Get familiar with the industry’s most important and most used forex terms.
The account balance reflects the capital on your account excluding the profit/losses from your current open positions.
The equity reflects your balance + your floating profit /loss of your open positions.
An order to deal at a specific rate or better.
An instruction given to a dealer to buy or sell at the best rate that can be obtained.
The price at which the market is prepared to sell a specific Currency in a Foreign Exchange Contract or Cross Currency 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, in the quote USD/CHF 1.4527/32, the ask price is 1.4532; meaning you can buy one US dollar for 1.4532 Swiss francs.
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.
A currency is said to ‘appreciate’ when it strengthens in price in response to market demand.
Germany’s Central Bank.
A market distinguished by rising prices.
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. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.
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.
In a professional trading environment, a ‘book’ is the summary of a trader’s or desk’s total positions.
The first two or three digits of a foreign exchange price or rate. Examples: If the USD/JPY bid/ask is 115.27/32, the big figure is 115. On a EUR/USD price of 1.2855/58 the big figure is 1.28. The big figure is often omitted in dealer quotes. The EUR/USD price of 1.2855/58 would be verbally quoted as “55/58″.
The difference between the bid and offer price.
The sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). The balance of trade is typically is the key component to the current account.
The probability of an adverse change in exchange rates.
The two currencies that make up a foreign exchange rate. For Example, EUR/USD
Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
A pair of currencies that does not include the U.S. dollar. For example: EUR/JPY or GBP/CHF.
Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
One of the participants in a financial transaction.
Interest rate that an eligible depository institution is charged to borrow short-term funds directly from the Federal Reserve Bank.
The deliberate downward adjustment of a currency’s price, normally by official announcement.
A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument.
A fall in the value of a currency due to market forces.
An FX trade where both sides make and take actual delivery of the currencies traded.
A negative balance of trade or payments.
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.
A monthly index produced by the OECD. It measures overall economic health by combining ten leading indicators including: average weekly hours, new orders, consumer expectations, housing permits, stock prices, and interest rate spreads.
The central bank for the euro and administers monetary policy of the Eurozone, which consists of 19 EU member states and is one of the largest currency areas in the world.
The official currency of the Eurozone, which consists of 19 of the 28 member states of the European Union: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain
The principal goal of the EMU is to establish a single European currency called the Euro, which has gradually replaced the national currencies of most of the EU countries since 2002. The Euro has been adopted by 19 EU member states.
An order to buy or sell at a specified price. This order remains open until the end of the trading day which is typically 5PM ET.
An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange-Traded Contracts - ETC), versus forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.
Analysis of economic and political information with the objective of determining future movements in a financial market.
The pips added to or subtracted from the current exchange rate to calculate a forward price.
The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.
An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.
Gross domestic product plus income earned from investment or work abroad.
Total value of a country’s output, income or expenditure produced within the country’s physical borders.
The standard unit of trading gold is one contract which is equal to 10 troy ounces.
Acceptance of purchasing at the offer or selling at the bid.
A position or combination of positions that reduces the risk of your primary position.
An index that survey service sector firms for their outlook, representing the other 80% of the U.S. economy not covered by ISM MANUFACTURING REPORT. Values over 50 generally indicate an expansion, while values below 50 indicate contraction.
An index that assesses the state of US manufacturing sector by surveying executives on expectations for future production, new orders, inventories, employment and deliveries. Values over 50 generally indicate an expansion, while values below 50 indicate contraction.
A person or corporate entity which introduces accounts to Tickmill for a fee.
Measures the total value of new orders placed with machine tool manufactures. Machine tool orders are a measure of the demand for machines that make machines, a leading indicator of future industrial production. Strong data generally signals that manufacturing is improving and that the economy is in an expansion phase.
Measures the mood of businesses that directly service consumers such waiters, drivers, and beauticians. Readings above 50 generally signal improvements in sentiment.
Slang for the New Zealand dollar.
A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.
A position that appreciates in value if market prices increase. When the base currency in the pair is bought, the position is said to be long.
The ability of a market to accept large transaction with minimal to no impact on price stability.
The closing of an existing position through the execution of an offsetting transaction.
The date for settlement or expiry of a financial instrument.
Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements.
Exposure to changes in market prices.
A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.
The amount of currency bought or sold which have not yet been offset by opposite transactions.
An instruction to execute a trade at a specified rate.
A trade that remains open until the next business day.
Measures an outlook of purchasing managers in the service sector. Such managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Readings above 50 generally indicate expansion, while reading below 50 suggest economic contraction.
The actual “realized” gain or loss resulting from trading activities on Closed Positions, plus the theoretical “unrealized” gain or loss on Open Positions that have been Mark-to-Market.
Describes quotes to which every market participant has equal access
An indicative market price, normally used for information purposes only.
Buying and selling of a specified amount of currency.
A rollover is the interest paid or earned on an open position held past the close of the NY trading at 1700 ET reflecting the interest rate differential between the two currencies. The spot forex market is traded on a two-day value date. For example, for trades executed on Monday, the value date is Wednesday. However, if a position is opened on Monday and held overnight (remains open after 1700 ET), the value date is now Thursday. The exception is a position opened and held overnight on Wednesday. The normal value date would be Saturday; because banks are closed on Saturday the value date is actually the following Monday. Due to the weekend, positions held overnight on Wednesday incur or earn an extra two days of interest. Trades with a value date that falls on a holiday will also incur or earn additional interest.
A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.
Market slang for Swiss Franc.
When both a bid and offer rate is quoted for a FX transaction.
The total money value of all executed transactions in a given time period; volume.
The date on which a trade occurs.
The cost of buying or selling a financial instrument.
The interest rate at which US banks will lend to their prime corporate customers.
In the U.S., a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.
Shows the market’s expectation of 30 – day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”.
Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.
Chart formation that shows a narrowing price range over time, where price highs in an ascending wedge are incrementally less, or in a descending wedge, price declines are incrementally smaller. Ascending wedges typically conclude with a downside breakout, and descending wedges typically terminate with upside breakouts.