The most commonly used financial terms ad definitions can be found here in this Forex Glossary.
A
Appreciation – A currency is said to ‘appreciate’ when it strengthens in price in response to market demand.
Arbitrage – The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets.
Ask Price – The rate at which a financial instrument is offered for sale (as in bid/ask price)
B
Base Currency – In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the FX markets, the US Dollar is normally considered the ‘base’ currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro, and the Australian Dollar.
Bear Market – A market distinguished by declining prices.
Bid/Ask Price – The difference between the bid and offer price, and the most widely used measure of market liquidity.
Big Figure – Dealer expression referring to the few first digits of an exchange rate. These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity. For example, a USD/Yen rate might be 107.30/107.35 but would be quoted verbally without the first three digits i.e. “30/35”.
Broker – An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Bull Market – A market distinguished by rising prices.
Bundesbank – Germany’s Central Bank.
C
Cable – Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800’s.
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 closing 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.
Central Bank – A government or quasi-governmental organization that manages a country’s monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.
Chartist – An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.
Commission – A transaction fee charged by a broker.
Contract – The standard unit of trading.
Counterparty – One of the participants in a financial transaction.
Cross Rate – The exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/JPY quote would be considered a cross rate, whereas in UK or Japan it would be one of the primary currency pairs traded.
Currency – Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
Currency Risk – The probability of an adverse change in exchange rates.
D
Day Trading – Refers to positions which are opened and closed on the same trading day.
Deficit – A negative balance of trade or payments.
Depreciation – A fall in the value of a currency due to market forces.
Devaluation – The deliberate downward adjustment of a currency’s price, normally by official announcement.
E
Economic Indicator – A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), Inflation, retail sales, etc.
EURO – The currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).
European Central Bank (ECB) – The Central Bank of the European Monetary Union (EMU).
F
Federal Reserve (Fed) – The Central Bank of the United States.
Flat/Square – Dealer jargon used to describe a position that has completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.
Foreign Exchange (Forex, FX) – The simultaneous buying of one currency and selling of another.
Fundamental Analysis – Analysis of economic and political information with the objective of determining future movements in a financial markets.
G
Good “Till Cancelled Order” (GTC) – An order to buy or sell at a specific price. This order remains open until filled or until the client cancels.
H
Hedge -A position or a combination of positions that reduces the risk of your primary position.
I
Inflation – An economic indication whereby prices for consumer goods rise, eroding purchasing power.
Initial Margin – The initial deposit of collateral required to enter into a position as a guarantee on future performance.
Interbank Rates – The Foreign Exchange rates at a which large international banks quote other large international banks.
L
