Industry Glossary

 

Welcome to the Learn To Trade industry glossary – your comprehensive, go-to guide for all things forex, detailing an array of definitions for the most commonly used words, terms and phrases within the world of foreign exchange trading.

A B C D E F G H I J K L M N O P Q R S T U V W Y

 

A

 

Aggressive – The term used if a trader and/or a price is acting with conviction.

Aggregate risk – This is when a bank or a financial body may be exposed to forex contracts from one customer.

Analyst – A financial professional that has expertise in evaluating investments and recommends to clients whether to buy, sell or hold.

Appreciation – If a product strengthens in price in response to the market demand, then the product is said to ‘appreciate’.

Arbitrage – The simultaneous buying and selling of a financial instrument, resulting in taking advantage of price differences.

Asian Central Banks – This refers to any central bank or monetary authority in Asian countries.

Asian session – The Asian trading session, which runs from 11pm – 8am GMT time.

Ask (offer) price – This is the price which the market is prepared to sell a financial product at. Prices are often quoted two-way as bid/ask – the ask price is known as the offer.

At best – The term used that’s given to a trader to buy or sell at the best rate they possibly can.

At or better – The term used that’s given to a trader to buy or sell at a specific price, or better than a specific price.
 

B

 

Balance of trade – The balance of trade is calculated by the value of a country’s exports minus their imports.

Bar chart – A chart that shows four significant points: the high and low prices, the opening price and the closing price.

Base currency – The base currency is the first currency in a pair currency, showing how much the base currency is worth when measured against the currency it’s paired with. The US dollar is normally considered the base currency for quotes, however, the British pound, euro and Australian dollar are exceptions.

Base rate – This is the lending rate of a country’s central bank.

Basing – A pattern used in charts that can show if a product’s demand and supply is almost equal.

Bearish/Bear market – A term used by traders to suggest they think one currency is going to weaken against another.

Bears – Describes a trader who is expecting prices to decline and holds short positions.

Bid/Ask spread – This identifies the difference between the bid price and the ask price.

Bid price – Put simply, this is the price at which the market is prepared to buy a financial product.

Big figure – This refers to the first three digits of any currency quote.

BIS – Abbreviation for the Bank of International Settlements, which is located in Basel, Switzerland. The central bank for central banks.

Black box – This is the term that describes a systematic or technical trader.

BOC – Abbreviation for the Bank of Canada which is the central bank of Canada.

BOE – Abbreviation for the Bank of England which is the central bank of the UK.

BOJ – Abbreviation for the Bank of Japan which is the central bank of Japan.

Bond – This describes a type of debt that’s issued for specific time periods.

Broker – An individual or a firm that brings buyers and sellers together for a fee or commission.

Bullish/Bull market – A term used by traders when they believe one currency will strengthen against another.

Bundesbank – This is Germany’s central bank.

Buy – To buy a financial product with the expectation that it will rise in value.
 

C

 
Call option – This is a currency trade that is able to exploit the interest rate between two different countries. The trader can receive the interest between the two countries while the trade is open.

Candlestick chart – A candlestick chart can indicate the potential trading range for the day as well as the opening and closing prices.

Capitulation – In the case of an extreme trade, the traders who are holding losing positions exit the trade.

Carry trade – A carry trade refers to a trading strategy in which a person borrows money at a low interest rate so they can invest in an asset that’s likely to give a higher return.

Cash price – This refers to the instant price of a product at the moment it’s being looked at.

CBS – Abbreviation used when referring to central banks.

Chartist – A person who is known as a technical trader and uses charts and graphs interpreting historical data, finding trends and predicting future currency movements.

Cleared funds – A fund or funds which are freely and easily available to settle a trade.

Clearing – The term used to refer to the settling of a trade.

Closing – A term used to refer to a live deal being stopped by carrying out a trade that’s the exact opposite of the one being traded.

Closing price – This can refer to either the price of the last transaction of the trading day or the price a product is traded at to close a position.

Collateral – In order to secure a loan or guarantee performance, an asset is used to achieve this.

Commission – A fee which can be charged for buying or selling a financial product.

Contagion – When an economic crisis spreads from one market to another.

Contract note – A confirmation outlining the details of any trade.

Controlled risk – A guaranteed stop gives a position a limited risk.

Corporate action – Any corporate actions such as dividends and mergers that can change the equity structure and share price.

Corporates – A business or corporation that’s in the market for either hedging or financial management purposes.

Counter currency – This refers to the currency that is listed second in a currency pair.

CPI – Abbreviation for Consumer Price Index which measures inflation.

Cross – This refers to a currency pair that doesn’t include the American dollar.

Crown currencies – Any currency that is home to a country within the Commonwealth such as the Canadian dollar, the Australian dollar, the British pound and the New Zealand dollar.

Currency – Money issued by a central bank and used as the basis for a trade.

Currency pair – This refers to the two currencies that make a foreign exchange rate.
 

D

 
Day trading – Opening and closing a trade on the same product in one day.

Dealer – While a broker puts together buyers and sellers, a dealer is either a firm or an individual that acts as a principal or counterpart to a transaction.

Dealing spread – This refers to the price difference between the buying and selling of a contract.

Defend a level – An individual trader or a group of traders can ‘defend a level’ by preventing a product from being traded at a specific price or price zone.

Delisting – Removing a stock listing.

Depreciation – A decrease in value of an asset.

Devaluation – A fixed exchange rate is allowed to depreciate, it’s the opposite action of a revaluation.

Discount rate – A discount rate refers to an interest rate a depository institution is charged to borrow any short-term funds.

Dividend – An amount of money from a company’s earnings that are given to the shareholders.
 

E

 
ECB – An abbreviation for the European Central Bank, which is the central bank for countries using the euro.

Economic indicator – A statistic issued by governments that can indicate economic growth and stability.

End of day order – This is an order to buy or sell at a certain price that stays open until the end of the trading day.

EST/EDT – An abbreviation for the time zone of New York City.

EMU – An abbreviation for the European Monetary Union, which is an umbrella name for a group of policies that coordinates economic and fiscal policies across EU Member countries.

European session – The London trading time which is 7:00am to 4:00pm (GMT time).

Expiry date/price – This refers to the exact time and date an option will expire.

Exporters – A name given to a corporation who sells their products/services internationally, making them a seller of a foreign currency and a buyer of their domestic currency.

Extended – A market which traders think has grown too fast.
 

F

 
FED – An abbreviation for The Federal Reserve Bank which is the central bank of the United States.

FED officials – This refers to the members of the Board of Governors of the FED.

Fill – A term used at the time an order is completed.

Fill or kill – An order given to the trader that dictates if the trade can’t be filled to its potential, then it should be cancelled.

Fix – A time during the trading day when a large amount of currency must be traded to fill a commercial customer’s order.

Flat/square – A term used by dealers to describe a position which was bought and sold at the same price, creating a neutral position.

FOMC – An abbreviation for the Federal Open Market Committee, which is a policy setting committee for the US Federal Reserve.

Foreign exchange or forex – The name given to the trading of currencies.

Fundamental analysis – An analysis which assess all information on a product, determining where the price is heading and if it’s worthy of a trade.

Future – Two parties will carry out a trade at a previously outlined time with a readily- agreed price to trade at.
 

G

 
G7 – The Group of Seven major economies as reported by the International Monetary Fund (IMF). There are Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

Gapping – A quick market move, usually following an economic news announcement, in which no trades occur.

Go long – Buying a currency position with the expectation that it will increase in value.

Go short – The opposite of going long; entering a trade with the expectation that the currency pair will decrease in value. Note that every forex trade requires one trader to go long and another to go short.

Gold standard – Now obsolete monetary system in which the value of a currency was defined in terms of a fixed amount of gold. The system was abandoned during the Great Depression of the 1930s but fluctuations in gold prices still have a marked effect on currency markets.

Good ‘til cancelled (GTC) – A trade order that is left with a dealer to buy or sell at a fixed price. The order stays in play until specifically cancelled by the client.

Good ‘til date – A trade order that will last until a stipulated date, if it is not filled in the meantime.

Gross domestic product – The value of all goods and services produced within a country or region over a given time period – generally measured quarterly or annually.

Guaranteed stop – A stop-loss order that guarantees to close your position at a pre-specified level if the market moves to or beyond that point.
 

H

 
Handle – The part of the price quote belonging to both the bid and the offer. If the EUR/USD currency pair, for example, has a bid of 1.4231 and an ask of 1.4255, the handle would be 1.42. Also known as the big figure.

Hawkish – If a country’s monetary policy-makers (usually the central bank) are hawkish, they believe that interest rates should increase. This is usually a response to high inflation.

Head and shoulders – A common chart pattern with a high peak (the head) that can be seen between two lower peaks (the shoulders).

Hedging – Reducing the risk of adverse market movements on a trader’s portfolio to guard against volatility. There are various hedging strategies but all seek to minimise losses in the event of an unexpected market movement.

High/low – The daily high and low prices for a given currency pair.

Hit the bid – Sell everything at the current market bid.

HK40 – The Hong Kong Seng Index

Hyperinflation – A period of very high inflation. There is no defined rate at which an economy enters hyperinflation but economists generally consider monthly rates of 50% or higher to be hyperinflation.
 

I

 
International Commodities Clearing House (ICCH) – A clearing house based in London for future markets around the world.

International Foreign Exchange Master Agreement (IFEMA) – This is the agreement set forth by the Foreign Exchange Committee to reflect the best practices for conducting transactions in the foreign exchange market.

Illiquid – An illiquid currency pair lacks liquidity and does not have an active secondary market. This can make it difficult to find a price to trade on.

The International Monetary Market (IMM) – A currency futures market based in the Chicago Mercantile Exchange. IMM futures are traded on the floor of the Chicago Mercantile Exchange and the IMM session runs from 8am to 3pm New York time.

Implied rates – The interest rate as determined by calculating the difference between spot and forward rates.

Industrial production – A measure of an economy’s output as produced by manufacturers, mines and utilities. This can serve as a good indicator of forthcoming employment and personal income data.

Inflation – A sustained increase in the price level of goods and services in an economy over a period of time. Essentially, each unit of currency buys fewer goods or services, lowering its real-terms value.

Interbank rates – The forex rates that large international trading banks such as Deutsche, Citibank and the Bank of Tokyo will quote between each other. Individual traders do not have access to these rates.

The International Monetary Fund (IMF) – An international organisation headquartered in Washington DC that aims to promote international monetary cooperation, international trade, employment, exchange-rate stability, sustainable economic growth, and making resources available to member countries in financial difficulty.

Intervention – In financial terms, this generally refers to the intervention of central banks to influence the value of their associated currency.

Intraday trading – An intraday trader is one who opens and closes his or her position in the same day or trading session. Intraday traders typically capitalise on small moves in the market using leverage.
 

J

 
J curve – A diagram where the curve falls at the outset before rising to a point higher than the starting point (suggesting a letter ‘J’). In financial circles, this generally indicates a period where an initial loss is followed by a significant gain for an overall profit.

Japanese machine tool orders – An economic news item relating to the Japanese yen. It’s a measure of all new orders within the country, places with machine tool manufacturers. This provides a strong measure of the demand for companies that make machines, providing an indicator of future industrial production. An indication that manufacturing is improving generally signifies economic expansion.

JPN225 – Another name for the Nikkei 22, the most quoted stock market index for the Tokyo Stock Exchange.
 

K

 

Keeping your powder dry – Limiting your trading activity while conditions are unfavourable and waiting until they improve before making your move. The phrase comes from military/naval use of gunpowder.

Kill of fill – An order that cannot be partially filled. It’s all or nothing – if it cannot be completely filled, the order is cancelled or ‘killed’.

Knock-in – A trading option requiring the underlying pair to trade at a certain price before a previously bought option becomes active. The strategy can be used to reduce premium costs and can also trigger hedging activities.

Knock-out – A trading option that negates a previously bought option if the underlying spot price hits a specified level.
 

L

 
Ladder option – This option locks in gains when the underlying asset hits certain price levels, like rungs on a ladder. These gains remain locked in, even if the price drops subsequently.

Leverage – Also known as a margin, this is the multiplier that allows you to trade notional values higher than the capital you have in your trading account. A leverage of 50:1, for example, means you can trade 50 times more than the amount you have in your trading account.

Liability – In strictly forex terms, liability is the obligation to deliver an amount of currency to a counterparty on a specific date. It can also be used in more general terms to refer to any potential loss, debt or financial obligation.

The London Inter-Bank Offered Rate – This is the rate that banks use as a base rate when lending between one another.

Limit order – an order to make a trade only at a specified rate or better. This can be used in either direction: to buy at lower levels than the current market of sell at higher levels.

Limit price – The rate or price specified as part of a limit order.

Liquid market – A market that has sufficient active buyers and sellers.

Liquidations – In forex terms, this is the act of closing our short of long positions by offsetting transactions. In general terms, it can also be used to refer to the selling of a bankrupt entity’s assets.

London session – The London trading session, between 8am and 5pm GMT.

Long position – A position where the base currency in a currency pair is bought, with the expectation that the market will rise. The position increases in value when the market price increases.

Loonie – Slang term for the US and Canadian dollar (USD/CAD) currency pair.
 

M

 
Macro trader – The longest-term trader. The holding period can run from six months to years.

Manual trader – A trader who inputs his or hers trades manually, i.e. without using an API, or application programming interface.

Manufacturing production – A subset of the industrial production figures that can serve as a good indicator of forthcoming employment and personal income data. This refers only to the manufacturing part of the overall industrial production.

Margin – Also known as a maintenance margin, this is the amount of collateral required to maintain an open position. To keep an open position of £100,000 with a leverage of 50, for example, you would need a margin of £2,000.

Margin call – A call for additional funds or collateral to cover a position that moved against the trader.

Mark to market – Recording profits and losses at the end of a trading session, according to the value of all open positions at current market prices.

Market close – The end of the trading session. The forex market is active 24 hours a day, since one market opens as another one closes. Most traders stick to certain sessions and some are more active than others.

Market maker – A dealer who enables a two-way market by quoting both the bid and the ask prices.

Market order – An order to buy or sell at the best possible price.

Market rate – The current quote for a given currency pair.

Market risk – Level of exposure to changes in market prices and conditions.

Maturity – The date on which the settlement for a transaction is due, where the date is predetermined at the time of entering the contract.

MoM – Month on month. The change in statistics and other data relative to the level of the previous month.

Momentum traders – Traders that follow an intra-day trend attempting to grab 50-100 pips.
 

N

 
NASDAQ – A major American stock exchange, second only to the New York Stock Exchange in terms of market capitalisation.

NASDA-100 – Important stock market index made up of equity securities issued by the 100 largest non-financial companies listed on the NASDAQ.

Net position – The total amount of currency bought or sold that has not been offset by opposing transactions.

New York session – The New York trading session, which runs from 8am to 5pm New York time.
 

O

 
Offer – A price which the market is willing to sell at.

Offered – A term given to trading when a pair is attracting a high amount of selling interest or offers.

Offsetting transaction – A term used when a trade can influence the cancellation or offsets the market risk of a specific open position.

Order – An order is given to carry out a trade.

Order book – This is a system that shows the market depth of traders that will trade at prices that aren’t the best available on the market.

Overnight position – The name given to a trade that stays open until the next business day rather than being closed the same day.
 

P

 
Pair – A forex term used to describe the matching of one currency and the one it’s being traded against.

Parabolic – A parabolic move can move the market either up or down, but it moves a high amount in a short period of time.

Partial fill – A term used when an order has only been partially filled.

Patient – A term given to traders when they are waiting for levels to move or events to affect the market before they enter a position.

PIPS – PIPS refer to the numbers that come after the fourth decimal place.

Political risk – The risk a governmental policy can have on positions.

Position – The net total of a specific product.

Profit – The difference between the two prices, the cost and the sale.

Pullback – A market may retrace some of its growth before it continues to move forward again.
 

Q

 
Qualitative analysis – A qualitative analysis can identify investment potential through studying unquantifiable factors that can affect the market, such as trader behaviour.

Quantitative analysis – A quantitative analysis can identify investment potential through studying statistical models and applying it to the market.

Quantitative easing – Now and again, a central bank may put money into an economy to stimulate growth.

Quote – A quote is used for informational purposes only which can indicate the market price.
 

R

 
Rally – A term given to a price when it recovers from a period of decline.

Range – A term given to a price when it’s moving within a defined high and low and not moving outside of them.

RBA – An abbreviation for the Reserve Bank of Australia, which is the central bank of Australia.

RBNZ – An abbreviation for the Reserve Bank of New Zealand, which is the central bank of New Zealand.

Retail investor – A person who trades with their own money rather than for an institution.

Revaluation – A currency is allowed to strengthen because of official actions.

Rights issue – A corporate action in which shareholders are allowed to purchase more stock in an attempt to raise capital.

Risk management – A term given to trading techniques and financial analysis introduced to reduce the various types of risk on trades.
 

S

 
Sell – A trader will take a short position on a trade because they’re expecting the market price to go down.

Short-covering – Once a price has declined, traders who had gone short will start buying back.

Short position – A position that benefits from a decline in market price – if the base currency within a pair is sold, the position is short.

Short squeeze – This refers to a situation where traders are in short positions, but a market catalyst makes them buy quickly, thus resulting in a price increase.

Slippage – The difference in price between what was requested compared to the price that was obtained due to the market changing.

Slippery – A term used by traders when they’re expecting the market to move quickly in either a positive or negative position.

SNB – An abbreviation for the Swiss National Bank, which is the central bank of Switzerland.

Spot market – A spot market is where products are traded at a price for an immediate exchange.

Spot price – The spot price refers to the current market price.

Spot trade – A spot trade is when a product is bought or sold for immediate delivery.

Spread – This refers to the difference between the bid and offer prices.

Stock exchange – The market in which products are traded.

Stock index – The stock index is a combined price of a group of stocks against a base number, which allows for the assessment of a group of companies’ performance compared to the past.

Stop entry order – An order which is given to buy above the price at that moment or to sell below it.

Stop loss order – An order which is given sell below the current price, meaning the trader is closing at a long position, or to buy above the current price, meaning the trader is closing at a short position. Stop loss orders are used as a risk management tool.

Support – The support is a term given to a price that acts as the base for past or future movements.

Suspended trading – Trading is suspended temporarily on specific products.
 

T

 
Technical analysis – An analysis which studies charts of price patterns in the past to indicate clues to the direction of future movements.

Technicians – A name given to traders who make their trading decisions on technical analysis.

Thin – A market which is also described as illiquid, slippery or choppy as there are uncertain trading conditions.

Time to maturity – The time given to a contract until it expires.

Tokyo session – The Tokyo trading session which runs from 9:00am to 6:00pm Tokyo time.

Trading bid – A trading bid refers to when many bids enter the market, which result in pushing the prices up, making a currency pair strong.

Trading offered – Trading offered refers to when offers are continuously entering the market to sell, resulting in a currency pair to become weak.

Transaction cost – The cost given to buying or selling a product.

Transaction date – The exact date on which a trade is completed.

Trend – A movement in price that creates a net change in value.
 

U

 
Ugly – A term used to describe market conditions that are violent and quick-changing.

Underlying – The trading market from where the price of a product came from.

Uptick – A quote produced that is now higher than the quote previous to this one.
 

V

 
Value date – This is a second name given to the maturity date of a trade.

Variation margin – A trader who deals with funds will hold this in their accounts to cope with any fluctuations within the market.

Volatility – A term given to a market which will often present a trade opportunity.

Volume – The number of financial instruments that were exchanged during a single trading day.
 

W

 
Wave – A term used to describe price movement within the market. The directions are up, down or sideways.

Wedge chart pattern – This is a chart that shows a narrowing of a price range over a specific time.

Whipsaw – A term used for a market which is considered to be highly volatile because a significant price movement happens. This is quickly followed by a reversal.
 

Y

 
Yield – A percentage which shows the return received from an investment.

Yuan – The yuan is the base currency in China.