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Forex Glossary

The forex industry is made up of countless definitions and it's easy to forget a few along the way. But because no forex education can be complete without a glossary of forex terms, we've compiled one which aims at explaining key definitions in the simplest way possible. This way, you'll never be lost or confused again!

A

Aggregate Risk

When a bank or financial body is exposed to forex contracts from a single customer.

Ask

The price at which a trader accepts to buy a security.

Asset

An item/resource of value.

B

Bank Rate

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

Base Currency

In a currency pair, the first currency in the pair is called the base currency. For example, in the USD/JPY pair, USD is the base currency.

Bear Market

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

Bid

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

Bull Market

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

Buy Limit Order

An order to carry out a transaction at, or lower than, a specified price, the word 'limit' referring to the specified price.

C

Carry Trade

When an investor borrows at low interest rates so they can buy assets that are likely to produce higher interest rates.

Closed Position

When a position is closed, the transaction has been completed – whether the position was long or short or whether it was profitable or incurred losses.

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.

Currency Appreciation

When a currency increases in value against another.

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

The pair formed by two different currencies which are traded in a forex transaction. For example: EUR/USD.

D

Daily Chart

A graph that illustrates the intraday movements of a security.

Day Trade

A trade opened and closed within one day.

Demo Account

A trading account which is funded with virtual money, giving the trader a chance to explore the markets and test the trading platform they're using before investing real money in a live trading account.

Depth of Market

The number of open buy and sell orders placed for a security at varying prices.

Drawdown

When the value of an investment drops, the length between its peak and its low is called the drawdown.

E

ECN Broker

A broker which uses Electronic Communications Networks (ECNs) to provide its clients with direct access to liquidity providers.

Exchange Rate

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

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

Fill

The completion of an order.

Fill or Kill

When an investor has a very specific price they want to carry out a transaction at, they place a Fill or Kill order – this means that if the order is not filled at the desired price, it is terminated, or killed.

Fill Price

The price at which an order has been completed.

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 plots the price movements of currency pairs to help investors make informed trading decisions.

Forex Scalping

A trading strategy based on the notion that if you buy and sell (or sell and buy) a currency within a very short time frame, you are more likely to make a profit than you would with large price movements.

Forex Signal System

A system which gives out signals to traders to help them decide whether a specific time is suitable to buy or sell a currency pair.

Forex Signal System - Currency Basket

A specific group of currencies which form a weighted average 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.

Forex Trading Robot

This refers to automated trading software which is designed to help determine whether to buy or sell a currency pair at a given time.

Fundamental Analysis

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

H

Hedge

Investors use hedging to protect themselves by reducing the risk that may be caused by adverse market movements. Hedging means making two counterbalancing investments, in this way minimizing the losses which could be incurred by price fluctuations.

I

Interbank Rate

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

L

Leverage

Leverage is offered by brokers to maximize traders' buying power by giving them the ability to deposit a small amount of funds and trade larger volumes. Leverage is expressed in ratio form, so if it is 1:100 for example, a trader's buying power is magnified 100 times.

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.

Liquidity

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

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.

Lots

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

M

Margin

This refers to the amount of money needed in your account to maintain an open position.

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.

Mark-to-Market

The value an open position would be if it were closed at the current market rate.

Market Order

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

Market Rate

The current quote for a currency pair.

Micro Lot

A micro lot is equal to 1,000 units of the base currency in a currency pair.

Middle Rate

The price exactly in-between the bid and ask prices.

N

No Dealing Desk

When traders have direct access to the interbank market and there is no dealing desk involved in their transactions.

O

Open Position

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

Over the Counter

The traditional way of trading forex was ‘over the counter’, meaning traders made forex transactions over the telephone or on electronic devices.

Overnight Position

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

P

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.

Profit Taking

Closing a position to make a profit.

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.

R

Regulated Market

A market governed by legislative rules and regulations which are in place to protect investors.

Resistance

The price level which a stock or currency finds difficult to break above and as a result may begin declining instead.

Risk Management

Tools and strategies traders use to limit financial risk as much as possible.

Rollover Rate

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

Round Trip

Refers to the total amount of funds involved in opening and closing a position.

S

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.

Soft Currency

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

Speculator

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

Spike

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

Spread

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

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.

T

Take Profit Order (T/P)

An order placed to close a position once it hits a specific price.

Technical Analysis

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

V

Volatility

This refers to the level of uncertainty surrounding the price fluctuations of a certain security/currency pair.

Y

Yield

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