ASK PRICE

The Ask Price refers to the price at which the dealer (broker) sells an asset to the buyer (trader). The Ask is the price on the right of a price quote. E.g. if GBPUSD is priced at 1.3591/1.3594, the ask price in the quote is 1.3594. Buy orders are fulfilled at the ask price.

BASE CURRENCY

This is the currency quoted on the left of a currency pair. E.g. the Euro is the base currency in EURUSD, and US Dollar is the base currency in USDCHF.

BASIS POINTS

A basis point is a term used to describe 1% of one percent or 0.01%. It is commonly used in quoting interest rate changes.

BEAR MARKET

A bear market is one in which the price of the asset has fallen by more than 20% in the period under review.

BID

The Bid Price refers to the price at which the dealer (broker) buys an asset from the seller (trader). The Bid is the price on the left side of a price quote. E.g. if GBPUSD is priced at 1.3591/1.3594, the bid is 1.3591. Sell orders (short trades) are fulfilled at the bid price.

BROKER

A broker is an entity that is licensed to match trades between buyers and sellers, usually for a fee. The broker does this by offering a trading platform for sellers and buyers to initiate their orders, after which orders are matched in-house (market makers) or sent to the interbank market (ECN) for fulfillment.

BULL MARKET

A bullish market is one characterized by rising value of the underlying asset. A currency pair is said to be in a bullish mode if its price action heads upwards.

CABLE

The Cable is a slang for the pairing of the British Pound sterling and the US Dollar (GBP/USD). The pair was so named because prices were transmitted between London and New York using an undersea transatlantic cable in the 19th century.

CANDLESTICK

A method of price representation on the charts which depict open, closed, high and low prices along with a vertical plane so that the shape resembles a candlestick.

CARRY TRADE

This is a CFD trade technique where the trader buys a high-interest yielding currency and simultaneously sells a low-yielding interest currency so as to profit from the interest rate differentials on both currencies.

CENTRAL BANK

This is a central government agency that controls, determines and manages a country’s monetary supply and policy. Examples are the US Federal Reserve, the Bank of Japan (BoJ), the European Central Bank (ECB), the Bank of Canada (BoC), Reserve Bank of Australia (RBA), Bank of England (BoE), the Swiss National Bank (SNB) and Reserve Bank of New Zealand (RBNZ).

COUNTER CURRENCY

The currency listed on the right-hand side of a currency pair. For example, in AUDUSD, the USD is the counter currency. In AUDJPY, the JPY is the counter currency.

CROSS CURRENCIES

These are currency pairs that do not feature the US dollar. Examples include EURCHF, NZDJPY, etc.

DAY TRADING

Day trading is a trading style in which the trader opens and exits a forex trade position within the same trading day.

DEALER

A dealer is an entity that can act as a principal or counterparty to a transaction. They take the opposing side of a trade position and hope to profit from the losses of the other party. This term is used to describe market-maker brokers.

DEALING DESK

A dealing desk is a department in a market maker’s office where trade executions are finalized.

DEPRECIATION

This is a fall in the value of a currency against other currencies as a result of an interplay of market forces.

DERIVATIVES

This is a broad term that relates to financial instruments that are used as investment tools, in which the contract value changes in relation to the price of the underlying asset.

DEVALUATION

This is a deliberate action by a central bank to reduce the value of a national currency. This is usually done to make a country’s exports cheaper so as to gain a competitive edge in international trade.

ECONOMIC INDICATORS

This is data issued by governments following a schedule to indicate the state of health of various sectors of their respective economies. Data featured as economic indicators include data on employment, manufacturing, inflation, consumer spending, retail sales, gross domestic product (GDP) and trade balance. This data is featured on the financial news calendar and form the basis of news trades.

EURO

Created in 1999, this is the legal tender/medium of exchange for the European Union member states.

EUROPEAN CENTRAL BANK (ECB)

This is the central bank for the new European Monetary Union, and it regulates monetary policy in the Eurozone as a whole.

FEDERAL RESERVE

Also known as the Fed, The Federal Reserve is the central bank of the United States.

FIXED EXCHANGE RATE

This is an exchange rate regime where the value at which the local currency exchanges for other currencies is set within a fixed band by the country’s central bank. China operates a fixed exchange rate regime.

FLOATING EXCHANGE RATE

This is a system where the rate at which a country’s currency exchanges with other currencies is determined wholly by market forces.

FOREX

The foreign exchange market or the currency trading market. This is the buying and selling of currencies in order to profit from the exchange rate differentials over a period of time.

FUNDAMENTAL ANALYSIS

This refers to the use of socio-economic and political information as a way of predicting future price movements of a currency.

GOOD FOR DAY (GFD) ORDER

This is a pending trade order to enter a trade at a limit price with a validity which expires at the end of the trading day. The order is canceled at the end of the day if unfulfilled.

GROSS DOMESTIC PRODUCT (GDP)

This is the total value of a country’s income, expenditure, and output for goods produced within its borders.

GTC (GOOD TILL CANCELED) ORDER

This is a limit order that is opened by the trader to be fulfilled at a future date. It remains open until it is triggered or until canceled by the trader.

HEAD AND SHOULDERS

A bearish reversal chart pattern in which the price rises for some time, followed by profit taking at the peak of the left shoulder, then a steep rise in price to the head, followed by another round of profit taking that drops the price to around the same level as the first shoulder. Another modest rise follows, then a reversal which continues until a breach in the neckline (formed by the profit taking retracement support level) signifies a full market bearish reversal.

HEDGING

This is a trading practice that aims to protect an existing position in the market from undue fluctuation by placing a contrary position in the market.

INDUSTRIAL PRODUCTION

This indicator measures the total value of output produced by manufacturers, mines, and utilities. This data is an indication of business expansions and contractions and can act as a leading indicator of employment and personal income.

INFLATION

This is an economic situation where the prices of goods rise to levels that erode the purchasing power of the national currency.

INITIAL MARGIN

This is the deposit amount required by a broker from a trader to place a trade on the market, so as to act as a cushion in case of default by the trader.

INTERBANK RATES

These are the rates at which large banks lend money to other large banks. This is strictly a bank to bank transaction and is not accessible to members of the public.

INTERVENTION

This is an action taken by a central bank to suppress or defend the value of its national currency.

INTRODUCING BROKER

An introducing broker is an individual or firm that sources and opens trader accounts on behalf of a CFD broker in exchange for a commission payment.

JAPANESE YEN

This is the national currency of Japan. Also known by the symbol JPY.

KIWI

This is the forex slang for the New Zealand Dollar (NZD).

LEVERAGE

This is the percentage calculation of the amount used in a transaction against the required security deposit. In other words, this is the broker’s funds which have been borrowed to fund a trade transaction.

LIBOR

Also called the London Interbank Offered Rate, this is the rate at which a bank borrows money from another bank in the United Kingdom. It is also the British Bankers’ Association average of interbank offered rates for any dollar deposits made in the London market based on quotations at 16 major banks.

LIMIT ORDER

A limit order is an order to perform a trading deal at a rate different from the market rate, in such a manner that the future price execution rate is at a better or cheaper price to the trader.

LIQUIDATION

Liquidation is an order to offset an active position in the market via the use of a manual exit trade order.

LIQUIDITY

This is the ability of the market to absorb large transactions without having a significant impact on the cost of the transaction or stability of the asset price.

LONG

A “Long” is a term used to refer to an instant Buy order of a base currency in order to profit from rising prices.

LOT

This is the value of the trade volume that a trader has committed into the CFD market, relative to his account size.

MANUFACTURING DATA

This is economic data that details the state of the manufacturing sector of a country’s economy.

MARGIN

This is the equity required by a trader to fully collateralize an active trade position.

MARGIN CALL

This is a demand by the broker for the trader to provide additional trading funds to cover an over-exposed position, issued when the trader’s margin is about to be liquidated by negative positions.

MARKET MAKER

A market maker is a dealer who is ready to take up two opposing trade situations for the purpose of offering the underlying asset to traders on both sides and shoring up market liquidity in the process.

NOK

This is the currency symbol for the currency of Norway, the Norwegian Krone.

OCO

Order cancels Order, is a term used to describe a situation where the execution of one order automatically cancels a previous order.

OPEN POSITION

This is an active trade in the CFD market with unrealized profits/losses.

ORDER

This is an instruction sent by the trader to the broker or dealer, to open a transaction/execute a trade at a given rate and time.

OVER THE COUNTER (OTC)

This refers to any transaction that is conducted outside a regulated exchange floor; it rather occurs between traders and dealers over a telephone or computer network.

PIP

The percentage interest point or PIP is the unit of measurement of the movement of a currency.

POSITION

This is the net total exposure of a trader’s funds to a given currency. It could be flat (no exposure), long (base currency bought) or short (base currency sold).

PPI

This is the Producer Price Index, which is a measure of the degree of inflation as it affects producers of goods and services in an economy.

PRINCIPAL

A dealer or trader who trades currencies on his or her own account and not on behalf of another party.

PROFIT TAKING

This refers to the closure of open positions in order to convert unrealized profits to realized profits.

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