Forex is the foreign exchange market. It is sometimes referred to as ‘FX’ or ’4X’ for short.
FX is the biggest and most active financial market in the world. It is based around the trading of currency, and is more active than stocks and futures.
The currency trading market has a lot of jargon associated with it. The below list is not exhaustive, however it does cover many of the popular terms associated with currency trading. If you would like to know more about FX, or would like to explore specific FX concepts in more depth, then take a look at our Forex articles and the FAQ.
Here you can read more about how currency trading work?
Arbitrage is a risk-free form of trading where the same instrument is bought and sold in two different markets simultaneously. Arbitrage relies on finding two markets in which there is a price difference sufficient to make a profit after any trading fees are taken into account.
You can learn more about the risks in currency trading Here.
In currency trading, the ask price is the lowest price acceptable to the buyer.
The base rate is the rate used by British banks to calculate the interest rate for borrowers. Borrowers with a good credit rating will usually pay a smaller amount over the base rate than a borrower that is considered to be lower quality.
Old Lady is a colloquial or slang term used by traders in the world of Forex and other markets to refer to the Bank of England, one of the key banks that governs the financial situation in the UK.
Oscillators are technical analysis tools that can be used to get buy and sell signals. Oscillators are characterized by the way that the signal, as the name implies, oscillates between overbought and oversold levels.
A bear market is a market in which prices suddenly decline because of widespread pessimism. This is the opposite of a bull market.
To learn more about what is Forex? get here some ideas.
The bid is the highest price that the seller is offering for a particular currency at any given moment in time. The difference between the ask price and the bid price is called the spread.
You can learn more about Bid here.
A FX broker is used as an intermediary to allow individuals to buy and sell foreign currency pairs. Brokers act as an agent and take commission in the form of the spread. They serve as the middle-man between individual buyers and the banks.
A bull market is the opposite of a bear market. In a bull market, prices tend to be rising sharply.
To buy a security using money that has been borrowed from a broker. Buying on margin allows an investor the opportunity to engage in trades that they may otherwise not be able to afford. Buying on margin increases the amount of possible returns, but also exposes the investor to increased risk of losses. Margin purchases are regulated, and margin calls can limit the risk of an investor owing money to a broker when a security purchased on margin goes down.
Click here to read more about what is margin.
n, high, low, and close prices of the day’s trading.
The CIBOR is the Copenhagen Interank Rate. This is the rate at which banks lend the Danish Krone on an unsecured basis. The CIBOR is calculated by the Danmarks Nationalbank, which is the Danish central bank.
In many markets, brokers charge a commission for dealing on behalf of their clients. The good news is that this is rare in the 4X market. Online currency traders and daytraders don’t usually have to pay commission – 4X brokers make their money on the spread.
What features should I look for in a Forex broker? here you can get some ideas.
The CPI is the Consumer Price Index. It is a monthly measure of the change in prices of consumer goods, including food, clothing, and transport.
A dealer is an individual or a firm that acts as a principal, rather than as an agent, when trading. Dealers do not trade for other clients (that’s what a broker does). Instead, they trade only for themselves.
How currency trading work? Here you can get some ideas.
The term “derivatives” is a broad term which relates to risk management instruments including futures, options and swaps. The contract value moves depending on the underlying instrument.
An economic indicator is a statistic which gives insight into the value of a currency. Economic indicators include things such as retail sales, house prices, and unemployment figures.
An exotic currency is one which is not traded as frequently as the more popular currencies.
The term “fast market” refers to a market which is experiencing rapid movement because of strong interest from buyers and sellers.
A foreign position is a position where one party agrees to purchase from, or sell to, another rparty an agreed amount of foreign currency.
Fundamental analysis involves following economic indicators and predicting changes in currency value based on world events. Someone who uses fundamental analysis would watch out for speeches from political figures, bank leaders, and major companies, and use this information to help them make decisions about trades.
You can learn more about Fundamental Analysis by reading Here.
G7 refers to the seven leading industrial countries. These are the United States, Germany, Japan, France, the UK, Canada, and Italy.
The gross national product is the gross domestic product of a country plus any income earned from investment or work abroad.
A hard currency, in FX, is a currency whose value is expected to remain stable or increase when compared to other currencies.
Hedging, in the context of online currency trading, is a transation in which the main aim is to protect an asset or liability against fluctuation in the foreign exchange – rather than to profit from said foreign exchange fluctuations.
Implied rates are interest rates determined by calculating the difference between the spot rate and the forward rate.
This is currency which cannot be exchanged for other currencies – either because it is forbidden by foreign exchange regulations, or because the currency is experiencing extreme volatilitiy and it is not perceived to be safe for parking funds.
An intervention, in the 4X market, means an action taken by a country’s central bank in an attempt to control the value of its currency. Interventions do not tend to occur often – banks will only step in during times of extreme crisis or volatility.
The ISDA is the International Securities Dealers Association. This organization was formed to regulate inter-bank markets and exchanges.
The Initial Margin is the amount of money and/or securities that an investor puts in a margin account in order to be able to borrow from a broker. Margins tend to be used for short sales but can also be used for other purposes. The initial margin requirement is treaded as collateral until the broker calls the margin and the client pays back the amount that they had borrowed. The initial margin requirement varies from broker to broker. Some brokerages require that the initial margin be as much as 50%, while with other brokerages this amount can be much lower.
The Initial Margin requirement is the amount that the broker requires to be kept until the margin is called and the client pays back what they owe. The initial margin requirement is kept as collateral on any loans. In some cases, brokers set initial margin requirements of 50%, but some brokerages have much lower initial margin requirements.
Buying on margin can increase an investor’s potential returns, but it can also put the investor at risk of much higher losses if the value of their investment goes down instead of up.
A 4X jobber is someone who trades in the short term – aiming for small profits each session. A 4X jobber rarely holds a position overnight.
Kiwi is a slang term used by currency traders to refer to the New Zealand dollar.
Leading indicators are statistics that tend to precede changes in economic growth rates and business activity.
LIBOR is the London Inter Bank Offer Rate. This is the British Bankers’ Association average of interbank offered rates for deposits of dollars in the London (England) market. The rate is based on quotations taken from sixteen major banks.
This term refers to when authorities intervene regularly in the market in order to stabilise rates or to encourage the exchange rate to move in a particular direction. In some countries, this is referred to as the dirty float.
A margin is the amount of collateral that the holder of a FX position has to deposit to cover the credit risk of his trade. Margins in FX can be quite high. The bigger the margin, the more risk to the trade, but also the more profit that can be made.
To read more about what is margin click here.
This is an order made by a broker for an account holder to deposit more cash into a margin account because the value of the cash and securities in the account has fallen below a given percentage. Margin accounts come with a maintenance requirement, and the investor must keep the account above the maintenance level in order to be allowed to continue to borrow. If the account holder is unable to make a deposit to restore an account to the required level, then they will be asked to close out enough positions to restore the account to the required level otherwise the account will be blocked.
Marginal risk is the risk that a customer will go bankrupt after entering into a forward contract. When an investor buys on margin, they run the risk of the security that they are investing in decreasing in value to such an extent that they owe money to the broker, because the fall in value is greater than the initial margin requirement.
Brokers reduce the risk of margin purchases by making a margin call if the balance of a margin account falls below a certain margin percentage. When this happens, buyers must either make a deposit to bring the account back into good standing, or close their positions to reduce the margin on their account.
A Margin account is a leverageable account in which securities can be purchased for a combination of cash and a loan. The loan is collateralized by the security. If the value of the security falls, then the borrower will either have to deposit more cash, or sell the security in order to restore the margin account to an acceptable level. Margin accounts are regulated, but the rules for the accounts can vary massively from broker to broker.
A margin account can offer much higher gains for the investor compared to the gains they would make trading without margin, but the risk of losses is also greatly increased.
Here you can find more information about the benefits of leverage.
Meta Trader 4 is a stand-alone forex trading platform that is incredibly popular with traders. Meta Trader 4 is flexible and powerful, and is used by a wide range of brokers. Many people think of it as the industry leader in the world of trading platforms.
It is common for traders to seek out brokers that offer Meta Trader 4 as a trading option, because using browser based trading platforms, while convenient if you are on the move, is sometimes a cumbersome process if the platforms lack essential trading features.
A Not Held Basis Order is an order whereby the price can be traded through or better than the client’s desired level, but the principal will not be held responsible if the order is not executed.
An overnight position is the position (long or short) that a trader holds in a currency at the end of the trading day. Some traders choose not to hold overnight positions, closing all their trades before the day ends.
Forex is traded in pairs. For example, Euros and Dollars. A pair of currencies is exchanged at an exchange rate.
A pip, or a point, is a small unit – one hundredth part of a percent, of a spot rate. Exchange rate movements tend to be measured in pips.
Here you can read and learn more about pips and pipettes.
A small unit of measurement used in currency trading. Points are often referred to as pips in online currency trading.
A position is the net total exposure in a given currency. Positions can be flat (no exposure), long (more currency bought than sold), or short (more currency sold than bought).
Price transparency refers to the ability of all market participants to deal at the sameprice.
Quantitative Easing is a financial tool that banks use to bolster an economy. Quantitative easing is used to boost spending when an economy is performing poorly. It was used a lot during the early 2000s, when interest rates in Japan were close to zero, so the Bank of Japan was not able to stimulate the economy through interest cuts. The Bank of Japan eased their economic situation by flooding commercial banks with extra money, encouraging lending, which as a knock-on-effect also encouraged spending, helping the economy to recover.
A quote is an indication of the price of a currency. A quote is not a deal, and the price may change. 4X quotes are for information only.
A rate is the price of one currency in terms of another. Rates are sometimes referred to as parities.
This involves the substitution of a far option for a near option of the same stock at the same exercise price.
Here you can read more about Rollover.
A security is a negotiable instrument representing financial value., Securities include banknotes, bonds, debentures, and common stocks.
SOFEX is the Swiss Options and Financial Futures Exchange. This is an automated and integrated system for trading and clearing.
A soft commodity is something which is grown, rather than mined – coffee, cocoa, sugar, corn, wheat, and other food products are popular soft commodities which are commonly traded on the futures market. They are used by farmers who are trying to lock-in the future prices of their crops, and by speculators who are trading in the hopes of making a profit.
A spot price is the price at which a given currency is currently trading in the spot market.
A spread is the difference between the bid and the ask price of a currency.
Here you can read more about spread.
Stagflation is a term which is used to describe a recession or a period of low growth which occurs in conjunction with high inflation rates.
Technical analysis is the study of price changes. Technical analysis relies on trend lines and the difference between the bid and the ask prices of a given currency. Technical analysis can only look at past prices but can be used as an indication as to when to buy, and when to sell because a trend is about to be broken.
A technical correction is an adjustment to the price of a currency that occurs based on technical factors such as volume and charting, rather than because of a specific market sentiment.
Transaction exposure relates to the potential profit and loss generated by current foreign exchange transactions.
A trend in FX is the current direction that a price is moving. Technical analysis can help traders to determine whether a currency is likely to continue to increase or decrease in price.
A two-way price is a quote in the foreign exchange market that indicates the bid and the offer.
An uptick is a new price quote which happens to be higher than the preceding price quote.
A value spot is a settlement for a time period (usually two working days) from the date that the contract is entered into.
These transactions are settled on the day they are entered into. Value today transactions are often referred to as cash transactions.
A variation margin is the additional deposit required to bring an investor’s account up to an acceptable level when the balance of the account has fallen below the acceptable maintenance margin requirement.
Buying on margin is a high-risk move. Margin trades offer higher potential returns than non-margin trades, but they also put investors at a higher risk of losses, should the value of the security fall. If an investor is not able to make a required variation margin deposit, then they may have to close trades in order to restore their account to the required level.
In the FX world, a writer is the seller of a position. The phrase “Writing a currency” means that you are selling that currency.
A z-certificate is a certificate issued by the Bank of England to certain “discount houses” in lieu of stock certificates. The discount houses deal in short dated gilt edge securities.