Appreciation - The term appreciation is used to refer to the rise in prices in response to an increase in market demand.
Arbitrage – Refers to a trading strategy used by traders in an attempt to make profits due to inefficiency in the currency pair pricing. In involves buying or selling a currency pair and at the same time taking an equal but opposite position in a related market.
Around - Simply refers to a situation where the forward premium or discount is near parity.
Asset Ask Rate - The rate at which an instrument is offered for sale.
Allocation - An investment practice involving the division of funds among different markets with the main objective of diversification hence minimizing risks or meeting other investor objectives.
Back Office – Processes or departments that are related to settling financial transactions.
Balance of Trade – Refers to the value of a country's exports minus its imports.
Base currency – Simply means the currency in which books of accounts are maintained by an issuer or an investor. It also called a domestic currency or an accounting currency. In foreign exchange markets, the term base currency is sometimes called the primary currency and it refers to the currency upon which quotes are based. The USD is often considered the base currency and all other quotes are expressed with respect to $1 USD/the currency quoted in the currency pair. However, this does not apply to major currencies such as the British Pound, the Australian Dollar and the Euro. In forex quotes, a base currency is the first currency quoted in the currency pair.
Bear Market – Used to describe a market with a steady drop in prices over a given period of time. It is often accompanied by pessimism. Investors anticipate further losses and sell. This fuels the negative sentiments.
Bid or Ask Spread – The difference between the bidding price and the offer price. It is a measure of market liquidity.
Bid Rate – Refers to the rate in which an investor is willing to purchase a currency.
Big Figure – An expression used by dealers to refer to the initial few exchange rate digits. These first exchange rate digits rarely change in normal market fluctuation scenario. Since they rarely change, they are often omitted from dealer quotes when the market is highly active.
Book – A summary of an investor's total positions.
Bretton Woods Agreement of 1944 – This agreement established fixed foreign exchange rates for all the major currencies. The price of gold was pegged at USD 35 per ounce. In 1971, President Nixon replaced the Bretton Woods Agreement with a floating exchange rate for the majors.
Broker – The term broker refers to a firm or an individual that acts as an intermediary between buyers and sellers at a price/commission. Brokers are not dealers because dealers characteristically take a one side position with the intention of earning a spread when they subsequently close a position in another trade.
Bull Market – Refers to a market associated with blooming confidence and optimism. Investors buy in anticipation of an increase in prices and capital gains.
Bundesbank – Germany's Central Bank.
Cable – Refers to the GBP/USD exchange rate. The term cable with respect to this case originates to the transmission on the exchange rate via cable way back in the 1800s.
Candlestick Charts – A forex trade analysis tool which indicates the day’s trading range, the opening and the closing price. Candlestick charts were first used by the Japanese in the 17th century and are currently one of the most popular and reliable technical tools in forex trading.
Central Bank – Usually a quasi government or a government institution mandated with the management of a country's monetary policy.
Chartist – Simply refers to an individual using graphs and charts to interpret historical market data with the goal of finding an underlying trend and forecasting future market movements. Sometimes called a Technical Trader.
Choice Market – A market with no spread. Buying and selling of trades occurs at one price.
Clearing – The act of trade settlement.
Collateral – A technical jargon referring to anything that is accepted by financial institutions as a security for a loan or in some cases as a guarantee of performance.
Federal Deposit Insurance Corporation (FDIC) – The agency mandated with the responsibility of regulating and administering bank depository insurance in the United States.
Federal Reserve – The Central Bank for U.S.
Flat/Square – Describes a position that has just been completely reversed. Foreign Exchange – Also called Forex or FX. Refers to the trade in currencies.
Forward – A pre-specified exchange rate for a future contract and is based on the difference in the current interest rates between the two countries.
Forward Points – Forward points are the pips that have been added to or subtracted from the present current rate to help in calculating forward price.
Fundamental Analysis – Involves analyzing the nature of the economy and politics as a foundation for predicting future price movements.
Futures Contract – Futures Contract is an obligation between contractual parties to pay for an instrument at an agreed price but at a future date. The main difference between a Futures and a Forward lies in the fact that Futures are traded over an exchange as in Exchange-Traded Contract(ETC) while Forward is traded Over the Counter (OTC). OTCs are not traded on an exchange. Good 'Till Cancelled Order (GTC) – Describes an order to buy/sell at a particular price. Such an order remains open until filled by the client or until it is canceled.
Hedge – Can be a position or a combination of positions that are taken to minimize risk.
Inflation – An economic condition characterized by rise in consumer prices and erosion of purchasing power.
Initial Margin – Refers to the initial deposit of collateral that is required to enter into a position hence acting as a guarantee of future performance.
Interbank Rates – Refers the foreign exchange rates quoted between different international banks.
Leading Indicators - Refers to specific statistics that are considered to be more accurate in predicting economic activity.
LIBOR – An abbreviation for the London Inter-Bank Rate. Banks use this rate when borrowing from other banks.
Limit Order – An order spelling out restrictions with regard to maximum price that can be paid or in some cases the minimum price that can be received.
Liquidation – The closure of an existing trade position by executing an offsetting transaction.
Liquidity – The capacity of a financial market to accommodate large transactions with insignificant price variations.
Long Position –An investment position in which value appreciates with increasing market prices.
Margin – In forex trade, the term margin is used to describe the minimum amount of capital deposited with the broker before an investor can collateralize a position. Also called Margin call.
Market-to-Market -Just as the name suggests, it is the process of re-evaluation of all open positions based on the current market prices. These new values as used as a determinant of margin requirements.
Market Maker - A dealer who is involved in regular quotations of bid and ask prices while at the same time is willing and able to make a two sided market.
Market Risk – Exposure to unfavorable and unpredictable fluctuations in market prices.
Maturity –Simply means the terminus of a security. It can also refer to the length of time taken to repay the principal amount of a bond.
Offer – In simple terms, this is the act of making an asset available for sale. It can also be used to describe a situation of an expression of interest by one party either to buy or sell an asset to a counter party. In forex trade, it is often the highest price that the buyer is willing to pay and the lowest price that the seller is willing to accept.
Offsetting Transaction – A trade which specifically cancels a portion or all risks associated with an open position.
One Cancels the Other Order – Abbreviated as OCO, it is a two order designation in which an execution of one part automatically cancels the other part.
Open Order – This order is executed the moment the market price reaches a designated price.
Open Position – A deal that has not been settled or reversed by physical payment.
Overnight – An open trade that remains so till the next trading day.
Over the Counter (OTC) – A transaction that has not been transacted over the exchange.
Pips – Refers to the smallest price change that an exchange rate can make. Given that almost all currency pairs are priced to four decimal places, the fourth decimal place represents the smallest change.
Political Risk – Includes market exposure to changing government policies. These changes have a direct impact on the investors position.
Position - The net total holdings of a specific currency.
Premium – The amount by which Forward or Futures surpass the spot price.
Price Transparency – Are characteristic of quotes that every single investor can equally access.
Quote – An indicative market price that is used for informatory purposes only.
Rate – The price of on currency compared to another.
Resistance – A technical term common in technical analysis and it is indicative of a specific price level that points to the fact that people will sell.
Revaluation – The increase in exchange rate prices due to government or central bank intervention.
Risk – A term used to refer to an exposure to unpredictable or uncertain adverse changes in the financial market.
Risk Management – The art or using different trading strategies of financial analysis to minimize exposure to risk.
Roll-Over – A term used to refer to the process of moving a settlement to a later date and value.
Settlement – Completing a trade by entering in the books or records of a contractual counterpart. It may involve actual exchange of physical currency.
Short Position - The opposite of long position and it refers to an investment that can only benefit when market prices decline.
Spot Price – Current market price.
Spread – The difference between bid and offer price.
Sterling – A slang referring to the British Pound.
Stop Loss Order – An order placed with a broker to close a position when it reaches a specified time. It is an order designed to limit an investors exposure to losses brought about by unfavorable falls in prices. Also called Stop market order or just stop order.
Support Levels - A level in technical analyses that depicts a price ceiling. It is extremely rare for prices to fall below the support levels hence more buyers tend to enter the market. Support level is the opposite of resistance level.
Swap – The simultaneous buying and selling of the same amount of a specific currency at a forward exchange rate.
Technical Analysis – One of the most important investment tools. It is a historical analysis of market data with the sole objective of forecasting future changes in market prices, traded volumes, averages, open interest rates and many others.
Tomorrow Next – Sometimes abbreviated as Tom/Next this phrase is used to describe the simultaneous purchase and selling of a currency that would be delivered in the next trading day.
Transaction Cost(s) – Simply means the expense of buying/selling a financial instrument.
Transaction Date – The date of settlement of trade.
Turnover – The total value of all transactions in a given period of time. It can specifically refer to volume of trade.
Two Way Price – When both the bid price and the offer price are quoted for a forex transaction.
Uptick – Used in reference to a new price quote which is higher than its preceding quote.
Uptick Rule – This rule states that a security cannot be short sold unless the last trade in the security prior to the short sale was finalized at a price which is lower than the short sale is to be executed.
US Prime Rate – The interest rate that United States banks lend to prime corporate customers.
Value Date – The day on which all respective obligations are settles by parties to a financial contract. For instance, by exchanging payments.
Variation Margin – A variable margin payment made by clearing investors to their respective brokers based on adverse price movements of the futures contracts held by investors. Variation margin represents the amounts that brokers request from their clients to achieve the margin deposit requirements. These additional funds are often requested due unfavorable price fluctuations.
Volatility – A statistical representation of the movements in market price mapped over a specific time duration. It is sometimes defined as a statistical measure of returns dispersion for a given market index or security.
Whipsaw – Slang used in reference to a highly volatile market characterized by sharp price movements and reversals.
Yard – Slang for a billion