Glossary

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

 

A

  • Ask Price: The lowest price that a currency pair will be offered for sale.


B

  • Balance/Account Balance: The total financial result of all completed transactions and deposits/withdrawals on the trading account.
  • Bar Chart: On a daily bar chart each bar represents one day's activity. The vertical bar is drawn from the day's highest price to the day's lowest price. Closing price and opening price are represented by ticks on the bar.
  • Base Currency: The first currency quoted in a currency pair on forex.
  • Bear: Investor acting on the belief that prices or the market will decline.
  • Bid: The highest price that a currency pair will bought.
  • Broker: Individual or firm acting as an intermediary to bring together buyers and sellers typically for a commission or fee.
  • Bull: Investor who expects markets or prices to rise.

 


C

  • Cable: Term used to describe the exchange rate between the US dollar and the British Pound. It refers to a cable used for the first trans-Atlantic communication.
  • Candlestick Charts: Identical to a bar chart in the information conveyed, but presented in a way to describe price movements.
  • Carry Trade: An investment position of buying a higher yielding currency with the capital of a lower yielding currency to gain an interest rate differential.
  • Channel: An upwards or downwards trend whose boundaries are marked by two straight lines. A break above/below the channel lines signals a potential change in the trend.
  • Commission: A fee charged by broker or agent for carrying out transactions/orders.
  • Contract (unit or lot): The standard trading unit on certain exchanges. A standard lot with Alpari foreign exchange is 100,000 units of base currency i.e $100000
  • Cross Currency: A pair of currencies traded in forex that does not include the U.S. dollar.


D

  • Daily Charts: Charts that encapsulate the daily price movement for the currency pair traded.
  • Day Trading: Refers to the process of entering and closing out trades within the same day or trading session.


E

  • Euro: The monetary unit of the European Monetary Union used by twelve countries in the European Union. It is now the legal tender of those countries as of January 2002. Those countries include Germany, France, Belgium, The Netherlands, Luxembourg, Spain, Portugal, Italy, Austria, Ireland, Finland and Greece.


F

  • Foreign Exchange (Forex): The market in which participants are able to buy, sell, exchange and speculate on currencies. The forex markets is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors.
  • Fundamental Analysis: The analysis of economic indicators and political and current events that could effect the future direction of financial markets. In the foreign exchange market, fundamental analysis is based primarily on macroeconomic events.


H

  • Hedge/Hedging: Strategy to reduce the risk of adverse price movements on one's portfolio and to protect against the volatility of the market. Hedging typically involves selling or buying at the forward price or taking a position in a related security. Hedging becomes more prevalent with increased uncertainty about current market conditions.


L

  • Limit order: An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 93.00/03, then a buy limit USD would be at a price below 93. (i.e. 92.50)
  • Liquidity: The ability of a market to accept large transaction with minimal or no impact on price.


M

  • Margin: A percentage of the total value of a transaction that a trader is required to deposit.
  • Market Order: An order to buy or sell a currency pair at the best available price.


O

  • Offer: The price (or rate) at which a seller is willing to sell at.
  • Order: An instruction by a customer to a broker/trader to buy or sell at certain price or market price. The order remains valid until executed or cancelled by the customer.

 

  • Over-the-counter Market: Where there is no exchange involved in the transaction. One party trades directly with the other.


P

  • Pip (Points): The smallest amount an exchange rate can move, typically .0001.


Q

  • Quote Currency: The second currency in a pair.


R

  • Rollover: Is a charge or credit for holding a currency position overnight. The cost of the process is measured by the interest rate differential between the two currencies.


S

  • Spot Price: The price at which commodities, securities or currencies are immediately exchanged. (Trade date +2)
  • Spread: The difference between the bid and offer price.
  • Swap: The rollover charge/credit


T

  • Technical Analysis: A technique used to try and predict future movements of a security, commodity or currency, based solely on past price movements and volume levels. It examines charts and historical performance.
  • Tick: A single price movement.
  • Transaction Costs: The costs that are incurred by a trader when buying or selling currencies, commodities, or currencies. These cost include broker commissions or spreads.
  • Transaction Date: The date a trade occurs.
  • Trend Lines: A straight line drawn across a chart that indicates the overall trend for the currency pair. In an upward trend, the line is drawn below, and acts as a support line; the opposite holds true for a downward trend. Once the currency breaks the trend line, the trend is considered to be invalid.