Forex Glossary

Glossary of commonly used terms in Forex Market

TermDescription
Appreciation A currency is said to `appreciate` when its price rises in view of increase in its market demand.
Arbitrage The purchase or sale of a currency and simultaneous sale of an equal amount of the same currency in another market, in order to take advantage of small price differentials between markets.
Ask Rate The rate at which a currency is offered for sale.
Balance of Trade The value of a country's exports minus its imports.
Base Currency The first currency (to the left) in a currency pair.
Bear Market A market distinguished by declining prices.
Bid / Ask Spread The difference between the bid and ask price, and the most widely used measure of market liquidity.
Bid Rate The rate at which a trader is willing to buy a currency.
Broker An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a 'dealer' commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.
Bull Market A market distinguished by rising prices
Central Bank A government or quasi-governmental organization that manages a country's monetary policy. For example, the US central bank is the Federal Reserve, and the Indian central bank is the Reserve Bank of India.
Clearing The process of settling a trade.
Commission A transaction fee charged by a broker.
Confirmation A document exchanged by counterparts to a transaction that states the terms of said transaction.
Counter-party One of the participants in a financial transaction.
Country Risk Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
Cross Rate The exchange rate between any two currencies not having domestic domestic currency as one of the currency in the country where the currency pair is quoted.
Currency Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
Currency Risk The probability of an adverse change in exchange rates.
Day Trading The term is used for positions which are opened and closed on the same trading day.
Dealer An individual or firm or an institution, who acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Deficit A negative balance of trade or payments.
Delivery A Forex trade where both sides make and take actual delivery of the currencies traded.
Depreciation A fall in the value of a currency due to market forces.
Derivative A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument.
Devaluation The deliberate downward adjustment of a currency's price, normally by the Government / Central Bank of the country.
Economic Indicator A government issued statistical paper that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.
End Of Day Order (EOD) An order to buy or sell at a specified price. This order remains open until the end of the trading day.
European Central Bank (ECB) the Central Bank for the new European Monetary Union.
Flat/square Dealer jargon used to describe a position that has been completely reversed.
Foreign Exchange - (Forex, FX) the simultaneous buying of one currency and selling of another.
Forward The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date.
Forward points The pips added to or subtracted from the current exchange rate to calculate a forward price.
Futures Contract An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contacts - ETC) while forwards traded Over The Counter (OTC) contracts.
Hedge A position or combination of positions that reduces the risk of the primary position.
Initial margin The initial deposit of collateral required to enter into a position as a guarantee on future performance.
Interbank rates The Foreign Exchange rates at which large international banks quote other large international banks.
Leading Indicators Statistics that are considered to predict future economic activity.
LIBOR The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.
Liquidation The closing of an existing position through the execution of an offsetting transaction.
Liquidity The ability of a market to accept large transaction with minimal to no impact on price stability.
Long position A position that appreciates in value if market prices increase.
Margin The required equity that an investor must deposit as collateral.
Marked-to-Market Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements.
Market Maker A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.
Market Risk The risk of exposure to changes in market prices.
Offer The rate at which a dealer is willing to sell a currency.
Offsetting transaction A transaction to cancel or offset some or all of the market risk of an open position.
Open order An order that will be executed when a market moves to its designated price. Normally associated with "Good 'till Cancelled Orders".
Open position A deal not yet reversed or settled with a physical payment.
Overnight A trade that remains open until the next business day.
Over the Counter (OTC) Used to describe any transaction that is not conducted over an exchange.
Pip The smallest unit by which the price of a currency can move in Forex market.
Position The netted total holdings of a given currency.
Premium In the currency markets, describes the amount by which the forward or futures price exceed the spot price.
Quote An indicative market price.
Rate The price of one currency in terms of another.
Revaluation Increase in the exchange rate of a currency as a result of central bank intervention. Opposite of Devaluation.
Risk Exposure to uncertain change, most often used with a negative connotation of adverse change.
Risk Management The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.
Roll-Over Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies.
Short Position An investment position that benefits from a decline in market price.
Spot Price The current market price.
Spread The difference between the bid and ask prices.
Support Levels A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself.
Swap A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.
Tomorrow Next
(Tom/Next)
Simultaneous buying and selling of a currency for delivery the following day.
Transaction Cost The cost of buying or selling a financial instrument.
Transaction Date The date on which a trade occurs.
Turnover The total money value of all executed transactions in a given time period; volume.
Two-Way Price When both a bid and offer rate is quoted for a Forex transaction.
Value Date The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments.
Whipsaw Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Yard Slang for a billion.