FX Glossary
Adjustable PegExchange rate regimen where a currency's exchange rate is pegged (fixed) in relation to a stronger currency, such as the US dollar or the euro. The pegged rate is adjusted occasionally in an attempt to improve the country's competitive position. For example, China's yuan is sometimes pegged to the US dollar
AussieDealer slang for the AUD / USD currency pair.
CableThe British pound / US Dollar exchange rate GBP / USD.
Carry (Interest-Rate Carry)The income or cost associated with keeping a foreign exchange position overnight. This is derived when the currency pairs in the position have different interest rates for the same period of time.
Balance of TradeIn economics, a country's exports minus its imports.
BandIn countries where the currency is pegged, the range in which the rates are permitted to fluctuate.
Bank of JapanThe central bank of Japan. The Bank is often called Nichigin (日 银) for short. The Bank of Japan is headquartered in Nihonbashi, Tokyo, on the site of a former gold mint (the Kinza) and, not coincidentally, near the famous Ginza district, whose name means "silver mint". www.boj.or.jp/en/
Bank RateThe rate at which a central bank is prepared to lend money to its domestic banking system.
Banking DayDays of the week when commercial banks are open for business in the country of the particular currency traded.
Base CurrencyIn terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD / JPY, the US Dollar is the base currency; EUR / USD, the EURO is the base currency.
Basket of USD ShortsA number of operations where the USD is being sold against various currencies.
BearA trader who believes prices will fall.
Bear MarketAn extended period of general price decline in an individual security, an asset, or a market.
BidThe price at which an investor can place an order to buy a currency pair; This is also known as the 'bid price' and 'bid rate'.
Bid / Ask SpreadThe point difference between the bid and offer (ask) price.
Big FigureThe first two or three digits of a foreign exchange price or rate. Examples: USD / JPY rate of 108.05/10 the big figure is 108. EUR / USD price of .8325/28 the big figure is .83
BullA trader who believes that prices will rise.
Bull MarketA market which is on a consistent upward trend.
BundesbankCentral Bank of Germany.
Buy Limit OrderAn order to execute a transaction at a specified price (the limit) or lower.
Central BankA bank, administered by a national government, which regulates the behavior of financial institutions within its borders and carries out monetary policy.
Carry CurrenciesHigh interest rate currencies.
Clearing House Automated Payment SystemA forex settlement system used in the UK. (CHAPS)
Clearing House Interbank Payment SystemAn international wire system used by major banks.
Closing Market RateThe rate at which a position can be closed based on the market price at end of the day.
Consumer Price IndexA month to month economic indicator which gauges changes in the cost of living by measuring price changes in a common basket of goods and services that most people use, such as food, clothing, transportation, and entertainment.
Convertible CurrencyA currency that can be exchanged for another without special permission. Today, most of the currencies which were previously unconvertible are now convertible, such as the Polish Zloty.
CopeyTraders' term for the Danish Krone.
CorrelationA statistical term that refers to a relationship between two seemingly independent things. In forex for example, one could argue that the Euro and the Sterling have a higher correlation than, for example, the Euro and the Brazilian Real.
Correspondent BankThe foreign banks representative who regularly performs services for a bank which has no branch in the relevant centre, eg to facilitate the transfer of funds. In the US this often occurs domestically due to inter state banking restrictions.
Country RiskBy virtue of economic, political, and geographical factors, some countries are more stable than others. Country risk in reference to forex means the stability of the currency and the creditworthiness of its bonds.
CoverTo take out a forward foreign exchange contract.
CPISee Consumer Price Index.
Cross-RateThe exchange rate between 2 currencies where neither of the currencies are USD.
Currency PairThe two currencies in a foreign exchange transaction. The "EUR / USD" is an example of a currency pair.
Currency RiskThe risk that shifts in foreign exchange rates may undermine the dollar or any other foreign currency value of overseas investments.
Deal TicketA record of the basic details of a transaction that a dealer keeps, as opposed to the statements that customers receive.
DefaultA term for breaching a contract.
DeficitIn economics, when the balance of trades or payments are negative.
DeflationA deep and long-lasting decrease in the price of goods and services within an economy. It is the opposite of inflation which is an escalation in prices. An extended period of deflation can lead to a deflationary spiral - this is a decrease in prices resulting from reduced demand for goods and services which leads to lower employment. With fewer people earning wages, demand falls even more and further perpetuates the cycle.
DepreciationWhen the value of a particular currency falls substantially.
Depth of MarketThe volume of buy and sell orders waiting to be transacted for a particular currency pair at a particular point in time.
Discount SpreadRefers to the situation where the bid price of a forward spread rate is less than the ask price.
Dollar RateThe amount of foreign currency quoted against one US Dollar. Some currencies are quoted in the amount of US Dollars per foreign currency unit, like the British Pound.
Durable Goods OrderAn economic indicator that marks the change in sales levels of products that have a lifespan of three years or more.
EasingRefers to either a small price decline in a currency or when a central bank engages in monetary policy to spur spending. An example of central bank easing would be lowering of interest rates.
ECBSee European Central Bank.
Economic IndicatorA statistic that is used to gauge current economic conditions. See Consumer Price Index and Durable Goods Order as examples.
EquitiesOwnership interest in a corporation in the form of common stock or preferred stock.
Escrow AccountA segregated account where customer money is kept separate from a dealer's operating funds.
EuriborEuribor ® (Euro Interbank Offered Rate) is the rate at which euro interbank term deposits within the euro zone are offered by one prime bank to another prime bank.
EurodollarUS dollars deposited in a bank outside the USA.
European Central BankEstablished in Frankfurt in 1998, the ECB is responsible for all monetary policy decisions that influence the Euro currency. Based on the Maastricht Treaty, the ECB's main responsibility is to ensure price stability. To this end, it is authorized to issue the Euro and is responsible for setting interest rates for those countries that have converted to the Euro.
Exchange ControlVarious devices a central bank uses for controlling the movement of foreign exchange so as to not deplete a country's reserves.
Exchange rateIn finance, the exchange rates (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. For example an exchange rate of 102 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 102 is worth the same as USD 1.
ExecutionCompleting a trade.
ExoticAs opposed to the major currencies which are heavily traded, exotics are the less traded currencies.
ExoticsThe lesser traded currencies, as opposed to the major currencies which are heavily traded.
ExposureThe net of all long and short positions for a particular currency. Based on the traders' positions for all currencies, his / her exposures can result in either loss or gain.
Expiration DateThe day on which a financial option is no longer valid.
Factory OrdersAn economic indicator that marks the change from one period to another of the orders for durable and nondurable goods. More orders mean economic growth whereas the opposite signifies a slowdown.
Fast MarketStrong buying and / or selling pressure in the market, in which prices often gap and move too quickly to be disseminated.
Fed Fund RateThe interest rate on Fed fund account balances that is closely monitored to gauge the Fed's view on the economy. The accounts are held by member banks and are usually used for lending or borrowing from one another.
Fed MeetingsThe Federal Reserve System (the Fed) is the US central bank responsible for conducting US monetary policy by influencing money and credit conditions in the economy. The Federal Reserve Board of Governors and the Federal Open Market Committee (FOMC) hold regularly scheduled and special meetings that are followed closely by market watchers.
Federal Open Market CommitteeCommittee made up of Federal Reserve members who meet eight times a year to discuss current monetary policy and its effect on the present economy, and to address any possible changes needed.
Federal ReserveThe Central Bank of the United States.
Federal Reserve BoardThe senior members of the Federal Reserve, each of whom is appointed by the US President. The chairman of the Fed Reserve Board serves a 4-year term, while the other members serve 14-year terms.
Fiat CurrencyFiat currency is the opposite of a gold standard arrangement. In a fiat currency system, the currency value rises and falls on the market in response to demand and supply pressures. It is this fluctuation that makes it possible to speculate on future currency values.
Fixed Exchange RateForeign exchange policy where a central bank maintains an official rate for their currency, often intervening to keep the rate fixed within a limited range.
Flexible Exchange RateAn exchange rate that is fixed, but is re-evaluated frequently.
Floating Exchange RateAn exchange rate whose value is determined by market forces.
Foreign ExchangeBuying or selling one currency against another currency.
ForexAcronym for Foreign Exchange.
ForwardA transaction that settles at a future date.
Forward ContractsA transaction that settles at a future date. The buyer and seller are bound by the contract to settle on the specified date.
Fundamental AnalysisThe study of economic factors (GDP, Trade Balance, Employment, and so on) that can influence prices in financial markets.
Funding CurrenciesLow interest rate currencies.
FuturesAn obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange while forwards are traded over the counter (OTC).
FXAn acronym for Forex.
G7The seven leading industrialized countries.
G8G7 and Russia.
Goldilocks EconomyTerm which describes an economy that has steady growth and acceptable inflation. In this sense, the economy is not too hot and not too cold.
Gross Domestic ProductGDP. The total value of a country's output produced within its physical borders.
Gross National ProductGDP plus production and income from nationals abroad.
Hard CurrencyA currency that investors have confidence in. Examples could be the US Dollar or the Euro.
HedgeA term used to describe reducing risk associated with adverse market movements by using two counterbalancing investments, thereby minimizing any losses caused by price fluctuations. For example, if you sell a house in Holland to relocate to the UK (your new base currency), you are in a long Euro (EUR) position and short Pounds Sterling (GBP). To offset this position you would need to sell the equal amount of EUR to make up for the short GBP position.
IMFSee International Monetary Fund.
Indicative QuoteA market maker's price. It is not dealable, but is for information purposes only.
InflationA rise in prices or a drop in the purchasing power of money.
Initial MarginThe first deposit by a customer which determines a corresponding maximum trade size.
Interbank MarketA market in which financial institutions can trade. The term refers to short term money or foreign exchange markets that are only accessible to banks or financial institutions. There is no physical market place; the transactions take place over communication networks such as Bloomberg or Reuters.
Interest RateThe rate charged or paid for the use of money. An interest rate is expressed as an annual percentage of the principal. Interest rates often change as a result of inflation and Central Bank policies.
International Monetary FundSupranational organization established in 1946 to provide international liquidity and loans to member countries.
Japanese yenThe yen is the Japanese currency unit. It is the third most-traded currency in the foreign exchange market after United States dollar and the Euro.
Jean Claude TrichetPresident of the European Central Bank, appointed November, 2003.
JPYJapan's currency code. This entry identifies the national medium of exchange and, in parenthesis, gives the International Organization for Standardization (ISO) 4217 alphabetic currency code for each country. The first two letters of the code are the two letters of ISO 3166-1 alpha-2 country codes (which are also used as the basis for national top-level domains on the Internet) and the third is usually the initial of the currency itself . Japan's currency code becomes JPY - JP for Japan and Y for yen.
Key CurrencyFor smaller countries, the act of orienting their currency to that of a major trading partner.
KiwiTraders term for the New Zealand Dollar.
Lagging IndicatorEconomic indicators that change after the overall economy has changed, used to confirm effects of Fed policy. An example is the Consumer Price Index (CPI).
Leading IndicatorsEconomic indicators used to predict future economic activity, such as the levels of the S & P 500 index.
Left-Hand SideRefers to the bid quote, which is the price at which customers who are long a currency pair sell it.
LIBORLondon Interbank Offered Rate - The rate that banks use when borrowing from one another.
Limit OrderAn order to transact at a specified price or better. See Buy Limit Order and Sell Limit Order.
LiquidTerm used to describe a market where there are lots of buyers and sellers generating a great deal of volume.
LotsStandardized method of trading in forex which requires a trade of 100,000 units of a particular currency.
M1Money supply component which consists of all cash in circulation, plus all of the money held in checking accounts, as well as all the money in travelers checks.
M2Money supply component which consists of M1 plus all of the money held in money market funds, savings accounts, and small Certificates of Deposits.
M3Money supply component which consists of M2 plus all of the large Certificates of Deposits.
Managed FloatExchange rate policy where central banks regularly intervene to stabilize and / or steer the direction of their currency.
Margin CallA notification that more funds must be deposited into an account because the value of the account has fallen below the minimum margin needed to cover the size of existing positions.
Market CloseIn the 24-hour forex market, the market never closes. For administrative purposes, many banks institute 5pm EST as the market close in order to differentiate between value dates, as well as mark delivery dates.
Market RateThe most current quote for a currency pair.
Market RiskThe risks that occur when demand and supply pressures in the market cause the value of an investment to fluctuate.
MaturityThe date on which payment of a financial obligation is due.
Middle RateThe price halfway between the bid and ask quote offered by dealers.
Monetary BaseRequired and non-required deposits made at the central bank by member banks and the currency in circulation.
MomentumThe tendency of the market to continue moving in the same direction in which it is currently moving.
Monetary EasingWhen a central bank encourages spending by easing monetary controls. An example would be lowering interest rates.
Monetary PolicyCentral bank attempts to influence the economy through money supply levels.
Monetary Policy CommitteeThe Monetary Policy Committee (MPC) is a committee of the Bank of England that meets every month to decide the official interest rate in the United Kingdom.
Moving AverageMethod of smoothing out data on price charts so that trends are easier to spot. Average refers to a mathematical average or a statistical mean that is plotted over the original curve.
MXNThe currency symbol for the Mexican peso.
New Zealand dollarThe New Zealand dollar is the currency of New Zealand. It also circulates in the Cook Islands, Niue, Tokelau, and the Pitcairn Islands. It is divided into 100 cents.
NOKCurrency symbol for the Norwegian Krone.
NZDNZD is the currency symbol for the New Zealand Dollar.
OfferAlso known as the Ask Price, it is the price at which a seller is willing to sell.
Offer PriceSee Offer.
Open OrderBuy or sell order that does not expire until canceled. In theory the order does not expire. However, it usually does so at the end of the trading month rather than lasting forever.
OptionsThe right, but not the obligation, to buy (long call) or sell (long put) an underlying asset.
OverboughtA currency pair is overbought when its price rises much more quickly than usual in response to net buying. Once overbought, the pair is then expected to make a contrarian move, meaning its price is expected to fall.
Overheated EconomyAn economy with inflation and high interest rates.
OversoldA currency pair is oversold when its price falls much more quickly than usual, declining too far in response to net selling. Once oversold, the pair is then expected to make a contrarian move, meaning its price is expected to rise.
ParitySee Purchasing Power Parity.
PeggedA system where a currency's value is tied with that of another currency. For example, the Chinese yuan with the US dollar. Most pegs are allowed to deviate within a small band.
PipThe smallest upward or downward price movements quoted in forex. In EUR / USD, a movement of 0.0001 is one pip (for example, from 140.005 to 140.004 euro). In USD / JPY, a movement of 0.01 is one pip (for example, from 116.32 to 116.31 yen).
Political RiskChanges in government policy or to a wider extent, government instability that might have negative effects on the currency.
Producer Price IndexAn economic indicator that gauges the month-to-month price change that producers receive for their output.
Purchasing Power ParityRefers to functional equivalency. It is the relationship between the amount of currency needed to buy a common good in one country and the amount needed to buy the same good in the second country. This is one way to establish an exchange rate between two currencies.
Quantitative EasingQuantitative easing is a monetary tool used by central banks to encourage spending within an economy. One of the most well-known instances of quantitative easing remains the Bank of Japan's attempts to fight domestic deflation in the early 2000s. Interest rates during this time were already close to zero and further cuts could not be implemented so the Bank flooded commercial banks with excess funds to promote lending and by extension, encourage spending.
QuoteWhen both a bid and ask price are provided for a currency pair.
Quote CurrencyThe second currency of two in a currency pair. For the EUR / USD, USD is the quote currency. The exchange rate quoted is how many units of the second currency you will receive for one unit of the base currency.
RallyA period where prices surge upward.
RangeThe difference between the highest and lowest price of a currency pair during a given trading period.
Reciprocal CurrencyA currency pair involving the US Dollar in which the US Dollar is not the first currency quoted. An example is the euro which is the base currency when paired with the US dollar. EUR / USD is the way of quoting these two currencies.
Regulated MarketA market in which a government agency monitors and regulates industry activity to protect investors. An example is forex trading in the United States.
ResistancePrice level at which technical analysts note persistent selling of a currency.
Retail FX MarketComprises a wide range of non-institutional traders, from large organizations to individual investors. In less than 10 years, a relatively small number of online currency brokers and market makers have had a massive effect on this market by efficiently exploiting technology, driving a five-fold decrease in the cost of trading.
Right Hand SideRefers to the ask or offer price. This is the price at which traders buy.
Risk (Foreign Exchange Risk)The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced.
Risk CapitalThe amount of money one could risk without impinging on one's accustomed lifestyle.
Risk ManagementThe use of strategies to control or reduce financial risk. An example is a stop-loss order that minimizes maximum loss.
Same Day TransactionA position that is opened and closed on the same day.
Sell Limit OrderAn order to execute a transaction only at a specified price (the limit) or higher.
Sell StopA limit order with a limit placed below the current market price. Once triggered, the limit order becomes a market order.
Selling RateSame as the Ask or Offer rate.
SettlementThe physical delivery of currencies made when a contract matures. In forex, it is usually two days after the trade. In practice, traders don't take delivery, but profits and losses are applied directly to their account balance.
Settlement DateIn forex, the date when physical delivery must take place. For most currency pairs it is two days after the trade date. However, the USD / CAD currency pair settles one day after its trade date.
SlippageIt's the experience of not getting filled at (or even very close to ...) your expected price when you place a market order or stop loss. This can happen because either: market price is simply moving too fast, the market is not liquid or you're talking to an unmotivated broker.
Society for World-wide Interbank TelecommunicationsGlobal electronic network for forex settlement, whose office is based in Belgium. Known for the SWIFT Code, which is an 8 or 11 alphanumeric character international standard that uniquely identifies financial institutions for the purpose of transfers and settlement. The SWIFT code is also known as BIC (Bank Identifier Code).
Soft MarketWhere there are more sellers than buyers resulting in the potential for a quick downtrend.
Sovereign RiskRisk that a country will default on its bonds.
SpeculativeThe condition where there is no guarantee that money will be made and tremendous risk that you will lose all your capital. The attraction to speculative trading is that you can make a great deal of money very quickly. However, you can also lose it just as fast.
SpotBuying and selling forex with the current date's price for valuation, but where settlement usually takes place in two days.
Spot MarketMarket where people buy and sell actual financial instruments (currencies) for two-day delivery.
Spot PriceThe current market price of a currency traded in the spot market.
SpreadThe value difference between the bid and ask price of a currency pair.
SqueezeCentral bank attempts to reduce the money supply in order to increase the price of money.
Stable MarketA market that can accommodate huge volumes of buying and selling without large moves. For example, the trading of the EUR / USD pair.
SterilizationThe process by which central banks offset intervention in the forex market by activities in the domestic money market.
SterlingAnother name for the British Pound (GBP).
StockyTraders' term for the Swedish Krona.
Stop Loss OrderOrder to buy or sell when a given price is reached or passed to liquidate part or all of an existing position.
Stop Loss StrategyA trading strategy that involves setting limit orders at different price levels to avoid incurring further losses.
Stop LossesA limit order to close a position when a given limit is reached. When long, the stop loss order is placed below the current market price. When short, the stop loss order is placed above the current market price.
Stop Order (or Stop)An order to buy or to sell a currency when the currency's price reaches or passes a specified level.
Stop-buyA buy order for a currency price that is above the current market, or current price. It becomes a market order when the specified price is reached. Stop-buys are used by traders to establish positions in markets which they perceive to be rising in value.
Support LevelsA level or floor beneath which it is difficult for a currency to fall, characterized by strong buying pressure.
SWIFTSee Society for Worldwide Interbank Telecommunications.
SwissyTrader's nickname for the Swiss Franc.
T-BillsSee Treasury Bills.
T-BondsSee Treasury Bonds.
T-NotesSee Treasury Notes.
Technical AnalysisAn effort to forecast prices by analyzing market data, ie historical price trends and averages, volumes, open interest, etc.
Technical CorrectionA price adjustment based on technical factors like resistance and support levels, as well as overbought and oversold levels, instead of market sentiment.
Technical IndicatorsShort-term trends that technical analysts use to predict future price movements of securities and / or commodities. Also called technicals, technicalities.
TED SpreadIndicates the difference between the London Interbank Offered Rate (LIBOR) and short-term government debt in the form of three-month US T-bills and expressed in basis points. Seen as a measure of perceived risk in the currency markets.
The CityLocated within greater London, UK, The City is one of the largest concentrations of financial and business institutions in the world, and is the largest currency trading center.
Thin MarketSee Narrow Market.
TickThe smallest possible change in a price, either up or down. Also known as a pip.
TickerStreaming display of the current or recent historical price of a currency pair.
Tier OneThe Bank of International Settlements' measure of a bank's financial strength. Tier One is the highest grade.
Trading PlatformsA software application used for trading forex, usually over the Internet.
Trailing Stop LossSimilar to a stop loss in that it limits potential losses in an open order. But unlike a simple stop loss where the threshold does not change, a trailing stop loss can be instructed to automatically adjust the limit price closer to the market price when the market price moves in your favor.
TransactionBuying or selling a currency pair.
Transaction CostThe cost involved in buying or selling a currency pair. Some consider the transaction cost to be the actual value of the contract, while others feel it is the price of facilitating the trade, such as commissions and spreads.
Transaction DateThe date on which a position is opened or closed.
Treasury BillsUS government short-term obligations with 13 -, 26 -, and 52-week maturities.
Treasury BondsUS government long-term obligations with 15-year or more maturities.
Treasury NotesUS government medium-term obligations with 2 - to 10-year maturities.
TrendThe current direction of the market, whether up or down or sideways (which is sometimes referred to as non-trending or trading market).
Unconvertible CurrencyA currency that cannot be exchanged for another because of foreign exchange regulations.
UndervaluedWhen a currency is below its purchasing power parity it is considered undervalued.
US DollarThe currency of the United States of America.
US Prime RateThe interest rate at which banks in the US will lend to their most valued customers.
US TreasuryThe department within the United States government that is responsible for issuing Treasury bills, notes, and bonds.
Value DateThe settlement date for a currency contract, usually two business days. For USD / CAD it is one business day.
VolatilityMeasure of how much the price of a currency changes over time.
WholesaleThe sale of services, goods, or commodities in large quantities to individual clients.
Wire TransferElectronic transfer of funds from one bank to another.
World Trade OrganizationA global organization of countries that trade with one another and set rules by which trading is conducted.
YardTraders' term for a billion as in a billion dollars.
YieldThe return on an investment. The yield is usually calculated in percentage terms.
Yield CurveA curve that shows the relationship between yields and maturity dates for a set of similar bonds, usually Treasuries, at a given point in time.
ZARCurrency symbol for the South African Rand.
Zero-BoundA policy where interest rates are at or very near to zero percent. The major implication of a zero-bound economy is that Central Banks can not use further interest rate cuts to stimulate an economy in this situation, Central Banks typically turn to an alternate monetary tool known as quantitative easing.
