Forex Glossary – Understanding Forex Jargon

If you are thinking of getting involved in the forex markets it can be helpful to gain an understanding of forex jargon although we firmly believe that our regulated trading partner will explain things in simple terms that can be understood by most people.  Forex jargon can be extremely complex and confusing, which is why we’ve put together a quick forex glossary to help you understand some of the key terms.

A

ADJUSTMENT

Represents an official action from a country to alter payment imbalances – it is usually prompted by a change in economic policy.

AGGREGATE RISK

This is a reference to the exposure a banker or broker has with a client in terms of contracts of foreign exchange.

AGGRESSIVE

Refers to price actions and trades that are taken with conviction.

ANALYST

A person who has expertise in regards to analyzing Forex investments.

APPRECIATION

A product will appreciate when it strengthens based on market demand.

ASIAN CENTRAL BANKS

These are the central banks in Asia – they often have a strong influence on currency direction during the short-term.

B

BALANCE OF TRADE

This is the value of the exports from a country after the value of its imports has been deducted.

BAR CHART

A chart featuring four notable points: the opening price, indicated with a horizontal line on the left; the high and low prices which form a vertical bar and the closing, which is referenced with a horizontal line on the right of the bar.

BASE CURRENCY

This is the first currency listed in a currency pair: it shows how much that currency is worth compared to the second. Generally, the US dollar is used as a base currency in the majority of currency pairs.

BASE RATE

The base rate is the rate at which a central bank lends in a particular country.

BASIS POINT

This is a unit of measurement that describes a minimum chance for a product’s price.

BEARISH MARKET

A bearish market refers to a negative price direction: for example, if you see a description of a “bearish” JYP/USD then it means that the Japanese Yen is likely to be weak compared to the US dollar.

BOC

An acronym for the Bank of Canada: Canada’s central bank.

BOE

An acronym for the Bank of England: the central bank for the United Kingdom.

BOJ

An acronym for the Bank of Japan: the central bank for Japan.

BOND

This is the name for debt that is issued during a specified time.

BOOK

The summary of a desk’s or a trader’s total positions within a professional environment.

BRITISH RETAIL CONSORTIUM SHOP PRICE INDEX

Also known as the BRC for short, the British Retail Consortium measures inflation rates among surveyed retailers, focusing on price changes from goods that are purchased at retail outlets.

BROKER

A firm or an individual acting as an intermediary – the aim is to bring sellers and buyers together based on a fee and commission.

C

CABLE

The pairing of GBP and USD earned the nickname of ‘cable’ because this rate was originally transmitted across to the USA using a transatlantic cable back in the 1800s.

CAD

This is the abbreviation for the Canadian Dollar.

CANDLESTICK CHART

This is used to indicate the trading range for a particular day: including the price during the opening of trade and the close of trade – when the open price is higher the rectangle is shaded and when the close price is higher, the area is not shaded.

CBs

This is the acronym used for central banks.

CENTRAL BANK

An organisation, usually run by the government or at least quasi-governmental, which is in control of the monetary policy of an individual country: such as the Federal Reserve in the USA and the Bundesbank in Germany.

CFDs

An abbreviation for contract for difference, this derivative exposes the change in value of underlying assets: including equities and indexes. Traders can use CFDs to leverage capital and this offers the same benefits as when securities are traded but without needing to actually own the product.

CHARTIST

A trader that uses graphs and charts and makes interpretations of historical data in order to make predictions about future movements and trends.

CLOSED POSITION

This is exposure with a financial contract that is not in existence any more.

CORPORATES

Corporations in the market for financial management and hedging purposes: they are sometimes price sensitive and interest could be long term.

CPI

Short for Consumer Price Index, this is a measure for inflation.

CROWN CURRENCIES

These are the currencies of the Commonwealth: namely the British Pound, the New Zealand Dollar, the Australian Dollar and the Canadian Dollar.

CURRENCY

The term for any type of money that is issued by a central bank or government and is considered the legal tender and base for trades.

CURRENCY PAIRS

These are two currencies which are used to make up foreign exchange rates.

CURRENCY RISK

This is the probability of a negative change for exchange rates.

D

DAY TRADER

This is a term that refers to speculators who take positions in commodities before liquidating those positions before the close of the trading day.

DAY TRADING

This refers to making a trade that you open and close on the same day.

DEAL

A trade done at the existing market price: this is a live trade rather than an order.

DEALER

Firms or individuals that work as counterparts to a transaction – principals will work on one side and hope to achieve a profit by closing in a later trade with a different party.

DEFICIT

Deficit refers to a negative balance of payments or trades.

DELIVERY

This is a trade in which both sides will make, as well as take, delivery of each product traded.

DEPRECIATION

The word used to refer to the decrease in value of an asset.

E

ECB

The abbreviation used for the European Central Bank, which is the central bank for countries that use the Euro as their currency.

EURO

This is the currency of the Euro zone.

EUROPEAN MONETARY UNION

Often abbreviated to the EMU, the European Monetary Union aims to link fiscal policies with economic policies across the member states of the European Union.

EUROZONE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)

This is a monthly index used to measure economic health following 10 indicators including housing permits, interest rate spreads, new orders, average weekly hours and stock prices.

F

FACTORY ORDERS

This indicates the dollar level for non-durable and durable goods: it is more detailed than the durable report which is usually released earlier.

FED

This is a short name for the Federal Reserve Bank, which is the central bank in the USA.

FOMC

The acronym for the Federal Open Market Committee: this is the committee that sets the policies of the US Federal Reserve.

FOREIGN EXCHANGE (FOREX, FX)

The buying and selling of a currency: this is usually referred to as the FX or forex market.

FTSE100

This is the name of the 100 index in the UK.

FUTURE

Two parties agree to execute a transaction at a certain time in the future after agreeing a price in the present.

G

GAP/GAPPING

Quick market moves that see prices jump several levels without trades. They typically follow major news announcements and the release of economic data.

GOING LONG

Purchase of stock, currency or commodity for speculation or investment.

GOING SHORT

Refers to the sale of a product or currency that is not owned by the seller with the expectation that prices will decrease.

GOLD

Generally, gold will move in the opposite direction of the US dollar.

GREENBACK

This is the nickname given to the US dollar.

GROSS DOMESTIC PRODUCT (GDP)

This represents the value in total of a country’s output: including its income and expenditure. However, it only refers to the output within its physical borders.

GROSS NATIONAL PRODUCT

Adds income earned from working abroad and investment to Gross Domestic Product.

GUARANTEED ORDER

This is an order type meant to protect traders from market gapping.

GUARANTEED STOP

This is a stop-loss order which will guarantee to close a position at the level the trader dictates. This means that if the market moves your close position is still guaranteed.

H

HEDGE

This is a position, or potentially a combination of several positions, which will reduce the risk of a trader’s primary position.

I

INFLATION

This refers to the economic condition in which the prices for consumer goods increases, therefore reducing purchase power.

IPO

An abbreviation for Initial Public Offering – which is a company’s initial offer to the public for its stock.

INTERBANK RATES

These are the foreign exchange rates that international banks quote to one another.

INTEREST RATE DIFFERENTIAL

This is the difference in interest rates between currency pairs.

INTERVENTION

When a central bank takes action to affect its currency’s value, this is referred to as intervention.

INTRODUCING BROKER

The name given to a corporate entity or person that brings accounts to brokers and receives a fee for these introductions.

ISM MANUFACTURING INDEX

This is an index assessing the US manufacturing sector by taking a survey of executives regarding inventories, deliveries, employment, new orders and future production.

ISM NON-MANUFACTURING

This index surveys sector firms regarding their outlook.

J

JAPANESE ECONOMY WATCHERS SURVEY

This is a survey of businesses that service consumers directly to assess their mood and signal sentiment.

JAPANESE MACHINE TOOL ORDERS

Looks at the total value of orders placed with machine tool manufacturers. This is seen as important as they indicate demand among companies which manufacture machines.

K

KIWI

This is the nickname given to the NZD/USD currency pair.

L

LEVERAGE

Also known as a margin this represents the fractional increase or percentage available to trade from the capital that is available.

LIABILITY

The potential loss, financial obligation or debt.

LIBOR

Standing for the London Inter-Bank Offered Rate, the LIBOR is a base rate that is used for international lending.

LIMITS/LIMIT ORDER

This is an order with the intention of buying at lower levels compared to the market rate or selling at higher levels compared to the current market.

LIQUID MARKET

Any market with a high level of sellers and buyers: enough for prices to move smoothly.

LIQUIDATION

This is when an existing position is closed because offsetting transactions are being executed.

LOT

This is a unit that is used to measure the amount of the deal.

M

MACRO

Macro refers to the longest term trader who will base their decisions on fundamental analysis. Typically, a macro trader can hold a position from six months to several years.

MARGIN

This is the collateral an investor should deposit in order to retain a position.

MONETARY EASING

The process of loosening monetary constraints: this could include deposit ratios, money supply or changing interest rates.

N

NET POSITION

Refers to the amount of currency which is sold or bought and has not been offset by opposing transactions.

NYA.X

A symbol used for the NYSE Composite Index.

O

OFFER

Also referred to as the Ask price, this is the price a market is willing to sell a product. Typically prices are quoted as Bid/Offer – with the offer price also known as the Ask price.

OPEN ORDER

This is an order that is cancelled whenever the market makes a move to its designated price.

ORDER

This is an instruction to complete a trade execution.

P

PIPS

Pips are the smallest unit for pricing within any foreign currency. They refer to digits that are either subtracted from or added to the fourth decimal place.

POLITICAL RISK

The likelihood that changes in a government’s policy will influence the movement of the forex market.

PORTFOLIO

This refers to investments that are owned by an entity.

PROFITS

This is the difference between the cost and sale price when the sale price is higher.

PURCHASING MANAGERS INDEX (PMI)

This economic indicator looks at the performance of manufacturing companies within a country.

Q

QUOTE

A market price used generally just for information purposes.

QUANTITATIVE EASING

The choice of a central bank to push money into its economy with the goal of stimulating market growth.

QUARTERLY CFDs

This is a future that expires once every quarter… so every three months.

R

RETAIL SALES

This measures retail sales of services and goods that are sold by retailers – sampling different sizes and types.

RISK

This is exposure to uncertain change and usually carries negative connotations.

RISK MANAGEMENT

Financial analysis and trading techniques used to control or reduce exposure to certain types of risk.

ROLLOVER

When an open position for the value date closes at the same time as the opening position for the next day’s value.

S

SELL

When you take a short position while anticipating that the forex market will go down.

SETTLEMENT

A process when a trade is put into the books, while recording the various counterparts of the transaction.

SHORT POSITION

This is an investment position that will benefit from declines within the market price.

SLIPPAGE

This refers to the difference between a price requested and a price obtained due to changes in market conditions.

SNB

An abbreviation referring to the Swiss National Bank.

SPOT MARKET

Markets where products are traded at a market price for an immediate exchange.

SPOT PRICE

Refers to the current market price.

SPOT TRADE

Sales or purchases of a product for immediate delivery.

STERLING

The currency used in the UK: also known as the British Pound.

STOCK EXCHANGE

The market where the trade of securities takes place.

STOP LOSS HUNTING

When a market looks to be reaching a particular level it is said to be heavy with stops. When stops are triggered the price often jumps.

STOP ORDER

This is an order to sell or buy when a certain price is reached. At this point, the stop point becomes a market order and will be executed at the best price available.

STOP ENTRY ORDER

This is an order to buy above the existing price or sell below the current price.

STOP LOSS ORDER

An important risk management tool to close long positions below the current market price and close short positions above the market price. This limits the potential downside in the case that the market moves in a direction you did not want.

SUPPORT

The price which will act as a floor for future or past price movements.

SWAP

The simultaneous purchase and sale of the same amount of currency with a forward exchange rate.

T

TAKEOVER

When a company takes control of another by purchasing its stock.

TECHNICAL ANALYSIS

Studies of price patterns and charts looking for clues as to the future direction of the market.

TREND

Movement in price that leads to net changes in value.

TURNOVER

This is the total volume or value of money across all executed transactions for a certain period of time.

U

UK JOBLESS CLAIMS CHANGE

This tracks the change in the number of people claiming unemployment benefits in the UK during the previous month.

UK PRODUCERS PRICE INDEX INPUT

Measures inflation according to manufacturers: when they attempt to buy services and materials.

UK PRODUCERS PRICE INDEX OUTPUT

A measure of the inflation experienced by manufacturers when they sell their goods and services.

UNEMPLOYMENT RATE

A measurement of the total workforce unemployed and looking for employment.

UPTICK

A price quote that is higher than the previous quote.

US30

A short name for the Dow Jones Index.

US OIL

A name given to WTI crude oil.

US PRIME RATE

The interest rate at which a US bank will lend to corporate customers.

V

VARIATION MARGIN

These are funds that traders need to hold in order to cope with market fluctuations.

VOLATILITY

A reference to active markets that offer trade opportunities in the present climate.

W

WHOLESALE PRICES

A measurement of the change in prices that retailers pay for finished goods.

WSJ

An abbreviation for the highly respected Wall Street Journal publication.

X

XAG/USD

This is a symbol used for the silver index.

XAU/USD

A symbol used for the gold index.

XAX.X

A symbol that is used for the AMEX Composite Index.

Y

YARD

A reference to a billion units.

YEN

The basic currency of Japan.

YIELD

A reference to the percentage return from an investment.

YUAN

This is the base currency for China.

PLEASE NOTE: These guides are meant to offer a general outline of some key forex-related areas. They are not to be constituted as financial advice and the strategies should only be considered by professional traders in selected circumstances. If you are considering entering the forex trading markets, seek independent financial advice first.