| Term | Description |
|---|---|
| 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. |