Glossary

A

Ask - The price at which a trader can purchase a particular financial instrument, such as currency pairs. Also, called offer price, offer, asking price, or ask

Appreciation - A currency is said to appreciate when the price rises in response to market demand; an increase in the value of an asset.

Aussie - Slang term for the Australian Dollar, abbreviated AUD.

B

Bank Rate - The rate at which a country's central bank lends money to its domestic banks.

BOC - Bank of Canada, the central bank of Canada.

BOE - Bank of England, the central bank of the UK.

BOJ - Bank of Japan, the central bank of Japan.

Bundesbank - The central bank of Germany, also nicknamed Bubba.

Bond - A name for a debt which is issued for a specified period of time on which interest is paid.

Base Currency - The first currency in a pair is called the base currency. For example, in USD/JPY pair, USD is the base currency.

Bear Market - It is the market characterized by generally falling prices. The opposite of Bull Market.

Bull Market -It is a market characterized by generally rising prices. The opposite of Bear Market.

Bid - The price at which an asset is offered to traders who wish to sell. This is also known as the ‘bid price’ and ‘bid rate’.

Buy Limit order - A type of entry order used by traders to buy an asset below the current market price.

Buy Stop order -A type of entry order used by traders to buy an asset above the current market price.

Bar Chart - The western technique for price charting, comprising of a vertical line representing the price range of a certain period. The highest point represents the high price and the lowest point on the vertical line represents the low price. A tick to the left represents the opening price whereas a tick to the right represents the closing price.

Basis Point - One percent of one percent. Usually used for changes in Interest Rates where references are less than one percent. 1bp = 0.0001

Bearish - The belief that the market or specific financial instrument will fall.

Bitcoin - A decentralized digital currency used for peer-to-peer transactions. It was introduced in 2009 by a programmer using the name Satoshi Nakamoto. The number of bitcoins in circulation will not exceed 21 million.

C

Closed Position - A position that has been terminated or ended.

Central Bank - The authoritative bank that manages a country’s currency. For example, the US central bank is the Federal Reserve and the German central bank is the Bundesbank.

Call Option - It gives a trader the right to buy a financial instrument at a specific price, before the expiration date.

Candlestick Chart - A price charting method that originated in Japan in the 18th century. Merchants devised a system to predict future prices based on traders’ emotions. It makes use of all available prices; open, high, low and close. It consists of a rectangle (the body) which is white if the close is higher than the open, or black if the open is higher than the close price. A vertical line runs through the body representing the high at the top and the low price at the bottom.

Closing Market Rate - Otherwise known as closing price, this is the final rate that a security is traded at on a specific day, candle or timeframe.

D

Depreciation - A decline in the value of a currency due to market forces.

Day Trading - Opening and closing the same position or positions within the same trading session.

Dealer - An individual or firm that buys and sells assets from their own portfolio, acting as a principal or counterparty to a transaction.

Dealing Desk - Used loosely as the place where dealers facilitate pricing and executing trades.

Deflation - It is the decrease of the average price of a representative number of goods and services. It is the opposite of inflation.

E

Exchange Rate - The rate at which one currency can be exchanged for another.

ECB - Abbreviation for Europe’s central bank, the European Central Bank.

Execution - When a trade is carried out and completed.

Exposure - This refers to the amount invested in a security and exposed to market risk.

F

Fundamental Analysis - The impact economic and political events have on prices in financial markets (interest rate announcements, unemployment rate, etc.)

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

Fixed Exchange Rate - An official exchange rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.

G

Greenback - Nickname for the US dollar.

G7 - Group of 7 Nations - United States, Japan, Germany, United Kingdom, France, Italy, and Canada.

Gross Domestic Product (GDP) - The total value of a country's output, income or expenditure produced within the country's physical borders.

Gap - Unused area on the price chart between two candlesticks. It may occur at Monday’s open or during high impact or unexpected news.

H

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

I

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

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

Indicator - Technical tools based on inductive statistics and mathematical formulas, which use price data, volume and open interest in order to identify future price trends.

Inside Day - In bar charting, an inside day is defined as a bar with lower high and higher low compared to the previous bar. It suggests a pause in the market.

K

Kiwi - Nickname for New Zealand Dollar.

L

Leverage - Also known as margin, this is the percentage or fractional increase you can trade from the amount of capital you have available. It allows traders to trade notional values far higher than the capital they have.

Loonie - Nickname for the Canadian dollar or the USD/CAD (U.S. Dollar/Canadian Dollar) currency pair.

Libor - The London Inter-Bank Offered Rate. Banks use LIBOR as a base rate for international lending.

Liquidity - Liquidity refers to how much an asset can be bought or sold without affecting its price. It also refers to the ability to exchange an asset for currency.

Limit Order - An order to execute a trade at a specific price or a better one.

Limit Price - The specific price referred to in limit order.

Lot- Lot is a standardized quantity of the instrument you are trading. In forex, one lot is 100,000 units of a particular currency.

Long Position - Taking a long position on a currency means that you buy it. In a currency pair, you buy the first of the two currencies – the base currency.

M

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 - This is a notification which alerts you that you need to deposit more money in your trading account so there can be sufficient margin to keep existing positions open.

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

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).

Market Execution - The order will be filled at the next available price.

Market Rate - The current quote for a currency pair.

N

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.

NFP - High impact, monthly report presenting the change of US employed people, excluding the farming and the government sector. Released, usually, the first Friday of the month by the Bureau of Labor Statistics.

O

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

Open position - An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.

P

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 for profiting 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 - Pip stands for Percentage in Point and it is the smallest price change that can be seen in an exchange rate. In most cases currency pairs are priced to four decimal points and the smallest change can be seen in the last decimal.

Q

Quote Currency - The second currency of a currency pair is called the Quote currency. In EUR/USD for example, USD is the quote currency.

Quote - A security price considered while buying and selling. 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 EURUSD 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).

R

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.

Rollover Rate - In forex, the rollover rate is the interest rate that traders pay or earn when they hold (rollover) a position open overnight.

Risk management - The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.

Resistance level - A price that may act as a ceiling. The opposite of support.

S

SNB - Abbreviation for the Swiss National Bank.

Slippage - This is when a trader executes an order at a price which is very different to the price they expected the trade to be executed at. This usually happens during periods of high volatility, when traders use market orders and stop loss orders.

Swap - A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

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

Spike - A sudden upward or downward movement in price that happens in a short time period.

Stop Loss Order - 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.

Stock Index - A stock index is a measured value of a group of selected stocks that are analyzed together. Investors use indices to monitor the market in general.

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 moves 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.

Support - A price that acts as a floor for past or future price movements.

Sentiment - The investors’ expectations about the direction of a financial instrument or market.

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

T

Take profit order - A feature that allows traders to exit a profitable trade before the official time of expiry to ensure that profits are made.

Technical Analysis - Traders use technical analysis to forecast prices by examining market/historical data through the use of charts and trading indicators.

Thin - A liquid, slippery or choppy market environment. A light-volume market that produces erratic trading conditions.

Tick - Tick is a minimal change of security price (1/100 000=0.00001).

Trailing stop - A trailing stop allows a trade to continue to gain in value when the market price moves in a favorable direction, but automatically closes the trade if the market price suddenly moves in an unfavorable direction by a specified distance. Placing contingent orders may not necessarily limit your losses.

TRY - Abbreviation for The Turkish Lira.

Take profit order - A feature that allows traders to exit a profitable trade before the official time of expiry to ensure that profits are made.

Technical Analysis - Traders use technical analysis to forecast prices by examining market/historical data through the use of charts and trading indicators.

Thin - A liquid, slippery or choppy market environment. A light-volume market that produces erratic trading conditions.

Tick - Tick is a minimal change of security price (1/100 000=0.00001).

Trailing stop - A trailing stop allows a trade to continue to gain in value when the market price moves in a favorable direction, but automatically closes the trade if the market price suddenly moves in an unfavorable direction by a specified distance. Placing contingent orders may not necessarily limit your losses.

TRY - Abbreviation for The Turkish Lira.

Trend - The direction of successive tops and bottoms:

Uptrend – Successive higher tops and higher bottoms

Downtrend - Successive lower tops and lower bottoms

Trendless (Range, Sideways) – Equal tops and equal bottoms

Trading Orders

Some of the most popular orders are: Instant Execution, Market Order, Buy Stop, Sell Stop, Buy Limit, Sell Limit, Buy Stop Limit, Sell Stop Limit.

Trendline

A very important concept in Technical Analysis. It is a straight line connecting successively higher bottoms during an uptrend or successively lower tops during a downtrend. Trendlines are used to open long positions during an uptrend and short positions during a downtrend. On the other hand, violation of the trendline is an early warning for a reversal.

U

US Non-Farm Payrolls (NFP) - The Non-Farm Payrolls is one of the most followed economic releases in the market. Generally published on the first Friday of each month it can create irregular volatility in multiple instruments. It measures the change in employment numbers for the previous month for people that work outside the farming industry.

V

Volatility - This refers to the level of uncertainty surrounding price fluctuations of financial instruments. Volatility is usually characterized by rapid, random price movements.

Volume - The amount of a specific financial instrument which has exchanged hands during a trading day.

W

Wave - Price action in one of the three market directions: up, down or sideways.

Y

Yield - Yield is the return on an investment and is usually expressed as a percentage.

Z

ZAR - Abbreviation for The South African Rand.