Forex Glossary

Aggregate Risk

When a bank or financial body gets exposed to Forex contracts from a single customer, the risk taken is called Aggregate Risk.

Ask

The price offered to a trader to buy a particular currency. The ask price will always be higher than the bid price.

Asset

Every valuable item or resource in Forex can be labeled as an asset.

Bank Rate

The rate at which a country’s central bank lends money to its domestic banks can be termed as Bank rate.

Base Currency

In a currency pair, the first currency in the pair is called the base currency, and based on one unit of which other currency’s value is shown. For example, in the 114.18 USD/JPY pair, USD is the base currency, and 1 US dollar equals 114.18 Japanese yen.

Bear Market

When the prices of certain securities, assets, or markets are falling.

Bid

The price at which a trader is ready to sell a security.

Bull Market

When the prices of certain securities, assets, or markets are on the rise.

Buy Limit Order

An order to carry out a transaction at, or lower than, a specified price. The word ‘limit’ refers to the specified price.

Carry Trade

If an investor feels like there are other assets that can produce higher interest rates, he will borrow at low interest rates. This trade is called Carry Trade.

Closed Position

When a position or order gets closed, the transaction gets completed – whether the position was long or short or whether it was profitable or incurred losses.

Closing Market Rate

The final rate that a security is traded at on a specific day, candle or timeframe. Also called as closing rate.

Currency Appreciation

When one currency increases in value compared to another currency.

Currency Futures

A contract that specifies the price that a currency can be bought or sold at on a set future date. Future contracts are often used by investors to hedge against risk.

Currency Pair

Two different currencies which are to be traded in a Forex transaction form a currency pair. For example, EUR/USD and GBP/USD.

Daily Chart

A graph that illustrates the intraday movements every day of all or a particular security.

Day Trade

An act of buying and selling a currency during a day is called day trade.

Demo Account

Demo Account is funded with virtual money and designed for traders who are new in the market and wants to test the trading platform before starting live trading with real money.

Depth of Market

The numbers of open buy and sell orders placed for a security at varying prices measures the depth of market.

Drawdown

When the value of an investment declines, the length between its peak and low is known as the drawdown.

ECN Broker

A broker who uses Electronic Communications Networks (ECNs) to provide his clients with direct access to liquidity providers is called ECN Broker.

Exchange Rate

An exchange rate is the rate at which one currency can be exchanged for another.

Execution

When a trade is carried out and completed, the act is called execution.

Exposure

The amount invested in a security and exposed to market risk.

Fill

An act of completion of an order.

Fill or Kill

If investors have a specific price in mind, they place Fill or Kill order. This way, if the order does not hit the specified price, it gets terminated or killed.

Fill Price

The price at which an order has been completed is called Fill Price.

Floating Exchange Rate

When an exchange rate is not fixed, but adjusts depending on the supply and demand for a particular currency relative to other currencies.

Forex Chart

A digital chart that helps investors make informed trading decisions by plotting the price movements of currency pairs.

Forex Scalping

It is a trading strategy based on the concept that if you buy and sell (or sell and buy) a currency within a very short period of time, the chances of you making profit are higher than what you would make with large price movements.

Forex Signal System

It is a system for traders to receive signals which help them make a decision whether a specific time is suitable to buy or sell a currency pair.

Forex Signal System - Currency Basket

It is a weighted average formed by specific group of currencies that can act as a measure to value an obligation.

Forex Spot Rate

The current exchange rate that a currency pair can be bought or sold at is called Forex Spot Rate.

Forex Trading Robot

Forex Trading Robot is automated trading software, designed to help determine whether to buy or sell a currency pair at a given time.

Fundamental Analysis

The analysis based on the impact of economic and political events have on prices in financial markets (interest rate announcements, unemployment rate, etc.).

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Hedge

When investors make two counterbalancing investments to minimize the losses incurred by price fluctuation, it is known as Hedging. The main purpose is to get a protection against the risk that may be caused by adverse market movements.

Interbank Rate

The interest rate charged on short-term loans between banks is called Interbank Rate.

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Leverage

Brokers offer leverage to increase traders’ buying power by enabling them to trade larger volumes on a small deposit. Leverage of 1:100 means that trader’s buying power is 100 times than the deposit.

Limit Order

An order that is executed at a specific price or a better one is called Limit Order.

Limit Price

The specific price referred to in limit order is called Limit Price.

Liquidity

The volume available in the market to trade for a specific currency pair.

Long Position

Taking a long position on a currency means that you are buying that particular currency. You have to buy the first of the two currencies in the currency pair – the base currency.

Lots

Standardized quantity of a particular instrument you are trading is called a lot. Usually, there are three types of lots: micro, mini and standard. In forex, one lot is 100,000 units of a particular currency.

Margin

The amount of money needed in your account to maintain an open position is called Margin.

Margin Call

A reminder to trader alerting you that you need to make a deposit in your trading account to maintain sufficient margin to keep your positions open.

Mark-to-Market

Mark-to-Market refers to the value an open position would be if it was closed at the current market rate.

Market Order

An order for a trade to be executed instantly at the best available price is called Market Order.

Market Rate

The current quote for a currency pair is known as Market Rate.

Micro Lot

A lot 1,000 units of the base currency in a currency pair is called a Micro Lot.

Middle Rate

The price exactly in-between the bid and ask prices is called Middle Rate.

No Dealing Desk

When traders have direct access to the interbank market and there is no dealing desk involved in their transactions, the process is called No Dealing Desk.

Open Position

It is a position taken on a currency pair/security that is subject to profits or losses.

Over the Counter

When a trader makes Forex transaction over the telephone or on electronic devices, traditionally it is called ‘Over the Counter’.

Overnight Position

When a trader’s position is kept open and carried over to the next trading day it is called Overnight Position.

Pip

Percentage in Point (Pip) is the smallest price change that can happen in an exchange rate. Usually, currency pairs are priced to four decimal points.

Profit Taking

When an order is closed to make profit, it is called Profit Taking.

Quote Currency

The second currency other than base currency in a currency pair is called the Quote currency. In EUR/USD for example, USD is the quote currency.

Regulated Market

It is a market governed by legislative rules and regulations formed to protect investors.

Resistance

The resistance refers to a price level which a currency finds difficult to go past and as a result, it may begin declining instead.

Risk Management

Traders use tools and strategies to manage the risk involved in Forex and limit financial risk as much as possible.

Rollover Rate

When traders want to hold a position open overnight, they have to pay or earn interest rate which is called Rollover Rate.

Round Trip

Round Trip refers to the total amount of funds involved in opening and closing of a position.

Slippage

During periods of high volatility, prices are subject to change very quickly. Thus, the actual order execution price is usually different then what traders expected it to be. This phenomenon is called Slippage.

Soft Currency

A currency that is sensitive to political and economic events and thus fluctuates greatly and is generally unstable is known as Soft Currency.

Speculator

A trader who takes big risks while trading, choosing to trade instruments with a higher risk in the hope that they will return higher profits is known as a Speculator.

Spike

A sudden upward or downward movement in price in a short time period is called Spike.

Spread

Spread is the difference between the Ask and Bid price of a currency pair.

Stop Loss Order

It is an order placed to buy or sell a security/currency when a certain price is reached. These orders are placed to limit loss on a position.

Take Profit Order (T/P)

It is an order placed to close a position once it hits a specific price set by trader.

Technical Analysis

The analysis carried by examining market/historical data through the use of charts and trading indicators to forecast currency prices for traders is called Technical Analysis.

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Volatility

The level of uncertainty because of the price fluctuations of a certain security/currency pair is called volatility.

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Yield

The return on an investment is known as Yield. Usually, it is expressed in form of percentage.

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