If you want to understand how Forex works, you need to understand the FX language, i.e. some common terms and definitions used by traders and brokers. Here’s an essential glossary for novice FX investors.
Aggregate demand: the total demand for goods and services in the economy in a given period of time. It includes private and public sector demand for goods and services within the country and the demand for goods and services in other countries.
Aggregate supply: the total supply of goods and services in the economy produced in a given period of time.
Agio: the difference between the nominal and actual values of a certain currency. This term is also used to describe a fee charged for conversion from a weak into a strong currency.
Appreciation: a currency’s value growth in response to market demand.
Ask: the price at which traders can buy a currency.
At best: an order to buy or sell at the best rate.
At or Better: an order to buy or sell at a specific rate or better
Aussie: a nickname for the AUD/USD currency pair.
Base Currency: the first currency quoted in a pair.
Bear market: a market that is characterized by falling prices.
Bid: the price at which the market is ready to buy a certain currency.
Big figure: the term that refers to the first digits of an exchange rate.
Broker: an individual or a company that brings buyers and sellers together.
Bull market: a market that is characterized by rising prices.
Cable: a nickname for GBP/USD currency pair.
Candlestick chart: a chart used to describe price movements of a currency.
Clean float: an exchange rate that is determined by market forces.
Clearing: settling of a trade.
Closed position: a position that has been terminated.
Commission: a fee charges by a broker or dealer.
Confirmation: a memorandum that states important details of a transaction.
Contract: an agreement to buy/sell a certain amount of the currency in the future.
Copey: a nickname for the Danish krone.
Cross Rate: an exchange rate between two currencies neither of which is the U.S. dollar.
Day trading: a trading style in which positions are opened and closed on the same day.
Dealer: an individual who acts as a principle in all transactions.
Depreciation: a fall in a currency’s value.
Fast market: a market that is characterized by a high volatility and heavy trading. Sometimes it is caused by the imbalance of trades.
Fixed exchange rate: the official exchange rate set by monetary authorities.
Floating exchange rate: an exchange rate that is determined by market forces.
Foreign exchange, Forex: the process of buying and selling one currency against another.
Fundamental analysis: the analysis that aims to determine future market movements.
Hard currency: a currency that is well traded and thus can easily be converted into other currencies.
Initial margin: the amount required to enter into a position.
Kiwi: a nickname for the New Zealand dollar.
Leverage: the ratio of margin to the maximum position size.
Limit order: an instruction to a broker to buy or sell a specified amount of currency at a specified price.
Liquidity: a market’s ability to absorb a sufficient amount of buying and selling with minimum loss of value.
Margin call: a broker’s request for additional collateral in case the position moves against the investor.
Market order: an order to buy/sell a currency at the best available price.
Maturity: the date on which the payment is due.
Open position: a position that has not been settled. This position is subject to market fluctuations and, as a result, profits or losses.
Order: an instruction to buy or sell.
Overnight trading: the type of transaction in which positions remain open until the next day.
Pip: the last digit in an exchange rate, it shows the smallest movement in the bid/ask price of a currency.
Premium: the cost of an option that doesn’t include a commission.
Quote: an indicative market price.
Rate: a price of one currency in terms of another one.
Rollover: a process of extending the settlement of a transaction to another date.
Same day transaction: a transaction that matures on the same day.
Spread: the value difference between the bid and ask prices for a currency pair.
Stop order: an order to buy/sell when the currency price reaches/passes a specified level.
Swap: the simultaneous purchase and sale of a specified amount of a specified currency at a forward exchange rate.
Technical analysis: an analysis of historical market trends in an attempt to forecast future market movements, patterns and trends.
