Glossary

Appreciation

When a currency rises in value or in price in response to market demand.

Arbitrage

When a trader has a riskless opportunity to profit from price difference between two or more markets.

Ask Price

Also known as the “Offer”, this is the market price offered to traders to buy currencies.

Account

An account opened by the company for a client that keeps a record of transactions.

Account Currency

The currency in which deposit/withdrawal operations take place.

Attorney in Fact

A person who has the authority to carry out transactions on behalf of somebody else.

Authorized Dealer

A financial institution that is given authority by a regulatory body to deal with foreign exchange and trade foreign currencies.

Automated Trading Software

A computer program that helps a trader during his trading activities. It helps determine whether to buy or sell a currency pair.

Bar chart

A graphical chart that presents the price movements of financial instruments. It consists of high and low prices, opening price and closing price.

Base currency

Base currency is the first currency in the pair. For example, EUR/USD –the Euro is the base currency.

Base rate

The interest rate that is set by the country’s Central Bank.

Bear/ Bear Market

When prices in the market are declining.

Bid Price

This is the price at which you can sell the base currency.

Bid/ask spread

This is the difference between the Bid and the Ask (Offer) price. 

Bollinger bands

A technical analysis tool that measures the highness/lowness of the price in regards to previous trades.

Bond

A debt issued for a certain period of time.

Broker

An individual or company that provides forex trading services to a trader.

Bullish / Bull market

When prices in the market are rising.

Buy Limit

An order placed to execute a transaction at a certain price or lower.

Buy Stop

An order placed to enter long when the price goes up to a certain level or above.

Cable

Another term used to describe the GBP/USD pair.

Call Option

When a trader has the right to buy (call) a financial instrument at a certain price on or prior to the expiration date of the contract.

Candlestick Chart

A chart that presents the daily high, low, opening and closing price.

Carry Trade

A trading strategy that involves buying a currency that pays a high interest rate and funding it by borrowing in a currency with a low interest rate. This could result in profiting.

Central bank

A banking organization that has the responsibility of implementing a country’s monetary policy.

CFDs

Stands for “Contract for Difference”. It is an agreement that involves exchanging the difference in value of shares between the time of opening and closing a contract.

Chartist

Identifying trends in the financial market using charts and technical analysis.

Choppy

A term used for a condition when prices fluctuate in the market.

Close a position

Selling or buying a position that results in the liquidation of the position.

Closing price

The final price that is given at the end of a trading day. It is also the price at which a financial asset is liquidated.

Commission

The fee charged for buying or selling a product.

Counter currency

Counter currency is the second currency in the pair. For example, EUR/USD –Dollar is the counter currency.

Cross

A currency pair that does not include the US Dollar.

Crown Currencies

A currency belonging to a Commonwealth country such as the Canadian Dollar, British Pound, New Zealand Dollar and Australian Dollar.

Currency Pair

The two currencies that make up a foreign exchange rate, for example USD/JPY.

Day trader

A speculator who opens and closes a position within the same trading day.

Depreciation

The decrease in value of an asset or currency over time.

Dividend

A payment made by a company to its shareholders.

Dove

A policy view that proposes easier monetary policies or lower interest rates.

ECN Broker

A broker that provides traders with direct access to other forex market participants.

Economic indicator

Statistical data regarding a country’s economy.

Equity

The secure part of a trader’s account.

Expert Advisor

Also known as EA, this is a computer program used by the trading platform software to help traders with decisions such as which trade to make and execute orders automatically.

Fed

Also known as The Federal Reserve System, this is the central bank of the United States.

FIFO

Also known as First In First Out, this is when the position of a currency pair is closed in the order that it was originally opened.

Forex

Buying one currency and selling another simultaneously. Also referred to as “FX” or “foreign exchange”.

Free Margin

The amount of funds in a trader’s account that can be used to trade.

Fundamental analysis

Analysis of economic indicators and current events that could have an effect on the financial market.

Future

A contract that involves executing a transaction at a certain time in the future when the price is agreed during the present.

Gap

When a quick market move occurs whereby prices skip levels without any trades being executed.

Going long

Buying a financial instrument and expecting it to increase in value.

Going short

Selling a financial instrument and expecting it to decrease in value.

Greenback

Another term used to describe the US Dollar.

Gross domestic product

The market value of all services and goods produced in a country during a certain time period.

Hawk/ Hawkish

When a country’s monetary policy makers believe that higher interest rates are needed. This is in order to fight inflation or prevent rapid economic growth.

Hedge

This is a position that eliminates the risk of a trader’s primary position.

Hit the bid

To sell at the bid price.

Inflation

Purchasing power is decreased due to prices for consumer goods and services rising.

Initial margin

This is the deposit clients must make before they are assigned a trading limit.

Interest

An amount paid at a specific rate for the use of money borrowed.

Introducing broker

An individual or company that introduces clients to a firm in the return for commission.

Knockout option

When an underlying instrument reaches a specific price, an option is cancelled – “knocked out”. They are cheaper than standard options.

Leading indicators

Statistics like unemployment rates and retail sales that help predict economic activity.

Leverage

Allows small investors to trade big lots. The majority of forex brokers have a leverage of 100:1 or 200:1.

Liability

When a person or firm incurs a financial claim, loss or debt.

Limit Order

An order for a broker to buy an asset for a predetermined price or lower. It could also be an order to sell the asset for a predetermined price or higher.

Liquidity

When an asset is bought or sold in the financial market without having an effect on the asset’s price.

Long position

When a currency pair is bought, the base currency is “long”. For example, “going long USD/JPY means going long USD.

Loonie

Another term used for USD/CAD.

Lot

A placed order of 100,000 units. This is the amount of the trading deal.

Margin

The minimum deposit that is required to maintain an open position.

Margin Call

When a broker demands additional funds on a position that has moved against the trader.

Market order

An order to buy or sell at the available price.

Market Price

The price at which a financial instrument is traded for.

Market risk

When a trader is at risk because of changes in market prices.

Momentum

Checking the rate of change in prices in technical studies.

NASDAQ-100

The largest stock market in the United States of America.

Net Position

The difference between long and short market positions.

Offer

Also known as the “Ask” price, this is the market price offered to traders to buy currencies.

OCO

Stands for “One-cancels-the-other order. In a pair of orders, it is when one order is executed and the other is automatically cancelled.

One touch

An option that gives the trader a payout once the price of the underlying asset reaches or passes the predetermined barrier level.

Open position

This is a trade that has not yet been closed.

Option

The right given to a buyer to buy or sell a financial asset at a certain price before a certain date.

Order

The instruction given to execute a trade.

Over the counter

Also known as OTC, this refers to trades that are executed directly such as through a telephone.

Overbought

When prices rise more than expected in regards to technical analysis.

Overnight position

This is a trade that remains open until the following business day.

Oversold

When prices drop more than expected in regards to technical analysis. When prices drop more than expected in regards to technical analysis.

Pip

Used in measuring the change in exchange rate for a currency pair.

Portfolio

This is a collection of investments that could include stocks or bonds.

Position

This is the amount of currency that a trader owns or owes.

Principle Value

The initial amount of money invested by a trader.

Profit

The money gained after a trader closes a position.

Quote

The market price of a security.

Quantitative easing

When a central bank inserts money into an economy for growth.

Realized profit / loss

The total amount of money gained or lost after a position closes.

Retail investor

A trader who trades individually rather than on behalf of an institution.

Risk

The potential event whereby a trader could lose some or all of his/her money.

Risk management

Strategies that help control or eliminate financial risk.

Rollover

When the settlement is postponed until a later date at the time of expiry.

Settlement

When a trade contract is recorded into the books and finalized. Goods, securities and currencies are paid for.

Short position

When the base currency in the pair is sold, the position is considered “short”.

Slippage

When there are changing market conditions and there is a difference between the expected price of a trade and the price at which the trade is executed at.

Spot market

This is a market whereby financial instruments are traded immediately - on the “spot”.

Spot price

This is the current market price at a particular moment in time.

Spread

Difference between the bid and offer price.

Stock exchange

The market where financial instruments are traded.

Stock index

Statistical measure used to analyze and report changes in an economy or financial market.

Stop order

When a price is reached, a trader makes a stop-order to buy or sell.

Stop loss order

A risk management tool used to place an order with intentions of selling below the current price or buying above the current price.

Support

Price levels in technical analysis that are below the current price level, therefore demand is strong enough to avoid the price from falling even more.

Suspended trading

When trading comes to an end temporarily.

Swap

The interest paid/earned after extending a position at the end of a day without settling.

Technical analysis

A technique that involves predicting future price movements by studying past market behavior.

Tick

 

Tomorrow next (Tom/Next)

Purchasing or selling a financial asset for delivery the next trading day.

Trading range

The range between the highest and lowest price of a financial asset throughout a specific period of time.

Transaction date

The date when the trade is executed.

Trend

The direction of the market. It could be up, down or sideways.

Turnover

The volume of all executed transactions from a specific period of time.

Two-way price

A price including both the bid and offer price.

Underlying Asset

The underlying asset is the financial instrument whether it be stocks, commodities or currencies, on which an option’s value is derived.

Uptick

A price quote that is higher than the previous quote.

Used margin

The total amount of money that is set aside for trade positions to be kept open.

Value date

The specific date when payment is exchanged between counterparts.

Variation margin

When a forex broker requests that margin requirements should be increased during instances of a volatile market.

Volatility

How prices and variables fluctuate over a period of time. When there is high volatility in a financial market, this means there is more risk involved for a trader.

Volume

The number of shares/contracts that are traded in a market or in a security during a particular period of time.

Whipsaw

A market condition when a price goes in one direction then quickly reverses in another direction and then suddenly turns around in the other direction again.

Yard

The term used to describe a billion units.

Yield

The percentage rate of return after an investment.

ZBA

An abbreviation for “zero balance account”. This is a checking account that has no balance so that the account holder transfers only enough funds in order to cover checks written on it.

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