Profiting from differences in the price of a single currency pair that is traded on more than one market.
The quoted offer at which someone can buy; also called the offer price.
An item that has value.
AUD/USD The abbreviation for the Australian dollar and U.S. dollar (AUD/USD) currency pair or cross. The value of this pair refers to how many U.S. dollars is required to buy 1 Aussie Dollar (the quote currency).
The base currency is the first currency in a currency pair, and the currency that remains constant when determining a currency pair’s price. The United States Dollar (USD) and the European Union Euro(EUR) are the dominant base currencies in terms of daily traded volume in the foreign exchange market. The British Pound (GBP), also called sterling, is the third ranking base currency. The USD based pairs are USD/JPY, USD/CHF and USD/CAD; the Euro based pairs are EUR/USD, EUR/JPY, EUR/GBP, and EUR/CHF. The GBP is the base for GBP/USD and GBP/JPY. The Australian Dollar (AUD) is its own base against the USD (AUD/USD).
The difference between the spot price and the futures price.
One hundredth of a percentage point.
BID /ASK SPREAD
The difference between the bid and offer (ask) prices; also known as a two-way price.
The slang or callname for the British Pound Sterling.
A chart that displays the daily trading price range (open, high, low and close). A form of Japanese charting that has become popular in the West. A narrow line (shadow) shows the day’s price range. A wider body marks the area between the open and the close. If the close is above the open, the body is white (not filled); if the close is below the open, the body is black (filled).
The principal monetary authority of a nation, controlled by the national government. It is responsible for issuing currency, setting monetary policy, interest rates, exchange rate policy, and the regulation and supervision of the private banking sector. The Federal Reserve is the central bank of the United States. Others include the European Central Bank, Bank of England, and the Bank of Japan.
The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.
An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example,in the U.S., a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded.
A country’s unit of exchange issued by their government or central bank whose value is the basis for trade.
CURRENCY (EXCHANGE RATE) RISK
The risk of incurring losses resulting from an adverse change in exchange rates.
In economics, when the balance of trades or payments are negative.
A 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.
When the value of a particular currency falls substantially.
DEPTH OF MARKET
The volume of buy and sell orders waiting to be transacted for a particular currency pair at a particular point in time.
Lowering of the value of a country’s currency relative to the currencies of other nations. When a nation devalues its currency, the goods it imports become more expensive, while its exports become less expensive abroad and thus more competitive.
The former currency of Germany, replaced by the Euro when Germany joined the European Union.
The magnitude of a decline in account value, either in percentage or dollar terms, as measured from peak to subsequent trough. For example, if a trader’s account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5,000 (incurred when the account declined from $20,000 to $15,000) even though that trader’s account was never in a loss position from inception.
European Central Bank.
Forex ECNs broker provide access to an electronic trading network, supplied with streaming quotes from the top tier banks in the world. By trading through an ECN broker, a currency trader generally benefits from greater price transparency, faster processing, increased liquidity and more availability in the marketplace.
A statistic that is used to gauge current economic conditions. E.g. Consumer Price Index and Durable Goods Order
ELLIOT WAVE PRINCIPLE
An attempt to explain market activity by ascribing a pattern of eight waves to any complete cycle.
European Monetary System
ENTRY LIMIT ORDERS
ENTRY LIMIT ORDERS
An order used to enter a trade once a currency pair hits a pre-determined price level.
ENTRY STOP ORDERS
An order initiating an open position to sell as the market falls, or buy as the market rises. The client believes that prices will continue to move in the same direction as the previous momentum after hitting the order level.
The currency of the European Monetary Union (EMU), which replaced the European Currency Unit (ECU). The countries currently participating in the EMU are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, and Spain.
The Central Bank of the United States.
Fiat currency is the opposite of a gold standard arrangement.
Completing an order to buy or sell.
The price at which a buy or sell order goes through.
FIXED EXCHANGE RATE
A country’s decision to tie the value of its currency to another country’s currency, gold (or another commodity), or a basket of currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.
The seven leading industrial countries, being the United States, Germany, Japan, France, Britain, Canada, and Italy.
A group composed of the finance ministers and central bankers of the following 20 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States, and the European Union. The IMF and the World Bank also participate. The G-20 was set up to respond to the financial turmoil of 1997-99 through the development of policies that “promote international financial stability”.
The purchase of a currency pair.
The sale of a currency pair.
HEAD AND SHOULDERS
A price trend pattern which has three peaks, the middle one higher than the surrounding two forming what looks to be a head with two shoulders on either side
A term used to describe reducing risk associated with adverse market movements by using two counterbalancing investments, thereby minimizing any losses caused by price fluctuations.
A private, unregulated investment fund for wealthy investors (minimum investments typically begin at US$1 million) specializing in high risk, short-term speculation on bonds, currencies, stock options and derivatives.
A strategy designed to reduce investment risk. Its purpose is to reduce the volatility of a portfolio by investing in alternative instruments that offset the risk in the primary portfolio.
International Monetary Fund.
A rise in prices or a drop in the purchasing power of money.
A 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.
INTERNATIONAL MONETARY FUND
Supranational organization established in 1946 to provide international liquidity and loans to member countries.
The yen is the Japanese currency unit.
Japan’s currency code.
LONDON INTER-BANK OFFER RATE OR LIBOR
The standard for the interest rate that banks charge each other for loans (usually in Eurodollars ). This rate is applicable to the short-term international interbank deposit market, and applies to very large loans borrowed from one day to five years. This market allows banks with liquidity requirements to borrow quickly from other banks with surpluses, enabling banks to avoid holding excessively large amounts of their asset base as liquid assets. The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.
The degree to which an investor or business is utilizing borrowed money. For investors, leverage means buying on margin to enhance return on value without increasing investment. The amount, expressed as a multiple, by which the notional amount traded exceeds the margin required to trade. For example, if the notional amount traded is $100,000 dollars and the required margin is $2,000, the trader can trade with 50 times leverage ($100,000/$2,000). Leveraged investing can be extremely risky because you can lose all the money you invested.
London Interbank Offered Rate – The rate that banks use when borrowing from one another. See also: London Interbank Offered Rate.
A limit order is an order tied to a specific position for the purpose of locking in the gains from that position, while a limit order placed on a buy position is an order to sell. A limit order placed on a sell position is an order to buy. All limit orders remain in effect until the position is liquidated or cancelled by the client.
Funds that customers must deposit as collateral to cover any potential losses from adverse movements in prices.
A requirement for additional funds or other collateral, from a broker or dealer, to increase margin to a necessary level to guarantee performance on a position that has moved against the customer.
A dealer that supplies prices, and is prepared to buy and sell at those bid and ask prices. Some CFTC registered FDMs are market makers.
An order to buy or sell which is to be filled immediately at the prevailing currency price.
NEW ZEALAND DOLLAR
The New Zealand dollar is the currency of New Zealand.
An investor who bases his/her decisions on the outcome of a news announcement and its impact on the market.
Non-Farm Payroll. Reported monthly, this figure represents the total number of paid U.S. workers of any business, excluding farm employees.
OCO (ONE CANCELS THE OTHER)
A stop-loss order and a limit order linked to a specific position. One order, the stop, is to prevent additional loss on the position, and one order, the limit, is to take profit on the position. When either order is executed, closing the position, the other is automatically cancelled.
Refers to the forex reserves as a result of oil sold by oil producing nations.
The term used in currency markets to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point. For example, 0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY.
A view expressed by a trader through the buying or selling of currencies, and can also refer to the amount of currency either owned or owed by an investor.
PREMIUM (COST OF CARRY)
The cost or benefit associated with carrying an open position from one day to the next calculated by using the differential in short-term interest rates between the two currencies in the pair.
A technique used to analyze an observed behavior by employing complex mathematical and statistical modeling, measurement, and research.
Quantitative easing is a monetary tool used by central banks to encourage spending within an economy.
When both a bid and ask price are provided for a currency pair.
The 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 first currency.
The profit and loss that is generated by closing a position.
Price level at which technical analysts note persistent selling of a currency.
An increase in the foreign exchange value of a currency that is pegged to other currencies or gold.
The rate for any period or currency, which is used to revalue a position or book. The revaluation rates are the market rates used when a trader runs an end-of-day to establish profit and loss for the day.
SCALPING (FOREX TRADING)
A legitimate method of arbitrage of small price gaps created by the bid-ask spread. a legitimate method of currency trading based on quick momentum trades triggered by order flow.
SELL LIMIT ORDER
An order to execute a transaction only at a specified price (the limit) or higher.
A limit order with a limit placed below the current market price.
To sell a currency without actually owning it, and to hold a short position with expectations that the price will decrease so that it can be bought back at a later time at a profit.
An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.
A price adjustment based on technical factors like resistance and support levels, as well as overbought and oversold levels, instead of market sentiment.
Short-term trends that technical analysts use to predict future price movements of securities and/or commodities. Also called technicals, technicalities.
The smallest possible change in a price, either up or down. Also known as a pip.
A hypothetical valuation of the current position and the resultant profit or loss if the position were to be liquidated at that moment.
A new price quote that is higher than the preceding quote for the same currency.
The currency of the United States of America.
US PRIME RATE
The interest rate at which banks in the US will lend to their most valued customers.
Measure of how much the price of a currency changes over time.
Refers to when a position is taken and a stop loss is created. The market moves down to trigger the stop loss and then turns around.
Electronic transfer of funds from one bank to another.
CFA Franc BEAC. The currency of Cameroon, The Central African Republic, Chad, The Congo, Equatorial Guinea and Gabon.
XAU is the ISO 4217 currency code for gold, denoting one troy ounce of gold.
Traders’ term for a billion as in a billion dollars.
Yemeni Rial. The currency of Yemen. It is subdivided into 100 fils.
A technical indicator that draws tops and bottoms – filtering out noise.