Forex Terminology

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Base Currency

The currency against which other currencies are quoted. Example, the primary base currency is the u.s. dollar.

Bear Market

A market in which prices decline sharply against a background of widespread pessimism (opposite of Bull Market). Bear Markets are generally shorter in duration than Bull Markets. 

Bid

The rate at which a dealer is willing to buy the base currency.

Bull Market

A market characterized by rising prices.

Broker

An agent who handles investors' orders to buy and sell currency.

Counter party 

The customer or bank with which a foreign exchange deal is executed.

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.

Day Trading

Refers to opening and closing the same position or positions before the close of that day's trading (3:00p.m. EST).

Forex 

An abbreviation of foreign exchange.

Fundamental Analysis

Analysis based on economic factors.

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.

Head and Shoulders 

A pattern in price trends which chartist consider indicates a price trend reversal. The price has risen for some time, at the peak of the left shoulder, profit taking has caused the price to drop or level. The price then rises steeply again to the head before more profit taking causes the the price to drop to around the same level as the shoulder. A further modest rise or level will indicate a that a further major fall is imminent. The breach of the neckline is the indication to sell.

Hedging

A strategy used to offset market risk, whereby one position protects another.

Interbank Rates

The FX rates large international banks quote other large international banks. Normally the public and other businesses do not have access to these rates.

Limit Order 

An order given which has restrictions upon its execution, where the client may specify a price and the order can be executed only if the market reaches that price. 

Long 

A market position where the Client has bought a currency he previously did not own. Normally expressed in base currency terms. For example: long Dollars (short Japanese Yen).

Margin

Margin is a cash deposit provided by clients as collateral to cover possible future losses that may result from the clients Foreign Exchange trades.

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 minimum level to cover an adverse movement in price in the market.

Offer 

The rate at which a Dealer is willing to sell the base currency. 

Open Position 

Any deal which has not been offset or reversed by an equal and opposite deal.

Overnight Trading 

Refers to positions held open between 3p.m. EST and 7p.m. EST.

Pip or Points

Depending on context, normally one basis point, i.e. 0.0001. 

Rollover

An overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).

Short

A market position where the Client has sold a currency he does not already own. Normally expressed in base currency terms, example, short Dollars (long D. Marks).

Spread

The difference in prices between bid and offer rates.

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.

Technical Analysis 

Analysis based on market action through chart study, moving averages, volume, open interest, formations, and other technical indicators.

Volatility 

A measure of price fluctuations.