The FX Glossary presents you a complete list of terms and jargons used in the FX trading scene.
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.
- Buy Entry Limit: An order to buy at a price Below the current market.
- Sell Entry Limit: An order to sell at a price Above the current market.
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.
- Buy Entry Stop: An order to buy at a price Above the current market.
- Sell Entry Stop: An order to sell at a price Below the current market.
- Equities Ownership interest in a corporation in the form of common stock or preferred stock.
- Equity Total assets minus total liabilities; also called net worth.
- Equity Curve The value of a trading account graphed over a period of time.
- Euribor Euribor® (Euro Interbank Offered Rate) is the rate at which euro interbank term deposits within the euro zone are offered by one prime bank to another prime bank.
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.
A monthly survey showing orders for immediate or future delivery, placed with manufacturers. It provides an indication of future business trends. Released by the Census Bureau.
The current price at which an asset could be sold on the open market.
Falling Three Methods
A Japanese candlestick continuation pattern. During a downtrend, a long black body is followed by three small candlesticks, formed between the previous candle’s range - triggering a pause in the market. The resumption of the downtrend is signaled by the presence of the fifth candle which is a long black body.
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.
A charting method that has gained a lot of popularity recently, because the charts are more visually appealing than bar charts that reflect the same information. They are also generally easier to read and interpret. The chart makes it easier to see the relationship between the open and close and the high and low of price movements. They also give a more accurate depiction of market sentiment. There are two types of Candlestick; the first Candle has a white or hollow body which indicates that the market is moving upwards, as there is more buying than selling interest. As the Close price is higher than the Open price, the white candlestick depicts the positive sentiment in the market and the fact that bulls are in control. The longer the body is, the stronger the buying interest. A filled (black) body which indicates that the market is moving downwards indicates that there is more selling than buying interest. As the Close price is lower than the Open price, the black candlestick depicts the negative sentiment in the market and the fact that bears are in control. The longer the body is, the stronger the selling interest. The lines above and below the body of the candlestick are called “Shadows” or “Wicks”. The upper shadow reveals the price levels above the body that have been tested but eventually rejected. Similarly, the lower shadow reveals the price levels below the body that have been tested but eventually rejected.
This is the theory that if the stock market ends higher in January, the rest of the year will also end higher. Conversely, if January ends on a low note, stock prices will be lower for the end of the year. According to Yale Hirsch: “As January goes, so goes the rest of the year.”
Jamaican Dollar. The currency of Jamaica. It is subdivided into 100 cents.
Jordanian Dinar. The currency of Jordan. It is subdivided into 10 dirham, 100 qirsh or 1000 fulus.
A price charting technique independent of time. It is plotted as a series of connected vertical lines. The thickness and direction of the lines, reflect the price action: An uptrend is displayed as series of thick vertical lines A downtrend is displayed as series of thin vertical lines A buy signal is generated when price moves above the most recent high whereas a sell signal is in place when it moves below the last low.
A technical analysis indicator developed by Chester Keltner. The upper band is drawn twice the value of the average true range (ATR) calculated over 10 periods above a 20-period exponential moving average of typical prices. The lower band is drawn the same distance below the exponential moving average. A positive signal is generated when price closes above the upper band. Similarly, a close below the lower band indicates a negative signal.
Kenyan Shilling. The currency of Kenya. It is subdivided into 100 cents.
Som. The currency of Kyrgyzstan. It is subdivided into 100 tyiyn.
It shows the hourly costs of maintaining employees. Released quarterly by Eurostat.
A quarterly report that measures the real gross domestic product per hour worked. Released by Statistics Canada.
Labour Force Participation Rate
The percentage of population (eligible to work) that is either looking for a job or already has a job. Released monthly by the Bureau of Labour Statistics.
A technical indicator that triggers buy and sell signals with a lag.
Moroccan Dirham. The currency of Morocco. It is subdivided into 100 santimat.
This is a notification which alerts you that you need to deposit more money in your trading account, to ensure that there is sufficient margin to keep existing positions open.
Market (Terminal Tab)
An application store where traders can buy trading indicators, expert advisors, scripts and other applications.
The value an open position would be if it were closed at the current market rate.
Namibia Dollar. The currency of Namibia. It is subdivided into 100 cents.
Nasdaq Composite Index
A stock market index of all shares traded on Nasdaq. It is weighted index according to the stocks’ capitalization.
A large stock exchange in New York.
On Neck Line (Bullish Continuation)
In the course of an uptrend, a small black candle opens above the high of the prior long white body and closes at the aforesaid high.
Rial Omani. The currency of Oman. It is subdivided into 1000 baisa.
On Neck Line (Bearish Continuation)
In the course of a downtrend, a small white candle opens below the low of the prior long black body and closes at the aforesaid low.
Organization of Petroleum Exporting Countries. OPEC’s mission is to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry. The twelve-member states are: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.
Balboa. The currency of Panama. It is subdivided into 100 centésimos.
Parabolic Stop and Reverse is a technical indicator developed by Welles Wilder. It is based on the premise that a strong trend will continue to increase in strength and hence it will follow a parabolic arc. During an uptrend a SAR point starts far from the price and as the price accelerates upwards the SAR points (below the price in an uptrend and above the price during a downtrend) close the gap. When the SAR point reaches the price the long position is closed and a short is opened. It is a system that is always in the market either as long or short. The points (SAR) serve as trailing stop loss and trailing take profit. It works well during trending markets but it produces many false signals during sideways markets.
Orders to buy or sell a financial instrument in the future when certain conditions are met. They consist of limit orders and stop orders. Buy Limit Order: A predefined price to buy in the future. This is lower than the current market price. Sell Limit Order: A predefined price to sell in the future. This is higher than the current market price. Buy Stop Order: A predefined price to buy in the future. This is higher than the current market price. Sell Stop Order: A predefined price to sell in the future. The price is lower than the current market price.
Personal Consumption Expenditures
A monthly report that measures the total expenditure by individuals. A high reading is seen as positive for the US Dollar. Released by the Bureau of Economic Analysis, Department of Commerce.
Qatari Rial. The currency of Qatar. It is subdivided into 100 dirhams.
Identifies investment potential by studying unquantifiable factors that affect the market movement, such as traders’ sentiment, Psychology and behavior. Technical Analysis is a form of Qualitative Analysis, as many concepts and theories such as Elliott Wave Theory, Dow Theory and Cycle Theory study the behavior of the market participants.
Identifies investment potential by applying mathematical and statistical models. Technical analysis is a form of quantitative analysis, as indicators and technical tools are based on mathematical and statistical models.
It’s the price that a financial instrument may be bought (Ask price) or sold (Bid price).
Upward price movement after a period of sideways movement or decline.
Random Walk Theory
Claims that price changes are serially independent and as such they are random and unpredictable.
When price action is confined between a support and a resistance level. Also known as a sideways market, flat market or trendless market.
A market governed by legislative rules and regulations which are in place to protect investors.
A financial instrument or asset where the risk of it losing its value is relatively low.
Saudi Riyal. The currency of Saudi Arabia. It is subdivided into 100 halalas.
A trading strategy that benefits from small price movements.
Sudanese Pound. The currency of the Sudan. It is subdivided into 100 piasters.
Take Profit Order (T/P)
An order placed to close a position once it hits a specific price.
An order placed to close a position so as to lock profits once it hits a specific price.
The study of market action mainly through price charts for the purpose of identifying future price trends in early stages.
Baht. The currency of Thailand. It is subdivided into 100 satang.
Hryvnia. The currency of Ukraine. It is subdivided into 100 kopiyky.
Uganda Shilling. The currency of Uganda.
The percentage of the labour force that during the last month that had no work but made specific efforts to find employment. Released monthly by the Bureau of Labor Statistics.
Upside Gap Three Methods
Japanese candlestick bullish continuation pattern. In an uptrend, two long white candles with a rising window in between are followed by a long black candle that fills the window (i.e. gap).
Dong. The currency of Vietnam.
Bolivar. The currency of the Bolivarian Republic of Venezuela.
The date that the transaction actually takes place.
The amount of a specific financial instrument which has exchanged hands during a trading day.
Price action in one of the three market directions: up, down or sideways.
A continuation price pattern. It consists of two converging trendlines that intersect at a point called the apex. Wedges usually slant in the opposite direction from the prevailing trend. Hence, a falling wedge appears during an uptrend whereas a rising wedge appears during a downtrend.
Williams’ Percent Range (%R)
A technical indicator developed by Larry Williams. It is used to identify extreme price movements i.e. overbought and oversold levels. It uses an upside-down scale. Readings from 0 to -20 imply overbought levels whereas readings between 80 and 100 imply oversold levels. The %R indicator often anticipates reversals as it forms a top and turns down before the underlying financial instrument does and similarly, it forms a bottom and turns up before the price does. To calculate %R, take the difference between the Highest High of the last n periods and the current closing price - this is the dividend. Furthermore, take the difference between the Highest High of the last n periods and the Lowest Low of the last n periods - this is the divisor. Finally multiply the quotient by -100.
Sudden price movements in the opposite direction, usually leading to false or bad signals. For example, while the price is rallying upwards suddenly it swings direction and follows a downward path until it bounces up again. It is a characteristic of volatile markets.
CFA Franc BEAC. The currency of Cameroon, The Central African Republic, Chad, The Congo, Equatorial Guinea and Gabon.
Yemeni Rial. The currency of Yemen. It is subdivided into 100 fils.
Chinese Yuan Renminbi. The currency of the People’s Republic of China. It is divided into 10 jiao and 100 fen.
Yen. The currency of Japan.
Yield is the return on an investment and is usually expressed as a percentage.
A technical indicator that draws tops and bottoms - filtering out noise.
Rand. The currency of South Africa. It is subdivided into 100 cents.
Zambian Kwacha. The currency of Zambia. It is subdivided into 100 Ngwee.