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Trading Terminology

Trading Terminology

Trading Terminology

Forex Education
A - G
H - P
Q - Y
A - GH - PQ - Y
A

Adjustment – a change in the internal economic policies to amend the balance of payments or the official interest rates.

Arbitrage – to buy an asset (e.g. currency) in one market at a lower price and sell it in another market at a higher price at the same time without any cost or extra risk.

Ask Price – the price at which a broker is willing to sell a financial asset (e.g. currency) or the trader is willing to buy an asset. In FX quotation, the ask price is on the right side of a listed quote. The ask price is always higher than the bid price. For example, USD / JPY 110.395 / 110.415, 110.415 is the ask price.

At Best – an instruction that shows the trader the best buying / selling price.

Available Margin – amount of margin that you have remain in your deposit account to open new trade positions or guard against losses on open trades. It is calculated based on the amount of P/L of the trade positions, the amount will be deducted in the margin.

Note: margin calculated and updated automatically on the trading platform based on real-time changing rate.

Average Down – Buying additional currency which a trader holds a position in, and which has dropped in price since the previous purchases.

B

Balance of Payments – an accounting record of all transactions including trading trade in goods and services, investments, transfer payments made by a country over a certain time period, comparing the amount of foreign currency taken into the amount of domestic currency paid out.

Bar Chart –a type of graph which is comprised of a series of vertical lines called bars. The vertical bar represents the high and low prices, the horizontal line on the left of the bar shows the opening price while the horizontal line on the right shows the closing price.

Base Currency – the first currency in a currency pair. For example, in pair USD/JPY, the US dollar on the left is the base currency.

Basis Point – the one hundredth of a percent. Used to describe the change of an exchange rate.

Bank Rate –  this is an interested rate charged by a bank for loans.

Balance – A financial result of all completed transactions of a trading account.

Bear Market – a market condition in which investment prices are decreasing, accompanied by general pessimism (opposite of a bull market).

Bid Price – the price at which the broker is willing to buy a financial asset (e.g. currency) or the trader is willing to sell an asset. In FX quotation, the bid price is on the left side of a listed quote. The bid price is always lower than the ask price. For example, USD/CHF 1.4527/32, 1.4527 is the bid price.

Bid-ask Spread – the difference between bid price and ask price.

Big Figure Quote – The first few digits in a currency pair price listing. The big figure is typically understood among dealers, who will omit them when they quote a price. For example, USD/JPY 110.50/110.55,dealers usually only quote “50/55”.

Bull Market – a market condition in which investment prices are increasing accompanied by general optimism (opposite of a bear market).

Breakout – the change in value that pushes the price above a resistance area.

Buy Up – hold a long position. If the price of the currency pair is expected to rise, the trader will execute a buy order

Buy on Open -An order to buy at the start of a trading session at a price within the opening range.

Buy on Close – An order to buy at the end of a trading session at a price within the closing range.

C

Cable – the trader jargon for the British Pound related to the GBP/USD pair.

Candlestick Chart – a chart shows the opening and closing prices as well as the trading range. Often price changes in candlestick chart are showed by colors. Red (or black) color means that opening price was higher that closing price while green (or white) color means that closing price was higher that opening price. However, some platforms can let traders to customize their own preferences for colors.

Cash Flow – A measure of a company’s financial status. Equals cash receipts minus cash payments over a given period of time; or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization.

Cash Settlement – a transaction settled by the contract’s cash monetary value instead of physical delivery of the last trading day.

Central Bank – a governmental institution that undertakes control over country’s monetary policy and emits national currency.

Chartist – an analyst who uses charts to explain historical data to find trends and to forecast future price movements.

Closed Position – an exposure in markets that no longer exist. In order to close the position the dealer has to sell or buy certain amount of underlying security to offset an equal amount of the open position.

Closing Price – the final price at the end of a trading session on a given day.

Closing Range – the highest and lowest prices at which trades occurred during the market close.

Collateral – assets pledged in order to secure a loan or other credit.

Confirmation – the market condition where prices and terms are agreed in a trade.

Contract – the standard unit of trading. The standard trading unit is 1 lot, (USD$100,000).

Counter Currency – the second listed currency in a currency pair. For example, USD/JPY, the Japanese Yen on the right is the counter currency (also called quote currency).

Counterparty – one of the parties involved in a trade. A market maker is usually considered as the counterparty.

Country Risk – risks of political and economic uncertainty in a country that influencing the value of loans or investments.  Some typical examples include legal and political risks are wars, or domestic riots.

Cross Currency Pairs or Cross Rate –the exchange rate between two foreign currencies, derived from their quotes in a third currency.

Currency Symbols– An abbreviation that represents a currency in a fx trade. Common currency symbols include AUD (Australian Dollar)、CAD (Canadian Dollar) 、EUR (Euro )、JPY(Japanese Yen )、GBP (British Pound )、CHF (Swiss Franc  ), etc.

Currency – any form of money issued by central bank or government which can be used as medium of exchange.

Currency Pair – component of two currencies used in a fx trade, e.g. USD/JPY.

Currency Risk- in forex trade, it often relates to the total loss or gain of a trader’s open position due to the change in the value of currency that is against his expectation.

D

Day Trading – opening and closing positions within the same trading day.

Day Order – a buy or sell order which automatically expires if it is not executed during that trading session.

Dealer – an individual or a firm that acts as a counterpart or principal to a trading transaction.

Derivative – a financial instrument derived from an asset, e.g. stocks, bonds, currencies or commodities.

Devaluation – a declined value in a currency.

Direct Quote – a quote which provides home currency price for a foreign currency.

E

ECN (Electronic Communications Networks) – electronic fx markets which anonymously match buy and sell orders.

Economic Indicator – a statistic that depicts current economic development and stability released by the government or non-government institution. Economic indicators fall into three categories: leading, coincident and lagging indicators. E.g. inflation rate, gross domestic product, trade balances, employment level etc.

End of Day Order (EOD)– a buy or sell order that specifies that a transaction occur at a specific price, and is left open until the end of a trading day. If the parameters of the end of day order are not met, the order is cancelled.

European Monetary Union (EMU) – the group of policies that coordinate economic and fiscal policy across EU Member States. EU members currently include: Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain, and Portugal etc.

EURO – the currency of the European Union.

Euro Swissy -FX market terms, which represent Euro exchange rates for Swiss francs

F

Federal Reserve (FED) – the central bank of the United States. It establishes monetary policy like interest rates, credit, etc.

Foreign Exchange – the simultaneous buying of one currency and selling of another.

Forex Market – Also known as the FX market where individual or institutional buyers and sellers conduct foreign exchange transactions.

Floating Exchange Rate – a currency whose value is determined by market.

Fundamental Analysis – a method that evaluates financial asset by analyzing corresponding financial, economic and other qualitative and quantitative factors.

G

G7 – the seven leading industrial countries – US, Germany, Japan, France, UK, Canada and Italy.

Going Long – an action that involves purchasing the stock, commodity of currency for the speculation or investment purposes.

Going Short – the selling of a financial asset or instrument not owned by the seller.

Gross Domestic Product (GDP) – total market value of all final goods, income or expenditure produced within a particular country during certain period of time.

Gross National Product (GNP) – Gross Domestic Product plus income earned from investment or work abroad.

Good Till Cancelled Order (GTC)– An order that continues to work in the marketplace until it executes or is canceled by the customer.

Gap Risk– the possibility of a reduction in the value of a currency when the prices change unexpectedly. Gaps often occur as consequences of new information prior to opening trading session.

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H

Hedge – An investment objective to take positions in a currency in order to lower or offset the risk in another currency.

I

Indirect Quotation– A foreign exchange rate of a foreign currency per unit of the domestic currency.

Inflation – increase in overall price level simultaneously decreasing reducing power.

Initial Margin – as an preliminary deposit required to trade in leveraged foreign exchange, it is used to secure the amount of a position opened by investors.

Interbank Offer Rate (IBOR) – the rate at which a bank is willing to provide a loan to another bank for a particular maturity.

Intervention – actions attempted by central banks to influence the value of its currency by Buying or selling foreign currency in the market.

Liquid Market – If the market liquidity is high, the spread difference in a currency pair is relatively narrow. On the contrary, market with a low degree of liquidity, the spread difference will become relatively wide.
Immediately or Cancel (IOC)  -An instruction stipulating that a trade order should be cancelled if it cannot immediately be executed in full or in part.

K

Kiwi -A term used for New Zealand Dollar.

L

Leading Indicators – An economic indicator that can be used to predict a change in the economic cycle.

Leverage – the amount of debt used to fund firm’s assets. Leverage is margin per trade quoted as a ratio.

London Inter -Bank Offer Rate (LIBOR)- the benchmark rate for cash balances in numerous currencies. It is a daily fixing for deposits with durations from overnight to 1 year and is determined by a group of large London banks. It is the most widely used measurement for interest rates on most currencies outside the domestic markets.

Limit Order – an order with imposed restrictions on the maximum price to be paid or on to the minimum price to be received.

Linked Exchange Rate System – Some countries peg their currencies to other major currencies, such as dollars or pounds.

Liquidation -the closing of an open position by the buying or selling of equally sized position in the opposite direction.

Liquidity – the capability of a market to accept with negligible or no effect on price stability.

Long Position – when the base currency is bought, the position is said to be long. The buying of a currency with the expectation that it will increase in value.

Lot – a unit which measures the size of deal.

M

Margin – The amount of equity required for an investment in FX trades purchased on credit.

Margin Call -a scenario in which a broker requires the investor to deposit additional funds to meet the minimum margin requirements for the account.

Market Maker – A Market Maker is a dealer who regularly quotes both buy and sell prices and is prepared to make a two-sided market for financial instruments like currency.

Market Participants -those who participate in the foreign exchange market include individuals, institutional investors, enterprises, banks and government. They contribute liquidity for the foreign exchange market.

Market risk – uncertainty resulting from changes in financial market rates and prices.

Mark-to-Market – in accounting, the procedure by which assets are recorded in the account books at their actual purchase price or book value. In securities, the daily revaluing of a security to reflect its current market value rather than the acquisition price or book value.

Maintenance Margin -In forex trading, the maintenance margin level is the minimum amount of equity a customer needs to maintain an open position.

Market Order – an order to buy or sell a currency at the existing market price.

Market price – refers to the last reported sale price of a currency and is often used interchangeably with market value. For example, if a currency pair is quoted in real time at 1.2890 / 1.2893, this is the market price of the asset.

N

Net Position -The difference between total open long and open short positions in a given asset held by an individual.

O

Offer (ask) – the price at which the dealer is willing to sell a financial asset (e.g. currency) or the trader is willing to buy an asset. In FX quotation, the offer price is on the right side of a listed quotation. The offer price is always higher than the bid price. For example, USD / JPY 110.395 / 110.415, 110.415 is the offer price.

One Cancels other order (OCO) – an order where the execution of one part of order automatically cancels the other part.

Order -customers buy or sell a certain number of orders at a specific price and exchange rate. Orders can be simplified into two main types: market orders and pending orders. Market orders are orders filled in real-time; pending orders include OCO orders, limit orders, GTD orders, GTC orders, etc.

Open Position – a functioning trade with unrealized profit or loss which has not been closed by a similar and opposite deal.

Over the Counter (OTC) – any transaction that has not been executed via exchange.

Overnight Position – a trade which stays open until next trading day.

P

Pips – the smallest change that exchange rate can make. Usually it is one basis point. 1 pip = 0.0001 for EUR/USD, or 0.01 for USD/JPY.

Political Risk – the change of Government policy that may have an impact on foreign exchange rate.

Position Limit – The maximum position can be held by an investor.

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Q

Quote – An indicative market price that shows the effective price of buying and selling a currency pair at any given time.

Quote Currency – the second currency in the currency pair, for which the customer can sell or buy the base currency. For example, EUR/USD 1.2940 / 1.2943, the US dollar is the quote currency

R

Rally – a recovery in prices that generally follow a period of flat or diminishing prices.

Range– the difference between the highest price and the lowest price in a specified period.

Rate – the price of one currency in terms of other currency.

Resistance – the price level at which an asset can be traded, but not will not exceed it, for a certain period of time.

Revaluation -a change, usually an increase, in a country’s pegged exchange rate.

Risk– risk is exposed to uncertain changes, making a possibility that an investment will lost value.

Risk Management – the process of analyzing exposure to risk and determining how to handle such exposure.

S

Scalp – to trade quickly for small gains, often holding a position for less than a day.

Settlement– a record process of a completed transaction. This process can record the difference without the tangible exchange of real money.

Short Position – When investors expect asset prices to fall, they will hold a short position. They expect to buy back the asset at lower prices and get profits.

Spot FX Deal – buy or sell a currency according to the current market price, settlement usually occurs within two trading days.

Spread – in forex trading, this term refers to the distance between the bid and ask prices being quoted.

Square– to close a trading position.

Sterling – a name for the British Pound or the GBP/USD.

Stop Loss Orders – an order type designed to limit the loss on a position of an investo.

For example, an investor buys USD / JPY at 110.50, if he sets a stop loss at 110.30, when the dollar touched the price, the position will be closed automatically.

Support Levels -a technical analysis indicator which refers to the price level below which a currency rate has had a difficulty falling.

T

Technical Analysis – an analysis of using charts, price trends, trading volume and other market data to predict the future trend of the market.

Transaction Cost – a cost of buying or selling a currency pair. The spread is the cost of traders opening and closing a position.

Transaction Date  -the date the transaction occurred.

Two-Way Price – a foreign exchange quote that shows both the bid and ask price of a currency pair. The two-way price shows the spread between bid and ask.

U

Unrealized (Floating) Profit / Loss -The current profit or loss on an open position. The P&L does not become realized until the position is closed.

Used Margin– when a trader opens a position, the margin will be deducted from his account as an asset of the collateral, which is called the used margin.

V

Value Date – the date at which counterparts to a financial transaction decide to settle their existing respective obligations.

Variable Spread – with variable spreads, the difference between the buy and sell price of a particular currency pair fluctuates in a range. In an unstable market situation, the range of spreads will be widened.

Volatility Risk – the impact of volatility on investment portfolio. Commonly, the higher the volatility, the riskier the currency.

Y

Yard – term used in Forex trading as slang for a billion.

RISK WARNING

All financial products traded on margin carry a high degree of risk to your capital. They are not suited to all investors and you can lose more than your initial deposit. Please ensure that you fully understand the risks involved, and seek independent advice if necessary. ​

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