Trading Terms Glossary

Understand key trading and forex terms with our easy-to-navigate glossary

Forex Trading Glossary

Essential terms for understanding the foreign exchange market

A B C D E F G H I L M O P Q R S T U V W Y

A

Appreciation

Currency value increases due to demand in the Foreign exchange market.

Arbitrage

Exploiting price differences between markets.

Around

Forward price close to spot rate.

Ask Rate

Selling price of a currency, also known as the offer price.

Asset Allocation

Dividing assets to manage risk.

B

Back Office

Handles trade settlement processes.

Balance of Trade

Exports minus imports.

Base Currency

The primary currency in a pair. In foreign exchange markets, the US Dollar is typically the base currency for quotes, except for the British Pound, Euro, and Australian Dollar.

Bear Market

Market with declining prices.

Bid/Ask Spread

Difference between buying and selling prices.

Bid Rate

Buying price for a currency.

Big Figure

First digits of an exchange rate, often omitted in quotes.

Book

Summary of trading positions.

Bretton Woods Agreement

Fixed FX system, 1944–1971.

Broker

Middleman for trades, facilitating transactions for a fee.

Bull Market

Market with rising prices.

Bundesbank

Germany's central bank.

C

Cable

GBP/USD exchange rate, named for the transatlantic cable.

Candlestick Chart

Chart showing open, high, low, close prices.

Central Bank

Institution managing monetary policy.

Chartist

Trader using technical charts for predictions.

Choice Market

No spread; one trading price.

Clearing

Settling a trade.

Collateral

Asset pledged as loan security.

Commission

Broker fee for trade execution.

Confirmation

Agreement of trade terms.

Contagion

Spread of financial instability across markets.

Contract

Standard trading unit.

Counterparty

Participant in a transaction.

Country Risk

Risk tied to cross-border trades.

Cross Rate

FX rate between non-local currencies.

Currency

Legal tender issued by authority.

Currency Risk

Risk of exchange rate impact.

D

Day Trading

Buying and selling within a day.

Dealer

Takes one side of a trade for profit.

Deficit

Spending exceeds income or exports.

Delivery

Physical currency exchange.

Depreciation

Currency value decline.

Derivative

Contract tied to another asset's value.

Devaluation

Official reduction in currency value.

E

Economic Indicator

Data reflecting economic health.

End Of Day Order (EOD)

Order valid until day-end.

EURO

Currency of the Eurozone.

European Central Bank (ECB)

Governs Euro monetary policy.

European Monetary Union (EMU)

Unified monetary EU system.

F

Federal Deposit Insurance Corporation (FDIC)

Insures US bank deposits.

Federal Reserve (Fed)

US central banking system.

Flat/Square

No open trading position.

Foreign Exchange (Forex)

Global currency market.

Forward

FX agreement for future settlement.

Forward Points

Adjust spot rate for forward value.

Fundamental Analysis

Studying factors behind price movements.

Futures Contract

Standardized future trading agreement.

G

Good 'Til Cancelled Order (GTC)

Stays active until filled or canceled.

H

Hedge

Strategy to reduce exposure or risk.

I

Inflation

Decline in money's purchasing power.

Initial Margin

First deposit in a trading position.

Interbank Rates

Rates quoted between banks.

L

Leading Indicators

Forecast future economic activity.

LIBOR

Benchmark interbank lending rate.

Limit Order

Price-restricted trade instruction.

Liquidation

Closing a trade position.

Liquidity

Ease of market transaction.

Long Position

Buying with expectation of price rise.

M

Margin

The amount of equity or collateral traders must deposit to enter or maintain a position. Helps ensure sufficient funds to cover potential losses.

Margin Call

Demand for additional funds to meet margin requirements.

Marked-to-Market

Valuing open positions using current market prices.

Market Maker

Entity quoting buy and sell prices to provide liquidity.

Market Risk

Potential losses from market price changes.

Maturity

End date of a financial instrument.

O

Offer

Also known as the ask price—what a seller is willing to accept.

Offsetting Transaction

Trade that reduces or eliminates exposure.

One Cancels the Other (OCO)

Order setup where one execution cancels another.

Open Order

Active order waiting to be executed or canceled.

Open Position

Trade not yet settled, representing market exposure.

Overnight

Positions held past market close, may incur rollover interest.

Over-the-Counter (OTC)

Private trade outside a formal exchange.

P

Pips

Smallest unit of price movement in currency pairs, typically 0.0001.

Political Risk

Impact of political decisions on investments.

Position

Net holdings in a currency, long or short.

Premium

Amount by which a forward price exceeds the spot price.

Price Transparency

Equal access to market pricing for all participants.

Q

Quote

Indicative pricing for a financial instrument.

R

Rate

Exchange rate between two currencies.

Resistance

Technical level where selling may overcome buying.

Revaluation

Upward change in currency value by central bank.

Risk

Exposure to potential losses or uncertainty.

S

Settlement

Completion of a trade with exchange of funds and assets.

Short Position

Profits from market decline by selling high, buying low.

Spot Price

Current market price for immediate transaction.

Spread

Difference between bid and ask prices.

Sterling

Nickname for the British Pound (GBP).

Stop Loss Order

Automatic sell order to cap potential losses.

Support Levels

Price levels where buying may prevent decline.

Swap

Agreement to exchange financial instruments or cash flows.

T

Technical Analysis

Study of historical price patterns to forecast movements.

Tomorrow Next (Tom/Next)

Rolling a trade to the next day without delivery.

Transaction Cost

Expenses associated with executing a trade.

Transaction Date

Date a trade agreement is made.

Turnover

Total traded volume over a set period.

Two-Way Price

Quote including both bid and offer prices.

U

Uptick

Trade executed at a higher price than the previous one.

Uptick Rule

Restricts short selling unless price has moved up.

US Prime Rate

Benchmark lending rate for top US corporate borrowers.

V

Value Date

Agreed-upon date for trade settlement.

Variation Margin

Additional capital to cover unrealized losses.

Volatility

Measure of price fluctuation over time.

W

Whipsaw

Sharp market movements followed by quick reversals.

Y

Yard

Slang for one billion, used in trading contexts.

Platforms

Company

Legal

Operational Address

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