Knowledge Center

A

ADJUSTMENT

This is something carried out by a central bank when it is necessary to fix payment imbalances or issues with the rate of a nation’s currency.

ARBITRAGE

This is where the simultaneous purchase and sale of an asset is made so as to take profit from an imbalance in the price.

ASK

This is the price that a buyer can take when purchasing a currency pair.

ASSET

Something that has economic value. In forex, assets may relate to currencies being held.

AUSSIE

In trading, this is how the Australian dollar is most commonly referred to.

B

BALANCE OF PAYMENTS

This is a record of all the payments made between the residents of a country and the rest of the world over a period of time, such as a quarter, or a year.

BAND

Also known as Trading Band. it is the range a currency is allowed to move against another currency based on pre-existing conditions imposed by the local government.

BANK RATE

The interest rate at which the central bank lends to domestic banks.

BASE CURRENCY

This is the currency against which rates are quoted in a currency pair. In USD/JPY, for example, USD is the base currency. The base currency always comes first in the pair.

BASKET

This is a selected portfolio of currencies that are grouped together and whose weighted values are then used to determine the value of another currency.

BEAR MARKET

A bear market is when prices are in a downward trend. A bear market can last for weeks or months.

BID

This is the price that a buyer can take when selling a currency pair.

BID/ASK SPREAD

This is the difference between the bid and the ask price, or the buy and sell price.

BOLLINGER BANDS

This is what is known as a technical indicator. This one features three bands that are used to determine and predict price movements. Prices will often find resistance at the top band and support at the bottom band.

BULL MARKET

A bull market is when prices are in an upward trend. A bear market can last for weeks or months.

BUY SIGNAL

This is a signal that will be determined by the technical analysis a trader uses. When certain conditions are met, this signal will indicate that it is a good time to buy.

C

CALL RATE

The rate of interest on call loans. These are loans that are due for payment on demand.

CANDLESTICK CHART

One of the most popular and widely used technical indicators. The chart tracks the price range of the day. When the close is higher than the open, the body of the candle is green or blue. When the close is lower than the open, the candle is red.

CASH

This is a kind of exchange transaction that is settled on the same day that it is made. This is a term that is usually only used in American markets.

CENTRAL BANK

This is a country’s principal economic institution that provides funds for the government and commercial banking system. It also sets interest rates and other monetary policy as well as issuing currency.

CENTRAL RATE

This is an exchange rate for a currency in relation to the European currency unit. Each currency can move across a small range against the central rate.

CONTRACT

This is where an agreement is put in place to buy or sell a certain amount of a particular currency or option for a defined period of time at some point in the future.

CONVERSION

This is the process that sees an asset or liability priced in one currency exchanged for an asset or liability in a different currency.

CONVERTIBLE CURRENCY

This is a currency that can be freely converted into another currency and for any purpose without the need for any authorization from the relevant central bank.

CROSS RATE

This is an exchange rate that is worked out by the rates of two currencies being computed against a third, usually the US dollar.

CURRENCY PAIR

The two currencies that constitute a foreign exchange rate. EUR/USD is the world’s most traded currency pair.

D

DAY TRADER

Somebody who buys and sells an asset within the same day. This type of trading is most commonly done in the forex market.

DAY TRADING

This is the activity that is carried out by those traders who buy and sell positions within the same day.

DELIVERY DATE

The day when a stock, bond, or option trade must be settled. In FX this is usually referred to as the value date.

DEPRECIATION

This is when a currency or other asset goes down in value.

DOJI

This is a commonly seen pattern that is used in technical analysis. Its candlestick formation is very small as it tracks open and close prices that are almost equal.

E

ENTRY LIMIT

An order to buy a currency or other asset at a future price that the trader sets. If the market moves in the opposite direction it’s possible that the order will not be realised.

ENTRY STOP

This is an instruction to buy or sell when a stock or currency hits a certain price. A buy order would set a price that is higher than the current rate while a sell order would be set below the current rate. This facility serves to protect traders from heavy losses and protects profits.

EUR

This represents the Euro, the currency used by 19 of the 27 countries within the European Union.

EXPIRATION

Also known as the “final trading day”, traders must close their options before this day in order to realise their profit or loss.

F

FED FUND RATE

This is the interest rate at which banks can borrow and lend from one another on an overnight basis. It also indicates the Federal Reserve’s view on the current state of the money supply.

FEDERAL RESERVE (FED)

This is the central bank of the United States.

FOMC

This is an offshoot of the Federal Reserve which dictates monetary policy in the United States.

FOREIGN EXCHANGE

The buying and selling of one currency against another. The online trading of forex involves off-exchange transactions.

FOREIGN EXCHANGE SWAP

This is the simultaneous buying and selling of identical amounts of one currency for another, but with two different value dates. Usually carried out to secure loans in a foreign currency at more favourable interest rates.

FOREX

The term most commonly used when referring to foreign exchange trading.

FUNDAMENTAL ANALYSIS

The use of economic and political data to work out the future movements of the markets.

FUNDAMENTALS

These are the macro-economic factors that can determine price movements, such as interest rates, trade balance, and growth rates.

FX

An abbreviation also commonly used to refer to the trading of foreign currency.

G

GOLD STANDARD

A system where the price of gold determined the value of a currency. This system was abandoned after the Great Depression of the 1930s.

GROSS DOMESTIC PRODUCT

This is a monetary measure of all the goods and services that a country produces over a specific period.

GROSS NATIONAL PRODUCT

Similar to gross domestic product but this figure also includes all income that comes from outside the country’s borders too.

H

HARD CURRENCY

Any currency that is easily traded and converted into other currencies. A characteristic should be that its value is unlikely to depreciate suddenly.

HEDGING

This is where a trader tries to cover one position by opening another. Usually set up to protect against losses.

I

INFLATION

This is where prices rise and there is a drop in the purchasing value of money.

INITIAL MARGIN

This is the percentage of a security that must be covered by way of a deposit in order to open a position.

J

K

KIWI

The term most commonly used to refer to the New Zealand dollar.

L

LEADING INDICATORS

This is a statistic about economic activity that often precedes changes in growth rates and other significant price affecting trends.

LEVERAGE

Most commonly used to refer to a trader’s ability to use margin to make larger trades. Leverage can allow for bigger gains but could worsen losses.

LINE CHART

This is one of the simplest charts used to track price movements over a period of time. Often used in conjunction with other charts to carry out inter-market analysis.

LIQUIDITY

This refers to how frequently and to what levels a particular asset is traded. If an asset has high liquidity it means that many people are buying and selling it. Low liquidity would mean that the particular asset holds little interest to traders.

LONG

This is where a trader places a trade with the expectation that price will rise in the future.

LOONEY

This is the name most commonly used to refer to the Canadian dollar.

LOT

This is the standardised number of units that are traded in an fx transaction. A standard lot is equal to 100,000 units of the base currency. 10,000 units is known as a Mini. 1,000 units is a Micro lot.

M

MARGIN

Margin allows you to trade with leverage and make more profit on price movements, but it could also accelerate your losses. If you made a trade with a margin of 50:1, for example, you would only need to risk $10 in order to open a $500 trade.

MARGIN CALL

This is made when a trader does not hold enough collateral to cover potential losses. Positions can be closed out if more collateral is not added.

MARKET ORDER

This is where a trader makes an immediate buy or sell at the current market rate.

N

O

OFFER

This the price at which the seller is willing to sell. This also makes it the best price at which it is possible to buy.

OFF-QUOTE

This can occur if there is a lack of liquidity in the market you would like to trade. It could also occur at times of exceptionally high volatility in the market.

OPEN POSITION

This is a live trade. It could be a buy or sell, or a long or a short.

OVER THE COUNTER (OTC)

This is any kind of transaction that is not carried out at a physical stock exchange.

OVERNIGHT

A trade that carries over from one day to the next.

P

PEGGED

This is where two currencies are matched in their movements. Some pegged currencies have bands of movement in which they can move, others are more strict and have less deviation.

PIP

A PIP is the smallest movement that can be registered in foreign exchange. In most currency pairs, this movement is 0.0001. In USD/JPY the smallest PIP is 0.1.

POSITION

The position is the state of a committed trade. It could be an open position as defined earlier or a recently closed position.

Q

QUOTE CURRENCY

This is the second currency that is quoted in a pair. In EUR/USD, the quote currency is USD. Quote currency is also known as secondary currency or the counter currency.

R

RALLY

This is where the price makes a continued move upwards, particularly after a period where the price has been struggling.

RANGE

This is the difference between the high and low price of an asset over a certain period of time. The day’s range would be that of the low point against the high for that particular day.

RATE

This is the price of one currency when compared against another.

RESISTANCE

This is a point where analysts would expect selling to take place.

RISK CAPITAL

This is the amount of capital that an individual could afford to lose. This amount should never jeopardise a trader’s overall financial stability.

RISK MANAGEMENT

Smart traders put plans in place that allow them to manage the risks that their trades will expose them to.

ROLLOVER

This is the amount of interest that an open position incurs overnight.

S

SECURITY DEPOSIT

The same as margin. This is the amount of deposit you need to put down in order to open a position.

SHORT

This is the opposite of a long position. In a short, the trader expects that the price will decrease in the future.

SLIPPAGE

This refers to the difference that can sometimes be found in pip value between the moment in which a market order is placed and the moment it is filled.

SOFT MARKET

In this scenario, there are more sellers than buyers. This usually results in rapid price drops.

SPREAD

This is the difference betwen the buy and sell price.

SPIKE

This is where the price suddenly shoots upwards. The same term is used for sudden big drops in price.

STERLING

This is another name for the British pound, which is known as “cable” in forex.

SUPPORT

The opposite of resistance. This is the point where traders would be expected to buy.

SWAP

This is the difference between the central banks’ interest rates for each currency in a pair, as well as the broker’s commission, when positions are left open overnight. The swap might be positive or negative depending on the interest rate changes.

SWISSY

This is the most common name used to refer to the Swiss franc in forex.

T

TECHNICAL ANALYSIS

This is a general name given to the attempts to forecast market movements through charts, price trends, and volume.

THIN MARKET

This is where trading volume is low and there is little liquidity in the market. This will mean wide spreads between the bid and ask prices.

TICK

The slightest change in price movement. This can be both up or down.

TRADE DATE

The date that a trade takes place.

TRAILING STOP

This is a stop-loss price set above or below the current price that can be adjusted as the price moves.

TRANSACTION

This is what takes place when a buy or sell trade is executed.

TRANSACTION DATE

Same as trade date.

TREND

This is a term used to describe the movement of the price. Trends can refer to both upward and downward movements in price. A minor trend would be one that takes place over a month. Intermediate would stretch from 1 to 6 months. And a major trend would be one that has lasted for a year or more.

TREND LINE

Straight lines drawn to track price trends. Rising peaks and troughs will follow uptrends. Falling peaks and troughs will signal a downtrend. If a trend line is broken it usually means that a trend reversal is about to occur.

U

UPTICK

This is a transaction for an instrument that is carried out at a higher price than the previous trade.

V

VOLATILITY

Volatility is a measure of the level of movements within a market or asset. High volatility can bring big returns, but it also represents a higher risk

W

WORKING DAY

This is a day in which the markets are open to trade. In the event where one country’s bank is closed, FX trades in the closed bank’s currency cannot be made.

X

Y

Z

Glossary

A