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FOREX-Currency-Trading-Glossary
FOREX-currency-trading-glossary will help you understand the language of currency trading.
Ask (Offer) Price Ask is the market selling price, the price at which the market is prepared to sell a specified currency in a foreign exchange contract or cross currency contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation, for instance 113.27 – 113.31 Base Currency The first currency in a currency pair. A currency against which the exchange rate is applied. Usually, it stands first in the codes of currency rates. It shows how much the base currency is worth as measured against the second currency. For instance, if the USD/CHF rate equals 1.15472, then one USD is worth CHF 1.15474. Bid Price Bid is the market buying price, the price at which the market is prepared to buy a specified currency in a foreign exchange contract or cross currency contract. At this price, the trader can sell foreign exchange. It is shown in the left side of the quotation, for example: 113.27 – 113.30. Big Figure Quote A currency rate without the last two digits. Examples: USD/JPY rate of 113,27/113.30, the big figure is 113. EUR/USD rate of 0.9325/0.9330, the big figure is 0.93. Business Day Any day on which commercial banks are open for business in the principal financial centers of the countries where currencies are traded. Cash Settled The closing out of currency contracts with the exchange of cash based upon the difference in the value of when the position was opened and the value of when it is closed, rather than the delivery of currency. Cleared Funds Funds unencumbered and freely available sent in to settle a Trade. Closed Position Exposures in foreign currencies that no longer exist. The process of closing a position is the selling or buying a certain amount of currency to offset an equal amount of open positions. This will ‘square” the open position. Confirmation A notification sent by a dealer to the customer describing the terms of a Trade. Counter Currency The second listed Currency in a Currency Pair.
Cross Currency Pairs A foreign exchange transaction in which one foreign currency is traded against a second foreign currency. Cross Rate An exchange rate between two non-U.S. currencies. Currency Symbols USD - U.S. Dollar JPY - Japanese Yen AUD - Australian Dollar CAD - Canadian Dollar EUR - Euro GBP - British Pound CHF - Swiss Franc Currency Trading The act of exchanging the legal tender of one country for another. Customer The party that executes an agreement with the broker. Currency Pair The two currencies that make up a foreign ‘exchange rate. IE: USD/AUD
Delivery Cut-off The point in time that signifies the end of the trade date. Dollar Value The amount of lawful currency of the United States which at any moment in time would be generated by the conversion of the relevant foreign currency into U.S. Dollars at the broker then prevailing exchange rates for buying or selling such foreign currency. Eligible Foreign Currencies Those foreign currencies which the broker, in its sole discretion, may agree from time to time to buy from or sell to its customers. Equity The amount currently held in a customers account calculated as if all the opened positions will be closed at the current market quotes. The account is comprised of unrealized gains, less unrealized losses, and plus or minus storage. Euro Zone The group of 12 countries that have combined their currencies into a single currency (Euro). They still have separate sovereignties, but also have a combined central bank (ECB) which handles economic policy issues for them as one group. Fair Market Value The price for a financial instrument that is determined in an open market environment between a willing buyer and seller. Filled Trade A trade that is fully executed on behalf of a customers account pursuant to an order. Once filled, an order cannot be cancelled, amended, or waived by customer. Floating profit (loss) Unrealized profit (loss) in an open position. FOREX Markets Every FOREX market in the world operates from 8 a.m. to 4 p.m. in their respective time zones. The FOREX market begins trading on Sunday at 5 p.m. EST with the Australia market opening at 7 p.m. EST. The Asian (Tokyo, Shanghai, Hong Kong Singapore) markets opens. at 2 am. EST. The European market opens followed by the London market at 3 a.m. EST. Finally, New York opens at 8 am. EST Free Margin Available funds in the clients account not currently being used to support existing trading positions, which can be used to open new positions. Foreign Currency The legal tender issued by and acceptable for the payment of obligations under the laws of one or more countries, other than the United States of America. Foreign Exchange Contract A spot contract for the purchase or sale of a foreign currency. Foreign Exchange Rate The price relationships between two currencies that are freely determined by the forces of supply and demand. Foreign Exchange Trading Buying and selling foreign currencies. Fundamental Analysis Analysis based on economic and political factors. Gross Basis Open Positions, calculated without the benefit of any netting between Long and Short Positions. GTC Order or Good Till Canceled Order A trade order placed for a specific amount of time to buy or sell a foreign currency. Initial Margin Requirement or Opening Margin Requirement The minimum margin required to establish a new open position. Leverage The ratio of the amount used in a transaction to the required security deposit (margin).Alternatively, in Forex trading, high degrees of leverage can work against you as well as for you. Limit Order An order to buy or sell foreign currency, or pairs of currencies, at a specified price or exchange rate. A Limit Order to buy generally will be executed when the ask price equals or falls below the price or exchange rate specified in the Limit Order. A Limit Order to sell generally will be executed when the bid price equals or exceeds the price or exchange rate specified in the Limit Order. Traders should note, however, that market conditions may often prevent execution of an individual trader’s Limit Order despite other dealing activity at that price level. Liquidating Order An order to close out one or more open positions. Long Position In foreign exchange trading, when the base currency in the pair is bought, the position is said to be long in that currency. It is understood that when the base currency in the pair is long, the second currency will be short. Loss Loss incurred as a result of a transaction. Lot The standard unit of trading in the FOREX market. Trades are made in LOT increments much like SARE increments in the stock exchange. The value of the deal always corresponds to an integer number of lots. Margin The amount of cash or other eligible collateral that the broker requires a customer to deposit or maintain in the customers account in connection with the customers trading activity. Margin Call A demand for the deposit of additional margin as described in customer agreement. Market Order An order to buy or sell the identified currency, or pairs of currencies, at the current market price. An order to buy is executed at the ask price; an order to sell is executed at the bid price Market Rate/Quote The current quote of a currency pair. Market Value The Dollar Value, determined by the current foreign exchange rates that the customer would receive if the position were liquidated for immediate delivery in the relevant market. Mark to Market The process of recalculating the value of the open positions in a foreign currency trading account, assuming all open positions were liquidated at current market rates. Maturity The date on which payment of a financial obligation is due. Mini FOREX Account* A 1:00 leverage ratio 1 LOT = $50 investment = $10,000 currency Notice of Withdrawal A request by customer to withdraw funds from Customers Account. Offer (Ask) See Ask (Offer) Price. “One Cancels the Other Order” or “OCO Order” Two orders that are linked. If one order is executed, the other is cancelled. Open Position Any deal that has not been offset by an equal and opposite deal. Overnight Position Traders open long or short position that is not closed by the end of a trading day. Opening Transaction An order that, when executed, establishes a Long Position or Short Position or increases an existing position. Order Generally, an instruction by a customer (or customers authorized agent) to the broker to attempt to execute a trade for customer’s account. Overnight Position Trader’s open long or short position that is not closed by the end of a trading day. Pip/Point Price Interest Point, the smallest unit of price for any Foreign Currency (e.g., for USD/CHF one point (or pip) equals .0001 Swiss Francs and for USD/JPY one point (or pip) equals 0.01 Japanese Yen). Posted Margin That part of the margin balance that is posted to the broker in support of the customer’s open position and unrealized losses. Profit / Loss or “P/L” or Gain/Loss The actual gain or loss in U.S. Dollars resulting from trading activities on closed positions, plus the theoretical gain or loss on open positions that have been marked to market. Quote A simultaneous bid and offer in a currency pair. Realized Gain/Loss The actual gain or loss resulting from closing an open position. Rollovers The process of extending an existing market position through one or more spot settlements. Short Margin The client’s account condition when equity becomes smaller than the amount required to keep the positions open. Short Position Selling a currency in which you have anticipation of it falling in value. At that point you will be able to “cover” your short by buying back the currency at a lower price. (If physical delivery of the currency is involved, the short seller will need to borrow the currency in order to make the delivery to the buyer). In foreign exchange, when the base currency in the pair is sold, the position is said to be short in that currency. It is understood that when the base currency in the pair is short, the second currency will be long.’ Spot Contract A contract where settlement is completed in two business days. Spot Rate The rate of exchange between two foreign currencies for Spot” value (normally settlement in two business days), generally quoted either in “U.S. Terms” (price of one unit of foreign currency expressed in U.S. Dollars and Cents) "European Terms” (price of one U.S. Dollar expressed in units and decimals of the foreign currency). Spread The difference between the ask (offer) and bid price in a market quote. The spread is the reason why a newly opened positions mark to market, or valuation, will likely be negative. If a trader buys a particular currency she will pay the ask (offer) price, but the current mark to market will be based upon what the marketplace is presently paying for this currency. That price would be found on the bid side of the market quote, five pips lower than where she just bought the currency. Standard FOREX Account* A 1:100 leverage ratio. 1 LOT = $1,000 investment = $100,000 currency. Stop/Loss Order An order to buy or sell at a specified foreign exchange Rate away from the current market for the purpose of liquidating an open position during market conditions in which the open position has declined in value. Execution of such an order can occur at rates below (or above) the specified foreign exchange rate. Storage The charge or recompense associated with a rollover. Technical Analysis Analysis of market price action. Technical analysis studies historical price changes with the aim to forecast future price movements. By studying price charts and a host of supporting technical indicators, we let the market tell us which way it is most likely to trend. The whole purpose of charting the price action of a market is to identify trends in the early stages of their development and then trade in the direction of those trends. One of the two types of analysis used to analyze the currency market. Trade Date With respect to any contract, the date on which the contract is entered into between the broker and customer, except in the case of any contract entered into after the daily cut-off following, but before the next relevant business day, in which case the trade date shall be the next following business day. Types of Traders Position Trader ( 1- 3 weeks), Swing Trader ( 1 – 3 days), Active Trader ( In and Out Same Day), Super Active Trader ( Multiple Day Trades). Unrealized Gain/Loss The theoretical gain or loss on open positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized gains/losses become profits/losses when position is closed. Used Margin The amount in the client’s account required to support all the current positions. Value Date With respect to any contract, the applicable settlement date specified in the confirmation that relates to the particular contract. A value date must fall on a business day in the countries of the traded currencies. SYMBOL - CURRENCY PAIR - TERMNOLOGY EUR/USD - Euro/US Dollar - Euro GBP/USD - British Pound/US Dollar - Cable USD/JPY - US Dollar/Japanese Yen - Dollar Yen USD/CAD - US Dollar/Canadian Dollar - Dollar Canada USD/CHF - US Dollar/Swiss Franc - Swissy USD/ZAR - US Dollar/South African Rand - Dollar Zar EUR/GBP - Euro/British Pound - Euro Sterling EUR/JPY - Euro/Japanese Yen - Euro Yen EUR/CHF - Euro/Swiss Franc - Euro Swiss GBP/CHF - British Pound/Swiss Franc - Sterling Swiss GBP/JPY - British Pound/Japanese Yen - Sterling Yen CHF/JPY - Swiss Franc/Japanese Yen - Swiss Yen AUD/USD - Australian Dollar/US Dollar - Aussie Dollar NSD/USD - New Zealand Dollar/US Dollar - Kiwi GLD/USD - (spot) Gold - Gold SLV/USD - (spot) Silver - Silver In addition to FOREX-currency-trading-glossary, find more about the currency-trading-system.
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