LionsFX Glossary

Do you have a question about a forex related term? LionsFX glossary regroups the most commonly used terminology in currency trading and an index of the financial and investment terms.

A

Account

Record with all transactions.

Account balance

The amount of money trader has in an account.

Appreciation

A currency ‘appreciate ‘ when its price strengthens in response to market demand.

Arbitrage

Buying or selling instrument and simultaneous taking of an equal and opposite position in a related market in order to profit from differing prices for the same asset.

Ask

The price at which a trader will buy a currency. Also known as the offer, it's the price a seller is willing to sell at.

Asset Allocation

Distribution of funds among different markets in order to achieve diversification for risk management purposes and/or expected returns.

B

Back office

The departments and processes related to the settlement of financial transactions.

Balance of Trade

The value of a country’s exports minus its imports.

Base Currency

The currency used as the base to quote a pair. For instance in the EURUSD pair, the EUR is the base currency, in the USDJPY, the USD is the base.

Basis

The difference between the spot price and the futures price.

Bear

Someone who believes the prices/market will decline.

Bear Market

A market in which prices decline sharply against a background of widespread pessimism (opposite of Bull Market).

Bid

The price at which a trader will sell a currency.

Bid/Ask Spread

See spread.

BOC

Bank of Canada, Canadian central bank.

BOE

Bank of England, UK's central bank.

BOJ

Bank of Japan, Japanese central bank

Broker

An agent who handles investors' orders to buy and sell currency. In the FX business, no commission is charged as the broker makes money through the spread.

Bull

Someone who believes the prices/market will rise.

Bull Market

A market distinguished by rising prices.

Book

In professional trading a book is the summary of a trader’s or a desk’s total positions.

C

Cable

Dealers slang for the Sterling/US Dollar exchange rate.

Call Rate

The overnight interbank interest rate.

Candlestick Chart

A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.

Cash Market

The market for the purchase and sale of physical currencies.

Central Bank

The institution that manages a country's monetary policy.

Clearing

The process of settling a trade.

Confirmation

A document exchanged by participants in a transaction that confirms the terms of said transaction.

Counter party

The customer or bank with whom a foreign deal is made. The term is also used in interest and currency swaps markets to refer to a participant in a swap exchange.

Cross Rate

An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, measured against the United States dollar.

Currency Option

Option contract which gives the right to buy or sell a currency with another currency at a specified exchange rate during a specified period.

Currency Risk

The risk of incurring losses resulting from an adverse change in exchange rates.

Currency Swap

Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.

Currency Swaption

OTC Option to enter into a currency swap contract.

Currency Warrant

OTC Option; long-dated (more than one year) currency option.

D

Day Trading

Refers to opening and closing the same position or positions within one day's trading.

Dealer

An individual who acts as a principal or counterpart to a transaction.

Deficit

Negative balance of trade or payments.

Delievery

Process by which both sides transfer possession of currencies traded.

Depreciation

Decline in the value of a currency due to market forces.

Dollar Rate

When a variable amount of a foreign currency is quoted against one US Dollar, regardless of where the dealer is located or in what currency he is requesting a quote. The exception is the Sterling/US Dollar rate (cable) which is quoted as variable amount of US Dollars to one Sterling.

E

Economic Indicator

Economic indicators such as GDP, employment rates, industrial production, foreign investment, and the trade balance reflect the general state of an economy.

ECB

European Central Bank.

End of Day

At the end of market day trader’s book is valuing using the closing market rates or revaluation rates. Any profit or loss is booked and with the next trading day trader will start with net position.

Exchange Rate Risk

See Currency Risk.

F

Federal Reserve (Fed)

The Central Bank of the United States.

Fixed Exchange Rate

Official rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower bands, leading to intervention.

Fixed Interest

Interest rate that remains constant for the term of the deal.

Flat / Square

To be neither long nor short is the same as to be flat or square. One would have a flat book if he has no positions or if all the positions cancel each other out.

Floating Rate Interest

As opposed to a fixed rate, the interest rate on this type of deal will fluctuate with market rates or benchmark rates. One example of a floating rate interest is a standard mortgage.

Foreign Exchange (or Forex or FX)

The simultaneous buying of one currency and selling of another in an over-the-counter market.

Foreign Exchange Swap

Transaction which involves the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed at the time of the conclusion of the contract (short leg), at a date further in the future at a rate agreed at the time of the contract (the long leg).

Forward

A deal that will commence at an agreed date in the future. Forward trades in FX are usually expressed as a margin above (premium) or below (discount) the spot rate. To obtain the actual forward FX price, one adds the margin to the spot rate. The rate will reflect what the FX rate has to be at the forward date so that if funds were re-exchanged at that rate there would be no profit or loss (i.e. a neutral trade). The rate is calculated from the relevant deposit rates in the 2 underlying currencies and the spot FX rate. Unlike in the futures market, forward trading can be customized according to the needs of the two parties and involves more flexibility. Also, there is no centralized exchange.

Forex trader

Person or a Company that buys and sell currency to make a profit.

Futures

A method of trading financial instruments, currencies and commodities for a specific price at a specific date in the future. Unlike options futures entail the obligation to buy or sell instrument at a later date.

G

Gearing

Also known as margin trading. A term used to in the relationship of actual equity versus controlling equity.

GTC

"Good Till Cancelled". An order left with a Dealer to buy or sell at a fixed price. The order remains in place until it is cancelled by the client.

H

Hedging

The practice of undertaking one investment activity in order to protect against loss in another, e.g. selling short to nullify a previous purchase, or buying long to offset a previous short sale. While hedges reduce potential losses, they also tend to reduce potential profits.

High/Low

Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.

I

Initial Margin

The required initial deposit of collateral to enter into a position as a guarantee on future performance.

Inflation

Increase in the price of consumer goods eroding purchasing power.

Interbank Rates

The Foreign Exchange rates at which large international banks quote other large international banks.

Interest Rate Swap

An exchange of two debt obligations that have different payment streams. The transaction usually exchanges two parallel loans: one fixed the other floating.

J

Japanese Candlesticks

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.

January Barometer

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.

JPY

Yen. The currency of Japan.

Juglar Cucle

One of the popular cycles in Time Cycle Analysis. Clement Juglar supported that a cycle of approximately 9 years, is presented in many areas of economic activities.

K

K-Ratio

K-ratio is used in the performance evaluation of an equity relative to its risk. The ratio examines the consistency of an equity's return over time. The ratio is considered a good tool to measure the performance of an equity.

Kairi Relative Index

Kairi Relative Index bears resemblance to the Relative Strength Index. It is technical indicator used to spot relationships in trending markets in Japan.

Key Currency

Key Currency represents reference in an international transaction or when setting an exchange rate. The key currency is usually issued by a stable, developed country such as the United States. Central banks also hold key currencies in reserve.

KLS

Kuala Lumpur Stock Exchange was established in 1976. Since 2014 it’s Bursa Malaysia. Its precursors were the Singapore Stockbrokers' Association established in 1930 and had several name changes over the years. Its main index is the Kuala Lumpur Composite Index.

Kiwi

Slang for New Zealand dollar (NZD).

KPI

Set of measures that company use to determine progress in its strategic and financial performance.

L

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.

Limit Order

An order to buy at or below a specified price or to sell at or above a specified price.

Line Charts

The Line Chart connects single prices for a selected time period. Liquidity - The ability of a market to accept large transaction with minimal to no impact on price stability.

Liquidation

The closing of an existing position through the execution of an offsetting transaction.

Liquid Assets

Assets that can easily be converted into cash such us: money market fund shares.

LIFFE

An acronym for the “London International Financial Futures Exchange,” which consists of the three largest UK futures markets.

Long Position

A market position where the Client has bought a currency he previously did not hold own. Normally expressed in base currency terms, e.g., long Dollars (short D.Marks).

M

Margin

Customers must deposit funds as collateral to cover any potential losses from adverse movements in prices.

Margin deposit

Margin deposit is performance bond or good faith deposit to ensure against trading losses. It allows traders to hold a position much larger than the account value which allow for this high leverage.

Margin Call

A demand for additional funds. A requirement by a clearing house that a clearing member (or by a brokerage firm that a client) brings margin deposits up to a required minimu m level to cover an adverse movement in price in the market.

Market Maker

A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices. A market maker runs a trading book.

Mark-to-Market

Revaluating of all open positions with the current market prices.

Maturity

The date for settlement or expiry of a financial instrument. The date a debt becomes due for payment.

N

Narrow Market

Narrow Market occurs when there is light trading and greater fluctuations in prices relative to volume. This is often interchanged for THIN MARKET.

Net worth

May also be known as stockholder, equit or net assets. For an individual, this refers to the total value of all possessions such as houses, stocks, bonds and other securities minus all outstanding debts, such as mortgage and loans.

O

Offer

The price, or rate, that a willing seller is prepared to sell at.

Offsetting transaction

A trade that serves to offset the market risk of an open position.

One Cancels Other Order (O.C.O. Order)

A contingent order where the execution of one part of the order automatically cancels the other part.

Open Position

Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date.

Open Order

An order to buy or sell when the market moves to a pre-designated price.

Options

Option that holder have to buy/sell a specific security at a set price within a set time period.

Order

Instruction from a client to broker to trade.

Over The Counter (OTC)

Used to describe any transaction that is not conducted over an exchange.

Overnight Trading

Refers to a purchase or sale between the hours of 9.00 pm and 8.00 am. on the following day.

P

Paid (or Points)

Refers to the offer side of the market dealing.

Pair

The forex quoting convention of matching one currency against the other.

Pegging

Central bank's open market operations meant to stabilize its country's currency to that of another country by fixing its exchange rate.

Pip (or Points)

The term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).

Political Risk

The uncertainty in return on an investment due to the possibility that a government might take actions which are detrimental to the investor's interests.

Position

Total holdings of a given currency.

Premium

The number of points added to the spot price to determine a forward or futures price.

Price Transparency

Condition in which every market participant has equal access to the description of quotes.

Q

Quote

An indicative market price, normally used for information purposes only.

Quick Asset

Refer to assets owned by a company with a commercial or exchange value that can easily be converted into cash or that is already in a cash form.

Quantitative Easing

When a central bank injects money into an economy with the aim of stimulating growth.

Quanto Swap

A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates.

Quarterly CFDS

A type of future with expiry dates every three months (once per quarter).*

R

Rally

A recovery in price after a period of decline.

Range

When a price is trading between a defined high and low, moving within these two boundaries without breaking out from them.

Rate

The price of one currency in terms of another, typically used for dealing purposes.

RBA

Reserve Bank of Australia, the central bank of Australia.

RBNZ

Reserve Bank of New Zealand, the central bank of New Zealand.

Real Money

Traders of significant size including pension funds, asset managers, insurance companies, etc. They are viewed as indicators of major long-term market interest, as opposed to shorter-term, intra-day speculators.

Realized Profit/Loss

The amount of money you have made or lost when a position has been closed.

Resistance

A price level at which you would expect selling to take place.

Retail Sales

Measures the monthly retail sales of all goods and services sold by retailers based on a sampling of different types and sizes. This data provides a look into consumer spending behavior, which is a key determinant of growth in all major economies.

Revaluation

When a pegged currency is allowed to strengthen or rise as a result of official actions; the opposite of a devaluation.

Right Issue

A form of corporate action where shareholders are given rights to purchase more stock. Normally issued by companies in an attempt to raise capital.

Risk Capital

The amount of money that an individual can afford to invest, which, if lost would not affect their lifestyle.

Rollover

Where the settlement of a deal is rolled forward to another value date based on the interest rate differential of the two currencies.

Round Trip

A trade that has been opened and subsequently closed by an equal and opposite deal.

Running Profit/Loss

An indicator of the status of your open positions; that is, unrealized money that you would gain or lose should you close all your open positions at that point in time.

RUT

Symbol for Russell 2000 index.

S

SEC

The Securities and Exchange Commission.

Sector

A group of securities that operate in a similar industry.

Sell

Taking a short position in expectation that the market is going to go down.

Settlement

Actual physical exchange of one currency for another.

Short

To go 'short' is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit.

Short position

An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.

Simple Moving Average SMA

A simple average of a pre-defined number of price bars. For example, a 50 period daily chart SMA is the average closing price of the previous 50 daily closing bars. Any time interval can be applied.

Slippage

The difference between the price that was requested and the price obtained typically due to changing market conditions.

Slippery

A term used when the market feels like it is ready for a quick move in any direction.

SNB

Swiss National Bank, the central bank of Switzerland.

Spot

A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck.

Spot Trade

The purchase or sale of a product for immediate delivery (as opposed to a date in the future). Spot contracts are typically settled electronically.

Spread

The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity.

SPX500

A name for the S&P index.

Square

Purchase and sales are in balance and thus the dealer has no open position.

Sterling

A nickname for the British pound or the GBP/USD (Great British Pound/U.S. Dollar) currency pair.

Stock Exchange

A market on which securities are traded.

Stock Index

The combined price of a group of stocks - expressed against a base number - to allow assessment of how the group of companies is performing relative to the past.

Stop Loss Order

An order to buy or sell at the market when a particular price is reached, either above or below the price that prevailed when the order was given.

Strike price

The defined price at which the holder of an option can buy or sell the product.

Suport

A price that acts as a floor for past or future price movements.

Support Levels

A price level at which you would expect buying to take place.

Suspended Trading

A temporary halt in the trading of a product.

Swap

A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

T

Takeover

Assuming control of a company by buying its stock.

Technical Analysis

An effort to forecast future market activity by analyzing market data such as charts, price trends, and volume.

TEN (10) YR

US government-issued debt which is repayable in ten years. For example, a US 10-year note.

Thin

A illiquid, slippery or choppy market environment. A light-volume market that produces erratic trading conditions.

Tick

A minimum change in price, up or down.

Tokyo Session

09:00 – 18:00 (Tokyo).

Tomorrow to Next (Tom Next)

Simultaneous buying and selling of a currency for delivery the following day and selling for the next day or vice versa.

T/P

Stands for “take profit.” Refers to limit orders that look to sell above the level that was bought, or buy back below the level that was sold.

Trade Balance

Measures the difference in value between imported and exported goods and services. Nations with trade surpluses (exports greater than imports), such as Japan, tend to see their currencies appreciate, while countries with trade deficits (imports greater than exports), such as the US, tend to see their currencies weaken.

Trading Bid

A pair is acting strong and/or moving higher; bids keep entering the market and pushing prices up.

Trading Offered

A pair is acting weak and/or moving lower, and offers to sell keep coming into the market.

Trading Range

The range between the highest and lowest price of a stock usually expressed with reference to a period of time. For example: 52-week trading range.

Transaction Cost

The cost of buying or selling a financial product.

Transaction date

The date on which a trade occurs.

Turnover

The total money value or volume of all executed transactions in a given time period.

Two-Way Price

Rates for which both a bid and offer are quoted.

U

UK Average Earnings

Measures the average wage including/excluding bonuses paid to employees. This is measured quarter-on-quarter (QoQ) from the previous year.

UK Claimant Count Rate

Measures the number of people claiming unemployment benefits. The claimant count figures tend to be lower than the unemployment data since not all of the unemployed are eligible for benefits.

UK Oil

A name for Brent Crude Oil.

UK 100

A name for the FTSE 100 index.

Underlying

The actual traded market from where the price of a product is derived.

Unemployment rate

Measures the total workforce that is unemployed and actively seeking employment, measured as a percentage of the labor force.

Uptick

A new price quote at a price higher than the preceding quote.

Uptick Rule

In the US, a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.

US Oil

A name for WTI Crude Oil.

US Prime rate

The interest rate at which US banks will lend to their prime corporate customers.

US30

A name for the Dow Jones index.

V

Value date

Also known as the maturity date, it is the date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward.

Variation Margin

Funds traders must hold in their accounts to have the required margin necessary to cope with market fluctuations.

VIX or Volatility Index

Shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge."

Volatility

Referring to active markets that often present trade opportunities.

W

Wedge Chart Pattern

Chart formation that shows a narrowing price range over time, where price highs in an ascending wedge decrease incrementally, or in a descending wedge, price declines are incrementally smaller. Ascending wedges typically conclude with a downside breakout and descending wedges typically terminate with upside breakouts.

Whipsaw

Slang for a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

Wholesale prices

Measures the changes in prices paid by retailers for finished goods. Inflationary pressures typically show earlier than the headline retail.

Working order

Where a limit order has been requested but not yet filled.

WSJ

Acronym for The Wall Street Journal.

X

XAG/USD

Symbol for Silver Index.

XAU/USD

Symbol for Gold Index.

XAX.X

Symbol for AMEX Composite Index.

Y

Yard

A billion units.

Yield

The percentage return from an investment.

YOY

Abbreviation for year over year.

Yuan

The yuan is the base unit of currency in China. The renminbi is the name of the currency in China, where the Yuan is the base unit.

Z

ZigZag

A technical indicator that draws tops and bottoms - filtering out noise.

ZMW

Zambian Kwacha. The currency of Zambia.

ZAR

The currency of South Africa.

Zero Cost Collar

form of options collar strategy where the outlay of money on one half of the strategy offsets the cost incurred by the other half. It is a protective options strategy that is implemented after a long position in a stock has experienced substantial gains. The investor buys a protective put and sells a covered call.

Zero Capital Gains Rate

The capital gains tax rate of 0% that is charged to individuals who sell property in an "enterprise zone". The zero capital gains rate can be applied by a given level of government in order to prompt investment in a given area.

Zone of Resistance

A price zone in which a stock finds resistance and begins to trade downward. In technical analysis, that support occurs not at a finite point, but in a zone. The "density" of the zone of resistance (how far up the price can move through it), depends on the volume of trading as the price approaches and enters the zone.

Zero Uptick

A transaction executed at the same price as the trade immediately preceding it, but at a price higher than the transaction before that.

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