funds by a broker. Forex market trades in the range of tens of thousands (mini-lot accounts) or hundreds of thousands (standard lot accounts), to which many have problems affording the amount. Thus, an offer is made by the broker to match the trader’s funds with a corresponding ratio of trading capital so to meet the obligation for trading. These borrowed funds provided by the broker is what people refer as ‘leverage’. The amount of leverage in place relies on the ratio of the trader’s funds to the broker’s funds. For instance, when the leverage minimum in the US is 1:50, it means for every $1,000 of the broker, it matches with the trader’s funds of $50,000.

Limit and Stop Levels

These are the price levels at which a Forex trader has set ‘take profit’ and ‘stop loss’ targets. Some trading platforms require the trader to set the ‘take profit’ and ‘stop loss’ targets using a limit and stop order. The price levels that are chosen for these targets are known as limit and stop levels.

Limit Order

An order with restrictions on the maximum price to be paid or the minimum price to be received or to execute a transaction at a specified price (the limit) or better. A limit order to buy would be at the limit or lower, and a limit order to sell would be at the limit or higher. This order type is used when the trader expects the market to retreat before advancing (for Buy Limit) or to advance before retreating (for Sell Limit). Another way of using the limit order in an open trade is to set a profit target so that once the trade reaches the limit target, the trade will automatically close in profit.

Liquid Market

This is a market with an abundance of buyers and sellers, such that trade volumes are high and it is not difficult to get matching order quotes filled because there is always a ready buyer or seller to match any order type. Orders in a liquid market are fulfilled instantly because there are always buyers to buy sold orders and sellers to match bought orders.

Liquidation

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

Liquidity

Refers to the relationship between transaction size and price movements. For example, a market is "liquid", if a market is managed to accept large transaction with minimal or no impact on price stability. The Forex market is described as being very liquid because transactions that are carried out in this market are in the range of hundreds of thousands to millions and billions of dollars. Where traders can only afford hundreds to thousands of dollars, market makers step in to acquire positions from the liquidity providers so as to bridge the liquidity gap, and these positions are resold to such traders in smaller chunks.

Locked Positions

Buy and sell positions on the same asset with the same trading volume. Locking of positions is an urgent hedging action taken to prevent the increment of floating loss in a trade that has moved adversely to a trader’s position. If a trade in one direction is going bad and there is a likelihood it may continue for some time, the trader may decide to place another trade in the opposite direction to curtail further losses and buy time to evaluate the positions.

Long Position

Open position to buy an asset, with the expectation of profiting from advancing prices. In Forex, a long position involves buying the base currency and simultaneously selling equivalent units of a counter currency.

Loss

A loss is a situation where the price of a currency pair moves against the direction of the trader’s position such that when the trade is closed. The trader ends up with less account equity than when he started the trade. For instance, if a trader goes long on the EUR/USD at 1.2908 and sets a profit target of 1.2958 and stop loss of 1.2868, and the currency retreats to hit the stop loss at 1.2868, then the trader has experienced a loss on the trade.

Lot

Exchange transactions unit. A lot is the measure of the trade volume or trade amount invested in a Forex trade, and is equivalent to 100,000 units of the base currency in a Forex transaction. A Standard lot can be subdivided into mini-lots (one-thousandth of a lot or 1/1000 lots) and micro-lots (one-millionth of a lot or 1/1,000,000 lots).

M


Maintenance Margin

The minimum amount of margin that a trader must make available in his account in order to keep an open position, or maintain a specific position.

Margin

The guarantee, which is required by the dealer from the trader, to maintain an open locked position or locked position that the client intends to open. Each tool, asset or market has its own margin requirements. The margin is the collateral on a leveraged trade.

Margin Call

A call for additional funds in a margin account either because the value of equity in the account has fallen below a required minimum (also termed a maintenance call) or because additional currencies have been purchased (or sold short). Usually, a trader is required to have an initial margin as collateral for a leveraged trade. When the trade incurs a floating loss, this is deducted from the trader’s margin and not from the leveraged funds. When the loss is about to wipe out the trader’s equity, the broker will issue a margin call, asking the trader to add more funds or risk the trade being closed out automatically to preserve the leveraged funds.

Margin Call Level

This is the price level that an asset will get to, before the broker issues an instruction to the trader to add more funds to his account, or risk the closure of all open positions. Before signing up for a leveraged trading account such as is obtainable in the forex market, the trader has to agree that a particular price level will be used in the calculation of when a position is closed to protect the broker’s equity in a bad trade. This is the margin call level.

Market Depth

This is the size of an order that is required to move the markets by a certain degree, or to change the price of an asset by a certain degree. An increased market depth means that there is a lot of liquidity in the market, while reduced market depth means that assets are illiquid. A market with increased market depth makes it easier to get pricing with lower spreads and more instant order fulfillment.

Market Maker

A person or firm that provides liquidity by making two-sided prices (bids and offers) in the market. In Forex, transactions require large volumes to avoid large swings in prices, and this requires traders to trade with volumes of at least several hundreds of thousands of dollars to millions of dollars. Due to the fact that many traders cannot afford these sums, market makers step in to buy off assets and hold both buy and sell positions on the assets, which are then offered in smaller chunks to retail traders to buy in tens of thousands of dollars per transaction.

Market Order

An order made by client for an immediate purchase or sale of a security at the (current) price of the market. This can also be described as an order/instruction by the trader to the broker to fill an order immediately at the present price of that asset in the market.

Market Price

This is the price that currently exists for an asset in the market. For instance, if the price of a currency pair is quoted at 1.2890/1.2893 in real time, then that is the market price of the asset.

Market Rate

The current quote of a currency pair. This is the rate at which a currency can be used to exchange for another currency in real time.

Maximum Lot

This is the maximum allowable trade size/volume that a trader can use for a forex trade on his broker’s forex trading platform.

Minimum Lot

This is the minimum allowable trade size/volume that a trader can use for a forex trade on his broker’s forex trading platform. Some brokers allow a minimum lot of 0.1 lots while some others allow 0.001 lots (1 micro-lot).

N


NASDAQ Index

An after-market, wholly electronic index specialized on shares of leading technology companies. Created as a successor to the Over-the-Counter (OTC) market in 1971, the NASDAQ index is plotted as the average weighted shares market price. Trading in NASDAQ securities is done electronically using online trading exchanges, which is different from the way the NYSE securities are traded (auctioning on the trading floor). It is traded as a stock index. Despite being known for its technology stocks, other sectors such as pharmaceuticals are also listed on the NASDAQ index.

Nikkei 225 index

The Nikkei 225 index was launched by the Nihon Keizai Shimbun (Nikkei)’s the Tokyo Stock Exchange with as many as 225 varieties of stock index.

No Dealing Desk

The process of delivering prices from the liquidity providers to traders without a department in the broker’s office acting as trade or pricing intermediary. ECN brokers operate a ‘no dealing desk’ environment.

O


Open Market

The term ‘open market’ is used to describe a market which is open to all participants and where traders can participate in buying and selling of securities without restrictions. This also refers to a deregulated market. Prior to 1997, the Forex market was not an open market, but after deregulation of the market that year, individual traders were allowed to come into the market place, making the Forex market an open market.

Open Position

Any position (long or short) that is subject to market fluctuations and has not been closed out by a corresponding opposite transaction. Further, it is a deal not yet reversed or settled with a physical payment. On Forex platforms, there is a tab that displays all open positions. This information is important especially if the trader has several of such positions open, so that they can all be tracked, and the trader can also use the information to check his market exposure to avoid excessive risk.

Order

A client’s order to buy or sell a certain amount at a given rate. There are several types of orders, and these can all be compressed into two main order types: market orders and pending orders. Market Buy and Market Sell are the instant (market) orders, while Order Cancels the Other (OCO), Buy Stop, Sell Stop, Buy Limit, Sell Limit, Entry Limit/Stop, Good till Day (GTD) and Good Till Cancelled (GTC) are all pending order types.

P


PAMM

It is the abbreviation of Percentage Allocation Management Module. It is a technology that allows traders and investors to invest, and allows traders to take advantage of brokerage system which brokers uses to manage investors’ funds on the platform.

Pending Order

A client’s order to open a position when a price reaches a certain level. A trader may decide to use a pending order if the current market prices are deemed unfavorable to profit from, but are expected to get to price levels where the odds of profitability are improved. Pending orders are also used when the trader expects prices to retrace to cheaper levels before resuming the previous trend, or when the trader is waiting for confirmation of a break of a key level before entering in the direction of breakout.

Pip

The smallest increment of change in a foreign currency price, either up or down. A pip is known as percentage interest point, and is equivalent to 0.0001 or ten-thousandths of a unit number of 1. For the Yen crosses, a pip is equivalent to 0.01.

Point

The word ‘point’ can be used in different ways in the financial markets. It could be used to mean the minimal price change in an asset or currency pair. E.g. initial price of the security was 1.3550 and it has dropped to 1.3545. It means that there was a 5-point rate change. A point can also be used to refer to ‘basis point’, which is one-hundredth of a percentage point or 1/10000. It is a term popularly used to describe the changes in the interest rate in one year for a currency. Point can also be used to refer to percentage point, which is the arithmetical difference between two percentages.

Portfolio

It refers to the variety of combination of investments which are held by financial institutions or investors. Some of them are inclusive of stocks, bonds, futures contracts, options, real estate investments and other financial instruments.

Position

The amount of a security either owned (which constitutes a long position) or borrowed (which constitutes a short position) by an individual or by a dealer. In other words, it’s a trade an investor currently holds open.

Premium

In the currency markets, describes the amount by which the forward or futures price exceed the spot price.

Price

The price at which the underlying currency can be bought or sold. Usually, pricing can be provided by market makers to the trader (indirectly), or from the liquidity providers (banks) directly in a non-dealing desk environment. Pricing of currencies can be either driven by market demand, or by government intervention.

Price Transparency

Describes quotes to which every market participant has equal access.

Profit

Customer’s revenue from a completed transaction. In terms of profit, the trader can consider his revenue from the trade, or revenue over a time period from a succession of trades. For a single trade, a profit is made when the price of the asset moves in the direction of expectation of the trader’s position. So for a long trade, the trader makes profit when the price of the asset moves higher;for a short trade, when the price of the asset is lower. When profitability is viewed over a time period, then the trader has to make more from his winning trades than he has lost from his losing trades for the time period in view for a profit to have been made.

Q


Quote

A security price considered while buying and selling. While it is an indicative market price, it is normally used for only information purpose. It is expressed in Ask and Bid prices, and the quoted prices are always that of the counter currency (quote currency) to one unit of the base currency. A price quote is made up of the highest price that the trader is willing to pay for the asset as well as the lowest price that the dealer is willing to accept for the asset. A typical quote for the EUR/USD is 1.2940/1.2943, where the first price is the Bid price and the second price is the Ask price. Both prices indicate how much of the counter currency (USD in this case) is used to buy 1 unit of the base currency (EUR in this case).

Quote Currency

The second currency in a currency pair, for which a client is able to sell/buy a base currency. For instance, in the currency pair USD/JPY, Japanese yen is the quote currency. The quote currency is also called the counter currency, and gets its name because the exchange rate is usually stated as the price of the quote currency against one unit of the base currency. So in a rate quote that states that the USDJPY is 79.34, the figure ’79.34’ simply means that 79.34 Yen will be used to buy 1 US Dollar.

R


Range

The difference between the maximum and minimum prices of a certain time period. The range is the distance between the highs made by the price of an asset and the lows made by the same asset within the same timeframe. The range can then be used to make certain trading decisions such as where to apply profit targets and where to apply stops. The range can also tell a trader how much movement a currency pair has in any given time period. Identifying the range is also the basis of trading by range traders, who typically buy at the price lows and exit at the price highs, then sell at price highs and exit at price lows.

Rate

The price of one currency expressed in the unit price of another country’s currency. Usually, the rate is expressed as the price of a counter currency (the 2nd currency in a currency pair) as against one unit of the base currency (the currency on the left of a currency pair). So when we express the rate of EURUSD as 1.2940, we are saying that the rate at which a trader will sell one Euro for the USD is at 1.2940 US Dollars.

Requotes

This is a phenomenon that occurs when prices have moved between the time that they are displayed and the time the trader clicks on the order execution button on his platform. The trade is not executed; rather the trader is asked to either accept the new price for his order to be executed, or the order execution is cancelled if no action is taken in a matter of seconds.

Revaluation

An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation.

S


Scalping

This is the trade practice of opening and closing positions manually within a few minutes of each other in order to capture small market movements and gradually build these up over time to produce increased profits. Scalpers use larger position sizes in order to make more money from the smaller pip targets.

Sell Limit Order

An order to execute a transaction only at a specified price (the limit) or higher. The sell limit order is used when the trader has a bearish expectation for the asset, but expects the asset to rise higher up to the nearest resistance point before resuming the downward move. A sell limit is a pending order, and using a sell limit ensures that traders benefit from an asset which still has some upward momentum which is not expected to last long.

Short Position

The situation when a currency sale has occurred and has to be covered with the respective buy. A short position is assumed by the trader on an asset when there is an expectation that prices will fall, and in the Forex market, this is executed by selling the base currency and simultaneously buying the counter currency, and then re-exchanging the currencies by buying the base currency at a lower price with the counter currency which now has a higher value.

Short selling

Short selling refers to selling of securities of the borrowings from brokers, which later you buy it back at a lower price before returning to the brokerage and thus a profit is gained through the price drop in the securities. Short-covering means buying back the assets, so to reduce the amount of short positions or the closure of them.

Slippage

In foreign exchange trading, slippage occurs when the price of limit orders or stop order is different from the initially set price. Usually, slippage is generated as per the influence of market fluctuations (which may also be caused by breakout), resulting in orders not being filled at a certain price. In this case, most Forex traders should trade when the best price is available.

Spot Market

A market where people buy and sell actual financial instruments (currencies) for two-day delivery. The spot market is characterized by very short settlement times. The stock market and currencies market are spot markets. They are the opposite of futures markets in terms of settlement dates.

Speculation

Buy or sell short securities or assets, in hope that to make profit from price fluctuations within a relatively short period of time. Speculation is sometimes a derogatory term,but speculative trading in financial markets is facilitated to bring up capital and liquidity as well as reducing price volatility under normal circumstances. However, speculative trading tends to increase market volatility in times of economic or political crisis.

Spot Price

The current market price of a currency that normally settles in 2 business days (1 day for USD/CAD). Usually, the price at which the trade was closed is the spot price and this is the price at which the asset is settled in a time frame of T + 2 days, including the day of the ‘T’, the transaction.

Spread

The point difference between the bid and ask (offer) price. The difference between the bid and ask price is the broker’s commission in a forex trade. Market prices are quoted with two prices: the ‘bid’ on the left and the ‘ask’ on the right. If the EUR/USD is quoted as 1.2980/1.2983, then the spread is the difference between these two prices (measured in pips), and this is 3 pips. The lot size of the trade will determine the financial value of the spread of a currency. Spreads are lower in liquid currency pairs (such as EURUSD) and much higher in illiquid pairs such as EURNOK.

Square position

A situation where the trader’s long position is equivalent to short position.

Standard lot

The 100,000 units of base currency used to buy or sell currencies.

Stock exchange

A market of buying and selling financial instruments.

Stop Loss

A client's order to close an open position if the trade has moved against the trader’s position up to a certain price level. It is used to minimize losses. On some trading platforms, this is set on one side of the OCO order, while on some other platforms a stop order is set on an active trade or a stop price is entered during the order process (MT4).

Stop Order

An order to buy or to sell a currency when the currency's price reaches or passes a specified level. A stop order is used in two ways. On some Forex trading platforms, the stop order is used to set the stop loss on an active trade. Another way that the stop order is used is to take advantage of price breakouts. By setting a stop order beyond a key level (above the resistance for long trades and below the support for short trades), the trader can take advantage of a break of these key levels even if he is not sitting in front of his computer.

Stop Out Level

This is the price level at which the broker will automatically close all the trader’s positions as a result of the level of equity in the account dropping to critically low levels. If the margin level is lower than the stop out level, then the stop out will be executed at market price.

Stop-Limit Order

An order placed with a broker that combines the features of stop order with those of a limit order. It will be executed at a specified (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.

STP

Straight-through-processing is an initiative used by companies in the financial world to optimize the speed at which transactions are processed. It allows information that has been electronically entered to be transferred from one party to another in the settlement process without manually re-entering the same pieces of information repeatedly over the entire sequence of events.

SWAP

The payment for transferring an open position overnight. May be both positive and negative. The night from Wednesday to Thursday triples the payment. The swap payment is based on the interest rate differential between the two currencies in a currency pair on which the trade position is rolled over to the next trading day. The swap is positive if the trader has a long position on the currency with the higher interest rate, and negative when the trader is short on the higher yielding currency (or long on the lower yielding currency).

T


Take Profit Order

A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on the said position. This order is used by the trader to automatically close the trade when the position has moved in the trader’s favor up to a certain level. This order is executed by filling a suitable price in the ‘Take Profit’ tab during order execution (MT4), or by using the Limit Order tab or using the other end of an OCO order.

Technical Analysis

An effort to forecast prices by analysing market data, i.e. historical price trends and averages, volumes, open interest, etc.

Trend

A direction of the market movement. If the asset/market is rising in price, the trend is up. If the market or asset is dropping in price, the trend is down. If the price of the asset is hedged in a tight range of prices for a considerable length of time, the trend is sideways/range-bound and the asset is said to be in consolidation.

Two-Way Price

When both a bid and offer rate is quoted for a FX transaction.

U


V


Variable Spread

Variable spreads are a feature of trading in an ECN environment and describe a situation where the difference between the bid and ask prices of a currency pair change according to the demand on the currency pair and the volatility.

Variation Margin

Funds, which are required to bring the equity in an account back up to the initial margin level, calculated on a day-to-day basis. When the trader’s initial margin required to keep a trade open falls below the maintenance margin, the broker will require the trader to fund the account back above the maintenance margin so that the trade stays open. This is what the variation margin is all about.

Volatility

An indicator which characterizes the tendency of a market price change. Expressed in absolute values 5$ ± 5$ or in relative of the initial price 5$ ± 5%. Volatility is a measure of price variations in an asset over a period of time. An asset that experiences wide price variations in a short length of time is said to be volatile. Volatility can also be measured and traded as an asset. A popular volatility-based index is the Volatility Index (VIX).

W


Weak Currency

A currency that fluctuates in value very often, usually to the downside. It can also be used to describe a currency that trades at a low level against other currencies or a currency which requires large amounts of it to be exchanged for lower amounts of a foreign currency.

Whipsaw

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

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