Forex Currency Trading

Glossary of Terms

Ask (Offer) - Price at which broker/dealer is willing to sell.

Bar Chart - This type of chart consists of four significant points. The high and the low prices form the vertical bar. The opening price is marked with a little horizontal line to the left of the bar. The closing price is marked with a little horizontal line of the right of the bar.

Base Currency - This is first currency in a Currency Pair.
It shows how much the base currency is worth as measured against the second currency.

Bear Market - Declining prices distinguish a Bear market.

Bid/Ask - See Spread

Bid Price - Price at which broker/dealer is willing to buy
 

Broker - An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

Bull Market - Rising Prices distinguish a Bull market.

Candlestick Chart - This is a chart that indicates the trading range for the day as well as the opening and closing price. The candles are rectangular in shape. The height of the rectangle is determined by the difference between the open and close price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded. Some charts show different colors ie: Green for a candle that closes higher than it opens and red for a candle that closes lower than the open. Open and close depends on the time frame used on the chart.

Closed Position - Contracts in Foreign Currencies that no longer exist. To close a position is to buy or sell a certain amount of currency to offset an equal amount of the open position. This will close out the position.

Cross Currency Pairs - A pair of currencies that does not include the U.S. dollar. For example: GBP/CAD or CHF/AUD.

Currency symbols (some)

USD - US Dollar

AUD - Australian Dollar

CAD - Canadian Dollar

EUR - Euro

JPY - Japanese Yen

GBP - British Pound

CHF - Swiss Franc

NZD - New Zealand Dollar

Currency Pair - The two currencies that make up a foreign exchange rate. For Example, JPY/USD

Day Trader - Speculators who take positions in commodities which are then closed out prior to the close of the same trading day.

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

Economic Indicator - This is a Government issued statistic that indicates current economic growth rates and trends such as retail sales and employment

End Of Day Order (EOD) - An order to buy or sell at a specified price. This order remains open until the end of the trading day which is typically 5PM ET.

Federal Reserve (Fed) - The Central Bank for the United States.

First In First Out (FIFO) - Open positions are closed according to the FIFO accounting rule. All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.

Foreign Exchange - (Forex, FX) - Is the simultaneous buying of one currency and selling of another.

Fundamental Analysis - Analysis of economic and political information in order to predetermine movements in a financial market.

FX - Foreign Exchange.

G7 - The seven leading industrial countries. These are US, Germany, Japan, France, UK, Canada, Italy.

Going Long - The purchase of a currency, stock, or commodity for investment or speculation.

Going Short - The selling of a currency, stock, or commodity not owned by the seller.

Gross Domestic Product - Total value of a Country's output, income or expenditure produced within the Country's physical borders.

Gross National Product - Gross domestic product plus income earned from investment or work abroad.

Hedge - A position or combination of positions that reduces the risk of the primary position.

Hit the Bid - To Accept a purchase at the offer or to sell at the bid.

Inflation - An economic condition whereby consumer goods prices rise thereby eroding purchasing power.

Kiwi - Slang for the New Zealand dollar.

Leading Indicators - Statistics that are considered to predict future economic activity.

Leverage - Also called margin. The ratio of the amount used in a transaction to the required security deposit.

Limit Order - An order to buy at a specified price when the market moves down to that price, or to sell at a specified price when the market moves up to that price.

Long position - When the base currency in the pair is bought, the position is said to be long. This is an investment position that benefits from an increase in market price.

Lot - Is a unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.

Margin - The required equity that an investor must deposit to fund a position.

Margin Call - A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer.

Market Maker - A broker-dealer that owns shares of a security and is willing to buy and sell at the quoted bid and ask prices. The firm lists buy and sell prices to attract customers.

Market Order  - An order to buy at the current Ask price.

Market Risk - Exposure to changes in market prices.

Net Position - The amount of currency bought or sold which have not yet been offset by opposite transactions.

Offer (ask) - The rate at which a dealer is willing to sell a currency.

One Cancels Other Order (OCO) - An order that through its execution cancels the other part of the same order.

Open Order - An order to buy or sell that remains valid until it is executed or canceled by the customer. This is normally associated with Good 'til Cancelled Orders.

Open Position - An order that has yet to be executed and is still valid. An open position is a risk for the trader if the market moves the opposite way. The trader is vulnerable to movements in the exchange rate.

Over the Counter (OTC) - Used to describe any transaction that is not conducted in a market not regulated by a stock exchange.

Overnight Position - A trade that remains open until the next business day.

Order - An instruction to execute a trade at a specified rate.

Pips - The smallest amount an exchange rate can move, typically .0001. (also called Points).

Position - The amount of currency or security owned or owed by the investor.

Profit /Loss - The actual gain or loss resulting from trading activities once the positions are closed.

Quote - An indicative market price used for information purposes only.

Rally - A recovery in price after a period of decline.

Range - The difference between the highest and lowest price of a future recorded during a given trading session.

Rate - The price of one currency in terms of another, typically used for dealing purposes.

Resistance - A term used in technical analysis indicating a specific price level at which people are anticipated to sell. A price level at which there is sufficient demand to turn a uptrend downward.

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

Risk - Exposure to uncertain change, most often used with a negative connotation of adverse change. Higher risks are associated with higher rates of returns, typically in order to entice investment more risky ventures.

Risk Management - The use of financial analysis and trading techniques to reduce and/or control substantial risks to a trading portfolio.

Roll-Over - A process of reinvesting in which, at the expiry, the settlement is postponed until a later date.

Short Position - A contract to sell securities, commodities or currencies at a future date and at a prearranged price. This is an investment position that benefits from a decline in market price.

Simple Moving Average (SMA) - A simple average of a predefined amount of price bars. For example, a 50 period Daily chart SMA is the average closing price of the previous 50 daily closing bars. Any time interval can be applied here.

Spot Price - The current market price.

Spread (Bid/Ask) - The difference between the bid and offer prices (usually in pips).

Sterling - Slang for British Pound.

Stop Loss Order - This is an order used to hedge against excessive loss in which a position is liquidated at a specific, prearranged price.

Support - A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. A price level at which there is sufficient demand to turn a downtrend up.

Swissy - Market slang for Swiss Franc.

Technical Analysis - An effort to forecast prices by analyzing the market data using strategic indicators, i.e. historical price trends and averages, volumes, volatility etc.

Tick - A minimum change in price, up or down.

Uptick - A new price quote at a price higher than the preceding quote.

Volatility (Vol) - This is a statistical measure of a market's price movements over time.

Wedge Chart Pattern - Chart formation that shows a narrowing price range over time, where price highs in an ascending wedge are incrementally less, or in a descending wedge, price declines are incrementally smaller. Ascending wedges typically conclude with a downside breakout, and descending wedges typically terminate with upside breakouts.

Whipsaw - A condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

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