Trader’s Vocabulary is a perfect tool which will be useful for both beginners and experienced traders. Thanks to this vocabulary beginners could quickly get familiar with market terminology and emphasize the key concepts that they will encounter everywhere in the future.
Currency symbol is relatively short sequence of letters and/or figures that is used for representation of monetary unit designation and its identification in various data transmission systems. The main the most widespread currency symbols of several countries in compliance with international standard ISO 4217 are listed below:
- USD – United States Dollar;
- EUR – Euro;
- JPY - Japanese Yen;
- GBP – Great Britain Pound;
- AUD – Australian Dollar;
- CAD – Canadian Dollar;
- NZD – New Zealand Dollar;
- CHF – Swiss Franc;
- HKD – Hong Kong Dollar.
Over-the-counter decentralized exchange market.
Over-the-counter market is the term used for description of any transactions closed outside the exchange.
Currency pair or contract for difference.
Pair of currencies where the price of one currency is expressed in another currency. Example: EUR/USD.
First currency in currency pair. For example, in currency pair EUR/USD, EUR is the base currency. Trader buys or sells the base currency for the quote currency.
Second currency in currency pair. For example, in currency pair EUR/USD, USD is the quote currency. Trader uses the quote currency to buy or sell the base currency.
Price of the instrument that is the object of purchase or sale transaction. It can be expressed in Ask and Bid price. This is the same as Two-Way-Quote.
Simultaneous indication of instrument purchase and sale price on Forex market.
Quote used for receiving information on current price of instrument. The broker does not accept trader orders at such quote.
A foreign exchange rate quoted as the domestic currency per unit of the foreign currency. In Forex terms indirect quote is the quote of currency pair where the United States Dollar stands on the first place. For example USD/JPY.
A foreign exchange rate quoted as the foreign currency per unit of the domestic currency. In Forex terms indirect quote is the quote of currency pair where the United States Dollar stands on the second place. For example EUR/USD.
A foreign exchange rate quoted as the one foreign currency per unit of the other foreign currency. In Forex terms indirect quote is the quote of currency pair without United States Dollar. For example EUR/GBP.
Information on quotes flow.
Sequence of quotes for each instrument arrived to the trading platform.
Market situation when quotes arrive to the trading platform less often than in normal market conditions within the long period of time. Usually such exchange market situation is typical for Christmas and national holidays in the countries of G7 between 23:00 and 3:00 by Moscow time.
Price range without any quotes that forms a break on chart.
The difference between maximum and minimum instrument price in one trading session.
New price quote that is higher than previous one.
New price quote that is lower than previous one.
Subject of Forex market, usually a bank that regularly publishes financial instruments purchase and sale prices (quotes) with obligation to close transactions at the prices (quotes) indicated.
Maximum ratio of own funds amount on the trading account to the total volume of simultaneously opened transactions. Nominal leverage 1:100 means that the maximum volume of simultaneously opened transactions can be 100 times as much as amount of own funds on the trading account. Nominal leverage is provided by the Forex broker and its size can vary.
Actual ratio of own funds amount on the trading account to the total volume of simultaneously opened transactions. If the amount of own funds on the trading account is 10000 USD, opening the transaction of 1 standard lot (100000 USD) will mean that the actual leverage 1:10 is used. The trader determines actual leverage size by himself when making decision on opened transaction volume. Actual leverage cannot exceed the nominal leverage.
Reserve Funds Trading
Currency trading without physical delivery using the leverage when the trader has opportunity the make transaction with the volume significantly higher than amount of own funds of trading accounts. Forex broker fully or partially uses the trader own funds on trading accounts as a broker’s guarantee against losses or as a security for transaction opened by the trader, so called margin. Size of the security (margin) for each transaction depends on the transaction volume and nominal leverage. Possible trader’s losses are limited by amount of funds deposited to the trading account.
Mandatory volume of own funds deposited to the trading account by the trader in order to secure the open position. The same as margin.
Initial amount of security necessary to open the position. It serves as a guarantee of obligation fulfillment.
Additional security the broker requires from the trader as a result of currency fluctuations on the exchange market.
Margin required for maintaining the open positions on the account. The same as hedged margin.
Security required for maintaining the open positions.
Free funds on the trader’s account that can be used for opening new positions. Free margin can be calculated by formula: current balance on the account minus required (hedged) margin.
Ratio of equity (free funds) to the required margin (security for open positions). Can be calculated as (equity / margin) * 100%.
Warning by Forex broker about necessity for depositing additional funds to the trading account as a guaranty of fulfillment of obligations under the trader’s loss-making position in order to avoid closing the loss-making position and losses fixation.
Forex broker order to forcefully close the loss-making transaction without consent and previous notification of trader in case of lack of own funds (margin) required for open position maintaining.
Funds on the trading account available for transaction making.
Abstract designation for quantity of securities or base currency accepted within the trading platform. Standard currency lot on Forex market is 100000 units.
Quantity of securities or base currency in one lot. Standard currency lot on Forex market is 100000 units.
Private person or legal entity that is an intermediary between currency trader and liquidity prodder and receives commissions.
Broker whose liquidity provider in ECN (Electronic Communication Network). It ensures direct execution of client orders with such counterparts as leading world banks, other ECNs institutional brokers other others. By making transactions via ECN Broker the trader gets the smaller spread, quick order execution, more liquidity and information on orders of other market participants.
Straight Through Processing or STP
Approach to the trader orders processing when Forex broker acts as an intermediary between the client and liquidity provider. Trader orders are automatically passed to the liquidity provider, and the broker gets commissions and a part of the spread. This is modern and progressive approach. The speed and quality of trader order processing is much higher. Due to the commissions Forex broker is interested in trader’s successful operation, as long it leads to the increase of his own income and organic growth of trading turnover.
Commissions charged by the broker for transactions making by trader.
Personal page of the client of Forex broker web-site destined for client identification, non-trading operation order tracking nd placing the reference information.
Trading account cash-in/cash-out transaction, additional account opening, etc.
Unique personified transaction tracking register in the trading platform where full closed transactions, open positions, non-trading operations and orders are shown.
Deal on instrument sale or purchase.
The product of multiplication of number of lots in instrument purchase or sale transaction by lot size.
Date of instrument purchase or sale transaction closing.
Market participant that closes transactions in order to get the profit.
Speculator that opens and closes positions on the market during the trading session and does not leave opened positions for the nighttime.
The price at which the trader can buy the base currency. In two-way quote ask price is the higher one. The same as the offer price.
The price at which the trader can buy the base currency. In two-way quote offer price is the higher one. The same as the ask price.
The price at which the trader can sell the base currency. In two-way quote bid price is the lower one.
Pip or Point
Minimal unit of currency price variation, Usually the point is forth decimal digit after coma, i. e. 0,0001. More rarely, in case of separate currency pairs, point may be the second decimal sign after coma, i.e. 0,01.
The difference between Ask and Bid price. For example in quote EUR/USD 1,3200/02 the bid price is 1,3200 and the ask price is 1,3202. So the spread of this currency pair is 2 points. Spread is the main source of income for Forex broker.
Simultaneous sale and purchase of same volume of currency with different value dates.
Proportional accrual or collection of bonus for forward foreign exchange transactions that are of direct relevance to the deposit swap deals for the period of specific transaction.
Trader’s order to close the transaction at indicated price.
Price indicated in the order.
Trader’s order executed at the moment when market price becomes equal; to the indicated. Valid until cancellation (GTC).
Trader’s order to close the transactions when reaching the certain level of price.
Sell Limited Order
A type of pending order. Trader’s order to sell some instrument that can be executed at the price equal or higher than indicated in the order.
Buy Limited Order
A type of pending order. Trader’s order to buy some instrument that can be executed at the price equal or lower than indicated in the order.
Stop Loss Order
Trader’s order where the open position is automatically liquidated at the certain level price. Such orders are often used for minimization of losses, in case if the trader has mistaken at the moment of position opening and his losses grow together with floating of price. By creating the Stop Loss Order the trader limits the maximum possible loss in specific transaction.
Take Profit Order
Trader’s order where the open position is automatically liquidated at the certain level price. Such orders are used for automatic profit fixation in case of favorable instrument price level floating.
Trader’s order to sell or buy the instrument at the best possible price.
At or Better
Trader’s order to sell or buy the instrument at the indicated or better price.
Good-Till-Canceled or GTC
trader’s order to sell or buy the instrument at the indicated price. Valid until execution or cancellation.
Trading position, the profit of which is growing together with increase of market price (quote). If at the moment of position opening trader buys the base currency or currency pair, he is said to take the long position.
Trading position, the profit of which is growing together with decrease of market price (quote). If at the moment of position opening trader sells the base currency or currency pair, he is said to take the short position.
Position under which no reverse transactions are made at the present moment of time, and the unrealized profit or loss of which depend on current market quotes.
Position with realized profit or loss under it. Position can be closed by reverse purchase or sale of such quantity that would compensate for open position. The same as position liquidation.
Long and short positions of the sane size simultaneously opened for the same instrument on the same trading account. For example, if the trader opens 2 lots for purchase and 3 lots for sale of the instrument, then the 2 purchase and 2 sale lots are locked positions, and the 1 sale lot isn’t. The same as offsetting transaction.
Offsetting (balanced) transaction is a form of countertrading which serves for or partial elimination and reduction of market risk associated with open position.
Closing of open position by making the offsetting transaction of the same volume.
Quantity of purchased or sold currency that is not compensated by offset transactions. For example, if the trader opens 2 lots for purchase and 3 lots for sale of the instrument, then his net position is 1 lot for sale.
Equality of sold and purchased volume of the same instrument or absence of the open transactions of trader’s account.
Rollover of the open position to the next value date.
Date of obligation fulfillment and mutual settlements. In spot exchange transaction, value date is usually the second business day after the transaction closing.
Current market price. Spot transactions settlements are usually made on the second business day after transaction closing.
Completion of mutual settlements under transaction.
Rollover of the open position to the next business day.
Unrealized Profit/Loss or P/L
Floating profit or loss under the open position calculated according to the current market quotes. When the position is closed, unrealized L/P becomes realized loss/profit. The same as floating loss/profit.
Floating Profit/Loss or P/L
Unfixed profit/loss under the open position at the current market quotes. When the position is closed, floating loss/profit gets fixed.
Profit/Loss or P/L
Amount of gained, realized and fixed loss or profit from the closed position.
Sale or purchase of financial instrument and simultaneous opening of counter position on the other market in order to get the profit due to the short-term exchange rates difference.
Transaction where currency with the higher return interest rate is bought for the currency with lower return interest rate. For example purchase of NZD/JPY currency pair or sale of USD/RUB currency pair. In this case Forex income from such transactions is eared due to the positive swaps. In case of delivery Forex, income may be earned die to subsequent placing of currency with higher return interest rate into debt obligation or in bank.
Forecasting the instrument price behavior based on the analysis of price chart, i. d. historical data on trends, price average values, trading turnovers, etc.
Technical analysis terms. It describes the principal direction of instrument price floating: uptick, downtick or lateral. Depending on the time horizon it can be short-term, medium-term or long-term.
Technical analysis term that determines the price level, at which the participants usually start to sell some instrument with high degree of probability.
Technical analysis term that determines the price level, at which the participants usually start to buy some instrument with high degree of probability.
Head and Shoulders
Technical analysis figure Head and Shoulders. On the price chart it looks like the high spike with two lower spikes on the both sides. In technical analysis such figure is expected to be followed by price reduction with high degree of probability.
Double Top figure appears on the chart when the instrument price has twice reached the certain maximum level (depends on analysis time horizon) and then decreased again. In technical analysis such figure is expected to be followed by price reduction with high degree of probability.
Double Bottom figure appears on the chart when the instrument price has twice reached the certain minimum level (depends on analysis time horizon) and then increased again. In technical analysis such figure is expected to be followed by price increase with high degree of probability.
Relatively abrupt uptick or downtick movement of price (quotation) within the short term.
A type of price chart that shows the prices of trading range as well as opening and closing prices. If the opening price is higher than closing price, a bar between those prices is hatched or colored, otherwise the bar is empty.
A type of price chart which shows four important price values: maximum and minimum the vertical line is based upon and opening and closing prices that are marked by dashes on the left and right side of vertical line respectively.
A type of price chart which considers only price movement without time factor.
Analysis of economic and political news, statistical data and macroeconomic indicators in order to forecast the behavior of price on the exchange market.
Statistical data that are considered to forecast the future economic development.
European Monetary Union
The main purpose of European Monetary Union is creation of the unified European currency, or Euro, that has officially replaced the currencies of EU Member-States in 2002 году. The first stage of Euro introduction started in January, 1999. Euro is now used as a fully valid mean of payment and runs in the EU countries – Germany, France, Belgium, Luxemburg, Austria, Finland, Ireland, Netherlands, Italy, Stain and Portugal.
European Central Bank
Central bank of the new European Monetary Union, ECB.
Public or semipublic organization that determines the monetary policy of the country. For example, in USA it’s the Federal Reserve, in Germany – Bundesbank.
Central bank of USA.
Rate at which the central bank provides loans to the financial institutions of the country.
US Prime Rate
Rate at which US banks are ready to provide loans to its customers.
LIBOR Rate (London Interbank Offered Rate)
Interest rate at which leading London banks provide credits to each other.
Purchase or sale of currency by Central Bank on the exchange market in order to control the price (exchange rate). Concerted intervention is concerted purchase of sale of currency on exchange market by several central banks in order to control the pieces (exchange rates).
Method of currency parity establishment and determination of average weighted rate of one currency against certain set of other currencies. Currency set and currency elements are added to the currency basket randomly depending on the basket creation purpose.
Probability of adverse exchange rate variation.
Increase of relative currency value due to the impact of economic, political and market factors.
Decrease of relative currency value due to the impact of economic, political and market factors.
Probability of loss-making transactions due to the adverse instrument price (quote) variation.
Equal availability of quotes to all market participants.
Gross Domestic Product
GDP. Total value of all goods and services manufactured in the country.
Gross National Product
Gross Domestic Product (GDP) plus income received from investments or works performed abroad.
Country’s total export trade volume minus its total import trade volume.
Decision of competent authority to adjust internal economic policy in order to eliminate payment imbalance or determinate of official foreign exchange rate that would affect its quote on the exchange market.
A price of one county’s currency unit expressed in monetary units of other country.
Currency of economically and politically sustainable countries that is trusted by investors.
Bretton Wood Agreement
Agreement on establishment of the fixed exchange rates of the main currencies, possibility of the central bank intervention on the exchange market and determination of US Dollar gold pegged price as 45 dollar for ounce. It remained valid until 1971 when President Nixon cancelled Bretton Wood Agreement and established floating exchange rates for the main currencies.
World Trade Organization of WTO
International governmental organization whose members are more than 120 counties created in 1994 as GATT successor for regulation of international trade issues. QWTP headquarters are located in Geneva. Russia joined the WTO in 2012.
Resumption of trading activity of the market after weekends, holidays or the break between trading sessions.
Total value of all transactions closed within the considered period of time in monetary terms.
The terms describing the ability to close major transaction without significant impact on price movement. Forex market where you can always (during the business hours) close any transaction has the highest liquidity.
Statistical indicator characterizing the tendency of market price (quote) temporal changes.
Market characterized by increase of prices (quotes).
Market characterized by reduction of prices (quotes).
Uptick rule is mandatory in USA. It prohibits the sale of unsecured stock by the investor, if the price of the previous transaction is higher than short sale price.