appreciation
A currency is said to appreciate when it strengthens in price in response to market demand.
arbitrage
Taking advantage of prices in different – but related – markets by the purchase or sale of an instrument and the simultaneous taking of an equal and opposite position in a related market to profit from small price differentials.
ask (offer) price
The price at which the market is prepared to sell a specific currency in a 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 example, if USD/CHF is quoted as 1.2400/04, the ask price is 1.2404, and this means you can buy one US dollar for 1.2404 Swiss francs.
bar chart
A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line to the right of the bar.
base currency
The first currency in a currency pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/JPY exchange rate is 118.00, then US$1 is worth ¥118.00. In the forex markets, the US Dollar is usually 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 main exceptions to this rule are the Euro, the British Pound, the Australian Dollar and the New Zealand Dollar.
basis point
One hundredth of a percent.
bear market
A market distinguished by a prolonged period of declining prices accompanied with widespread pessimism.
bid price
The bid is the price at which the market is prepared to buy a specific currency. At this price, the trader can sell the base currency. It is shown on the left side of the quotation. For example, in the quote EUR/USD 1.3000/03, the bid price is 1.3000. This means that you can sell one Euro for 1.3000 US dollars.
bid/ask spread
The difference between the bid and offer price. For example, if the EUR/USD price is 1.3000/03 then the spread is 0.0003.
book
The summary of currency positions held by a dealer, desk, or room. A total of the assets and liabilities.
broker
An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a dealer commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.
Bretton Woods Agreement of 1944
An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. This agreement governed currency relationships until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate system for the major currencies. Before its
breakdown, the agreement was useful in maintaining order and accomplishing common objectives among the states that created it.
bucket shop
A brokerage enterprise which books (i.e., takes the opposite side of) a customer’s order without actually having it executed on an exchange.
bull market
A market distinguished by a prolonged period of rising prices. Opposite of bear market.
Cable
Trader jargon for the British Pound Sterling, referring to the GBP/USD pair. Term began due to the fact that the rate was originally transmitted via a transatlantic cable starting in the mid 1800s.
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 close 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.
capital markets
Markets for medium to long term investment (usually over 1 year). These tradable instruments are more international than the money market (i.e. Government Bonds and Eurobonds).
central bank
A government or quasi-governmental organisation that manages a country’s monetary policy and prints a nation’s currency. For example, the US central bank is the Federal Reserve, others include the ECB, BOE, BOJ.
charting
The use of graphs and charts in the technical analysis of markets to plot trends of price movements, average movements of price, volume of trading and open interest.
chartist
An individual who uses charts to interpret historical data to find trends and predict future movements. Also known as a technical trader.
clearing house
An adjunct to, or division of, a commodity exchange through which transactions executed on the floor of the exchange are settled. Also charged with assuring the proper conduct of the exchange’s delivery procedures and the adequate financing of the trading.
closed position
Exposures in forex that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will square the position.
collateral
Something given to secure a loan or as a guarantee of performance.
commission
A transaction fee charged by a broker.
Commodity Futures Trading Commission (CFTC)
The federal agency created by Congress in 1975 to regulate futures trading and protect participants against manipulation and fraud, through its administration of the Commodities Exchange Act.
contract
The standard unit of trading.
counter currency
The second listed currency in a currency pair.
counterparty
One of the participants in a financial transaction.
counter-trend trading
In technical analysis, the method by which a trader takes a position contrary to the current market direction in anticipation of a change in that direction.
country risk
Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
cross rates
Rates between two currencies, neither of which is the US Dollar. 7 Winning Strategies For Trading Forex
currency
Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
currency pair
The two currencies that make up a foreign exchange rate. For example, USD/CHF.
currency risk
The probability of an adverse change in exchange rates.
currency swap
Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.
day trading
Opening and closing positions within the same trading session.
dealer
An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
deficit
A negative balance of trade or payments.
delivery
A forex trade where both sides make and take actual delivery of the currencies traded.
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.
drawdown
The magnitude of a decline in account value, either in percentage or dollar terms, as measured from peak to subsequent trough. For example, if a trader’s account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5,000 (incurred when the account declined from $20,000 to $15,000) even though that trader’s account was never in a loss position from inception.
economic indicator
A statistic that indicates current economic growth and stability issued by the government or a non-government institution. Some examples include Gross Domestic Product (GDP), employment rates, trade deficits, industrial production, and business inventories.
efficient market
A market in which all information is instantaneously assimilated and reflected in the trading price.
Euro
The currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).
European Central Bank (ECB)
The central bank for the new European Monetary Union.
European Monetary Union (EMU)
EMU is the agreement among the participating member states of the European Union to adopt a single hard currency and monetary system. The European Council agreed to name this single European currency the Euro. On January 1, 1999, the currency exchange rates of the eleven participating member states became permanently fixed, marking the beginning of the third and final phase of the EMU.
exotic currency
A currency with little liquidity and limited dealing, which is neither a major or minor currency.
fast market
Rapid movement in a market caused by strong interest by buyers and/or sellers. Under such circumstances, price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported.
Federal Deposit Insurance Corporation (FDIC)
The regulatory agency responsible for administering bank depository insurance in the United States.
Federal Open Market Committee (FOMC)
The committee that sets money supply targets in the United States, which tend to be implemented through Fed Fund interest rates and so on.
Federal Reserve (Fed)
The central bank for the United States.
fill or kill order
An order which demands immediate execution or cancellation.
fixed exchange rate
Official rate set by monetary authorities. Often the fixed exchange rate permits fluctuation within a band.
flat/square
Dealer jargon used to describe a position that has been completely reversed. For example, you bought $200,000 then sold $200,000, thus creating a neutral (flat) position
