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FX Vocabulary

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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
Arbitrage Arbitrage is making profit from price differences on the same good (currency) in different marketplaces that involves no risk.
Ask Ask is a rate at which a quoted currency is bought and a base currency is sold.
Base Currency The first currency in a currency pair, which a client can buy or sell for currency of quotation. For example, a quote USD/CHF = 1,6215 means that each USD is worth 1,6215CHF.
Bid Bid is a rate at which a quoted currency is sold and base currency is bought.
Break above Break above is a breakthrough of a technical level in the direction of upward movement.
Break below Break below is a breakthrough of a technical level in the direction of downward movement.
Breakout Breakout is overcoming the levels of support/resistance.
Buy Limit Buy Limit - an order to purchase a currency at or below a specified price. Buy limit orders are placed at or below the current market bid.
Buy Stop Buy Stop - an order to buy a currency that becomes market or limit buy order after a specified price level has been reached.
Candlestick charts Candlestick charts is one of the most popular methods of charting in technical analysis. Candles

Candlestick Chart:

Diagram
Commission Commission is a fee which a trader or investor pays to a broker for fulfilling an order.
Cross-rate Trading on Forex is carried out using different currencies. The main currency used in Forex is the US dollar. Currency pairs that do not involve the US dollar are called cross pairs or cross rate. Otherwise speaking, the definition of cross rate in Forex means the exchange rate of currencies without the US dollar. Analyzing the cross-rates online, the trader can define the rate of change in the value of major currencies that are difficult to see, observing only main courses. Active trade in cross-pairs is strong enough to affect the main exchange rates. For example, if a demand for the EUR against the GBP increases, the EUR will rise in value against the USD. But at the same time, the speed of this increase will be different to different currencies. The most significant cross-rates on international currency exchange are EUR/CHF, EUR/JPY, EUR/GBP, CHF/JPY, GBP/JPY.
Currency

Currency - the monetary unit of a country participating in the international economic exchange and other international relations related to cash settlements.

USD — United States Dollar

EUR — Euro

GBP — Great British Pound

CHF — Swiss Franc

JPY — Japanese Yen

AUD — Australian Dollar

NZD — New Zealand Dollar

CAD — Canadian Dollar

SEK — Swedish Krona

SGD — Singapore Dollar

DKK — Danish Krone

NOK — Norwegian Krone

ZAR — South African Rand

Currency Pair The two currencies that make up the quote. For example: EUR/USD.
Currency position

Open position

Open currency position is a ratio of foreign currency assets and liabilities of each of the parties under the conducted transactions, when the assets and liabilities of each party in the base currency do not match.

Example. You have bought 300 000 USD/CHF and after a while decided to sell 100,000 USD/CHF. Your open currency position is equal to 200 000 USD/CHF

Long

Long position is an open currency position, where your assets in this currency exceed your liabilities.

Short

Short is an open currency position, where your liabilities in this currency exceed your assets. This is a position resulting from short selling which has not yet been covered.

Deposit Deposit is money put into an account for further operations.
Divergence Divergence occurs when two or more charts show the discrepancy in market trends.
Diversification Diversification is investing in various financial instruments in order to reduce the risk.
Double bottom Double bottom occurs when a price reaches a support level twice; it indicates the price level at which there is a stable demand for a currency.
Double top Double top occurs when a price reaches a resistance level twice; it indicates the price level at which there is a stable supply of currency.
Downtrend Downtrend means overall downward movement in prices.
Forex broker Forex broker is a natural or legal person who is an intermediary between buyers and sellers and earns a fee or commission for transferring orders to a marketplace.
Forex market Forex market is a foreign exchange market or an international OTC market of currencies.
Gap A gap occurs when the highest price of the previous trading period is below the lowest price of the current trading period or visa versa. This gap is usually a signal of reverse movement of the market due to the fact that there is either an excessive supply, or too much demand or may be associated with the lack of liquidity.
Hedging Hedging is a strategy of mitigating adverse price movements in assets by taking an offsetting position using a derivative contract. For instance, conducting of a futures contract in opposite direction to an initial currency transaction both the same (or narrow) value date. In this case a loss (profit) in the original transaction will be partially or fully compensated by profit (loss) on futures contract.
Intraday Intraday means work within one operational day with obligatory closing of positions on the night
Leverage

On the foreign exchange market transactions of one currency against another are carried out in fairly large volumes, reaching several million. To increase its profitability a trader can use leverage provided by his broker.

Leverage is the ratio of the volume of transactions conducted by a trader on Forex to the amount of a deposit on his account. This ratio is described as 1: N, which is a number indicating how many times the broker reduced the collateral held under the deal. For example, take leverage of 1:100. This means a trader with deposit amount of $1000 may enter into transactions in the amount of $100000. Leverage magnifies an impact of a price fluctuation thus the higher the leverage ratio is the higher risk one takes.

Leverage is provided to clients without any additional payment, since it is a requirement for partial collateral and does not apply to credit transactions.

There is a common question asked by beginners: "How much leverage should I choose”? For each deal the highest suggested amount of risk is considered to be 1 – 3 % of the deposit. If a trader just begins trading on Forex, it’s better to choose the leverage with the lowest level of risk which is 1:20, because the risk of loss of the entire deposit increases with an increase of trading position value and leverage accordingly.

Only after testing a trading system on demo accounts or small deposit and being convinced of its success over time, a trader may increase the leverage.

Lot Lot is an amount of money or shares necessary for making up a transaction; typically trade is possible only using amounts of money or number of shares, multiples of lots.
Margin call Margin call is a broker's requirement to the customer to increase a collateral (deposit), when it reaches a certain level.
Margin trading Margin trading is performing arbitrage conversion operations with leverage under a certain collateral. As a rule, money serve as collateral.
Market maker Market makers are large banks and financial companies that support market liquidity by providing quotes on a particular asset (currency) with obligation to conduct transactions up to a certain amount. Due to a significant share of their operations in the total market volume market makers may influence the current rates by conducting deals with each other. In contrast, the bulk of smaller market participants act as price takers.
Market Order A market order is basic type of trade order and is used to buy or sell a currency at the current price. The advantage to using market orders is that a trader is guaranteed to get the trade filled. The downside of using a market order is that slippage may occur (getting filled at a less favorable price) if there is a lack of liquidity in the market.
Offer A price offer by a seller; an offer to sell at a certain price, the same as ask.
Overbought Аn overbought market occurs when prices have risen too high and are expected to decline.
Overnight Overnight is a rollover of open positions to the next business day.
Oversold Market is oversold when price went down too fast and is expected to increase.
Pending Orders A pending order allows traders to buy and sell currency at a pre-defined price in the future. This type of order is used to execute a trade if price reaches the pre-defined level; the order will not be filled if price does not reach this level. There are four types of pending orders available in MT4: Buy Limit, Sell Limit, Buy Stop, Sell Stop.
Pips (basis points) Point is a minimum possible price change, the last digit in the value of an exchange rate. For currency pairs displayed to four decimal places, one pip is equal to 0.0001. Yen-based currency pairs are an exception and are displayed to only two decimal places (0.01). For loans it is 1% of the loan amount; for shares it is $1; for bonds it is 1% of the nominal value (usually $10, which is 1% of $1000).
Quotation Quotation is an actual bid or ask price.
Range Range is a market condition in which prices move in the corridor between the horizontal levels of support and resistance.
Resistance (сопротивление) Resistance is a price level at which active sales may suspend or reverse a downtrend.
Rollover

See Swap

Sell Limit Sell Limit - an order to sell a currency at or above a specified price. The order must be placed at or above the current market ask.
Sell Stop Sell Stop - an order to sell a currency that becomes market or limit sell order after a specified price level has been reached.
Spike Spike is an abrupt release of the price up or down and a further return to the initial value.
Spot

Spot— a transaction of purchase/sale of one currency for another currency, the settlements for which are carried out no longer than the second working day from the date of the transaction. Historically the majority of transactions on Forex are spot transactions.

Example. If the transaction is conducted on 02.11.2005 (Wednesday) on spot terms, the settlement date for this transaction will be 04.11.2005 (Friday). If the transaction is concluded 10.11.2005 (Thursday) on spot terms, the settlement date for this transaction will be 14.11.2005 (Monday).

Spread Spread is a difference between the current supply (bid) and current demand (ask).
Stop Loss A stop-loss order is used to minimize losses if price moves in an unprofitable direction. If price reaches this level, the position will be closed automatically.
Stop Out level Stop Out level is level, at which your trading positions will be closed forcibly (one by one starting from the least profitable and until the minimum margin requirement is met). Royal Forex’ Stop Out level is 20%. This means that once your Account Equity = Required margin x 20%, you'll get a Stop Out.
Support Support is a price level at which active sales may suspend or deploy a downward trend.
Swap Leverage on Forex cannot be provided for a period of more than a day. To rollover transaction over night the currency purchased is placed on deposit, and the currency sold is borrowed. Such a transaction is called a swap. Because deposit and borrowing rates usually differ, the rollover incurs costs or may be profitable. Depending on this broker accrues positive or negative swap fee to a client’s account.

Calculation Example:

EURUSD Short/Long Swap Rate: 0.000002 / 0.000025

Position: Sell 100,000 EURUSD

EURUSD Exchange Rate: 1.143

Client Position Negative Swap Rate Positive Swap Rate
Long (buy) You Receive You Pay
Short (sell) You Pay You Receive

MetaTrader Swap Formula:

(Base Amount * Short Swap Rate) / EURUSD exchange rate

(100,000 * 0.000002) / 1.143 = You receive 0,17 EUR

Alternatively, Swap may be calculated in units of quoted currency. In this case the following formula applies:

(Base Amount * Short Swap Rate)

(100,000 * 0.000002)= You receive 0,2 USD

Take Profit A take profit order is intended to close out the trade at a profit once it has reached a certain level. Execution of a Take Profit order closes the position.
Thin market Thin market is a market with low supply and demand, low liquidity and high volatility and thus wider spread.
Tod Тod or today is a type of currency transaction, when settlements are carried out on the day of the transaction. Generally used for deliverable conversion transactions.
Tom Tom is type of transaction, when settlements are carried out on the next working day from the date of the transaction. Generally used for deliverable conversion transactions.
Trend Trend is a current general direction of price movement.
Uptrend Uptrend is an overall upward price movement.
Value date Value date (settlement date) is agreed by the parties settlement date of transactions, which is a business day in the countries issuing the base currency and the counter currency. Generally accepted settlement date for arbitrage transactions is the second working day from the date of the transaction (T+2).
Wide market Wide market is a market with a large spread.

IMPORTANT NOTICE

The material on this page is generic in nature and is not addressed personally to its recipient and does not take into account any of the investors’ personal circumstances. This material is intended for information purposes only and you should not consider this material as investment advice or any sort of recommendation and you should not solely rely on this material/information for your investment decisions. You should seek advice from a licensed and professional investment advisor, prior to using any of the information above.

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