Glossary of Terms

A

Application Progamming Interface (API) Trading

Trading that is conducted through an Application Programming Interface. APIs are custom programs setup to trade based on the defined settings of it's user.

Ascending Trend Channel

An ascending trend channel is a basic chart pattern used in technical analysis. Ascending trend channels is a channel with an overall bullish slope. A line is drawn at the peaks of successive price points with a parallel line drawn at successive troughs within the same time frame. It is considered ascending when the slope moves upward with price.

 

Ascending Trend Line

A bullish technical pattern is formed by connecting two or more trough with a straight line showing an upward slope and increasing price points.

 

Ascending Triangle

An Ascending Triangle is usually a method of pattern trading based on a continuation pattern and are normally considered bullish. Continuation patterns also include symmetrical triangles, descending triangles, wedges, flags, rectangles and pennants and are essentially technical patterns that are expected to lead to the continuation of an existing trend. Continuation patterns are considered a powerful trading tool as they usually result in extremely low risk trading opportunities and spectacular returns.

Ask Price

Also known as the Offer Price. The price at which a security or commodity is offered for sale on an exchange or over the counter market. This price is used to open Long (Buy) positions or close Short (Sell) positions. This price is one half of an entire quote for a commodity or security traded.

 

Asset

A tangible or intangible item that has an economic or exchange value.

Aussie

It is a slang term used by traders to refer to the AUD/USD currency pair.

Average True Range (ATR)

The Average True Range (ATR) was developed by J. Welles Wilder. It is an indicator that helps measure volatility. It was created to find unaccounted volatility.

B

Balance/Account Balance

The total financial result of all completed transactions and deposits/withdrawals on the trading account excluding floating profit and loss on open positions.

Bank of Japan (BOJ)

This bank is the Japanese central bank and is responsible for the monetary policies of Japan.

Bank Rate

The rate at which a central bank is prepared to lend money to its domestic banking system.

Bar Chart

Chart with a vertical bar visually illustrating the Open, Close, High, and Low for the given time period. The Open is represented by a visible tick protruding from the left of the bar while the Close is represented by a visible tick protruding on the right side of the bar. The High is the top of the bar and the Low is the bottom of the bar.

Base Currency

In a currency pair the base currency refers to the currency listed on the left hand side of the pair. The base currency's value is always equal to 1. The currency listed on the right is called the quote currency. The quote currency shows how much of that currency is necessary to purchase 1 unit of the base currency.

Bearish

The term bearish refers to a market in which prices are moving down continually. The term can also be used to describe the price direction of a single candle or bar within a chart. If the stock market has been trending downwards, traders will refer to it as a 'bearish market'. If a single price candle closes at a lower price than it opened, it can be referred to as a 'bearish candle'. Professional traders also often refer to 'the bulls' or the 'the bears' of a market, in this case 'the bears' would represent the sellers in the market.

Bear Investor

A bear is an investor who believes/expects prices and the overall market to decline. A bear investor has a negative belief on the outlook of the market and will often short (sell) securities and commodities and buy them back at a later date when they believe the market has bottomed out (hit a low). A bear will sell continuously as the market falls and hold until the market has reached a bottom.

Bear Market

A market in which prices are noticeably declining.

Beige Book

Commonly used name for the Fed Report called the Summary of Commentary on the Current Economic Conditions. These are gathered from the 12 federal district banks of the United States. This book is used to inform its members of the changes that have occurred in the economy since the last meeting.

Bid Price

The bid price is the price at which a security or commodity can be sold on an exchange or over the counter. This price is used to Open Short (Sell) Positions or Close Long (Buy) Positions. This makes up one half of a price quote.

Bollinger Band

Developed by John Bollinger, it is used to measure the volatility of the market. Bollinger bands consist of 3 lines; Top band, Bottom band and middle simple moving average line. When Bollinger Band is used, the market price is considered overbought at the upper band therefore, may be time to sell and oversold at the lower band, therefore may be time to buy. The Bollinger Band is an indicator that can measure range markets and also gives clues as to when to expect a market breakout. A breakout occurs following periods of low volatility. When volatility is low, the Bollinger Bands are closer together. Therefore, tight Bollinger Bands can be a warning sign of a possible market breakout.

Broker

Individual or firm acting as an intermediary to bring together buyers and sellers typically for a commission or fee.

Bullish

The term bullish refers to a market in which prices are moving up continually. The term can also be used to describe the price direction of a single candle or bar within a chart. If the stock market has been trending upwards, traders will refer to it as a 'bullish market'. If a single price candle closes at a higher price than it opened, it can be referred to as a 'bullish candle'. Professional traders also often refer to 'the bulls' or the 'the bears' of a market, in this case 'the bulls' would represent the buyers in the market.

Bull Investor

A bull is an investor who believes/expects prices and the overall market to rise. A bull investor is one who buys securities and commodities because he/she believes the overall market is rising. A person who has a bullish outlook on the market is optimistic that the market is rising. Generally, a bull will continue to trade as the market continues to rise, at the very least a bull will hold their positions until the bull run/market boom hits a bubble (ex: sell their positions before the housing market burst in 2008).

Bull Market

A market that is characterized by rising prices

C

Cable

Term used to describe the exchange rate between the US dollar and the British Pound. It refers to a cable used for the first trans-Atlantic communication.

Candlestick Charts

The Candle Chart is the visible representation of the High , Low, Open and Close for the time period with a vertical candle like bar, generally having protruding ticks above and/or below a rectangle. Since colors can differ from platform to platform this chart is more recognizable based on the bars having a fill or just being an outline of the candle. When the bar is filled this represents the close price is below the open price and vice versa for the outlined bar. The wicks on the candle represent how far the market moved in relation to the open or the close. The tip of these wicks would be the high and the low for the candle.

Carry Trade

An investment position of buying a higher yielding currency with the capital of a lower yielding currency to gain an interest rate differential. It is a popular trading strategy used by medium to long term traders. In this strategy, speculators will buy the currency with the higher interest rate and sell the currency with the lower interest rate. This position will ensure that the trader will gain rollover interest at the end of each day the position is held open. A popular currency to buy for a carry trade is the Australian Dollar (Aussie), as it generally has a higher interest rate than the USD, Euro, GBP, and JPY, which the trader would sell one of the aforementioned currencies.

Central Bank

Most modern nations have central banks that perform similar functions. Usually a branch of government, a central bank is responsible for setting interest rates, stabilizing the economy and reporting to the general public on economic conditions. Typically, central banks will loan funds to commercial banks at a certain set interest rate. Commercial banks then base their lending rates accordingly. Key central banks to the global economy include: The Federal Reserve (USA), The Bank of Japan, the Bank of Canada, The European Central Bank, The Bank of England, etc. etc.

CFTC

A U.S. federal agency, Commodity Futures Trading Commission, was created by Congress in 1974. It's purpose is to ensures the open and efficient operation of the futures markets.

Channel

An upwards or downwards trend whose boundaries are marked by two straight lines. The two straight lines can also be called support (bottom channel) and resistance (top channel) lines. A break above/below the channel lines signals a potential change or reversal in the trend.

Chart Patterns

Price data plotted onto charts often forms unique and distinct patterns; patterns that often precede very specific bullish or bearish price moves. Also referred to as ‘chart formations' or 'price patterns'; these patterns can be very helpful to technical traders when analyzing the market.

Commission

A fee charged by brokers or agents for carrying out transactions/orders

Commodity Pool Operator (CPO)

An individual or organization which operates or solicits funds for a pool, that is, an enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures or options contracts. Generally required to be registered with the Commodity Futures Trading Commission.

Commodity Trading Advisor (CTA)

A firm or individual that is registered with the Commodity Futures Trading Commission. This firm or individual receives compensation or profit when they advise others, on the trading of off-exchange forex contracts. Like an IB, a CTA does not hold customer funds for margin purposes; they are held with an FDM. CTAs exercise discretion over their clients' accounts, via limited power of attorney and trade on their behalf according disclosed terms.

Consolidation

Price consolidation refers to the narrowing of price highs and lows in a given time frame. This is usually a result of buyers and sellers that are unsure of market direction. Often, consolidation occurs as a means to test the strength of a trend. Lower highs and higher lows demonstrate a lack of domination from either the buyers or sellers, and as if being squeezed through a narrow passage, prices eventually break free and typically do so in favor of a strong move up or down.

Consumer Price Index

A month to month economic indicator which gauges changes in the cost of living by measuring price changes in a common basket of goods and services that most people use, such as food, clothing, transportation, and entertainment.

Counterparty

The customer or bank with which a foreign exchange deal is executed. The counterparty is the bank/firm taking the other side of the trade. When you the investor/trader buys a currency pair the counterparty sells the same pair. The opposite occurs when you sell the currency pair, the counterparty buys the currency pair.

Cross Currency

A pair of currencies traded in Forex that does not include the U.S. dollar. For example: EUR/JPY, GBP/JPY, EUR/GBP

Currency Account

The current account balance is one of two major measures of the nature of a country's foreign trade (the other being the net capital outflow). A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period.

Currency Conversion Rate

A rate of a specified currency for converting all profits and losses and volumes into another currency. For example, if you wish to convert Euro to USD you would multiply the Euro by the conversion rate to value in USD. You have 10 Euro and the conversion rate is 1.3000. You would take 10 Euro X 1.3000 EURUSD = 13.00 USD.

Currency Intervention

Foreign exchange transactions performed by central banks or governments that attempt to influence a country’s monetary funds transfer rate of the national currency. When a central bank feels as though their currency is getting too strong or weak they will buy/sell their currency on the open market in order to better reach their country's economic goals and target exchange rate.

Currency Pair

A currency pair depicts a quotation of two different currencies. The first currency in the pair is the base currency. The second currency in the pair is labeled as the quote currency or counter currency. Such a quotation depicts how many units of the counter currency are needed to purchase one unit of the base currency.

For example the quotation EUR/USD 1.2500 means that one Euro is exchanged for 1.25 US Dollar.

If the quote moves from EUR/USD 1.2500 to EUR/USD 1.2510, the Euro is getting stronger and the dollar weaker. On the other hand if the EUR/USD quote moves from 1.2500 to 1.2490 the Euro is getting weaker while the dollar is getting stronger.

D

Day Trading

Refers to the process of entering and closing out trades within the same day or trading session in hopes that the trader will make a profit from the difference between the buying price and the selling price. Day traders usually hold short term positions that will be closed by end of trading day.

Doji

A type of candlestick that have the same open and close price or at least their bodies are extremely short. A doji looks like a cross or plus sign. It conveys a sense of indecision in the market between buyers and sellers. Traders pay close attention to Dojis as they wait for the currency pair to pick a direction.

 

Durable Goods Orders

Durable Goods are manufactured goods that generally last a longer life than normal (lasting longer than at least three years), are not consumed in one sitting, and are typically more expensive than most manufacturing goods. This order is released once a month by the Bureau of Census.

E

Electronic Communication Network (ECN)

Electronic communication network (ECN) is a type of computer system that facilitates trading financial products outside of financial exchanges. The system brings buyers and sellers together in order to conduct electronic execution of trades.

Euro

The monetary unit of the European Monetary Union used by twelve countries in the European Union. It is now the legal tender of those countries as of January 2002. Those countries include Germany, France, Belgium, The Netherlands, Luxembourg, Spain, Portugal, Italy, Austria, Ireland, Finland and Greece, Cyprus, Estonia, Malta, Slovakia, and Slovenia (the last five countires joining between 2007 and 2011.

Exchange Rate

When examining currency pairs one must understand what is meant by ‘exchange rate'. Obviously, the exchange rate refers to the rate, or price at which one currency can be exchanged for another. However, many traders look at a currency pair, EUR/USD for example, without understanding a very basic concept: A price quote of 1.4760 is to say that 1.4760 US Dollars (currency on the right) will purchase 1 Euro (currency on the left).

Exponential Moving Average (EMA)

EMA (exponential moving average) refers to the type of moving average that more heavily weighs recent price data when calculating average levels. Simple moving averages (SMA) sometimes react too slowly to price changes because they give equal weight to even the oldest prices in the equation.

F

Fat Finger Error

Is a referance to a human error caused by pressing the wrong key when using a computer to input data. This saying comes from earlier years when operations were done manually. A fat finger error can cause the market to act drastically to the error, depending on how big the error was and what else is going on in the market.

Fibonacci Levels

Leonardo of Pisa, also known as Fibonacci, was a famous mathematician. He also credited with discovering a number sequence called "Fibonacci numbers", a sequence of numbers where each successive number is the sum of the two previous numbers. For example:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, ...

Fibonacci numbers are approximately exponential. The higher up in the sequence, the closer the two consecutive numbers of the sequence divided by each other will approach the golden ratio (approximately 1:1.618). Traders use Fibonacci levels as a means to gauge potential market retracements. Fibonacci levels offer traders a look at where prices might retrace or extend to in the form of a series of numbers (price levels) that are represented as lines plotted on a chart.

Fibonacci Retracement

A technical indicator that provides traders with potential support and resistance levels. These levels are created by drawing a trend line between two significant points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, 78.6 and 100%. These ratios are used by traders to predict whether the stock will return to the price by retracing its previous actions. This is used by traders to see if the price will break support/resistance, or hold. It is one of the simplest, yet more effective tools when analyzing a currency pair and its trends.

FIFO Rule

FIFO is an acronym for First In, First Out, an abstraction related to ways of organizing and manipulation of data relative to time and prioritization. For forex under the FIFO policy, a trader is required to close the oldest trades first in the case where there are several open trades on the same pair and of the same size. Some trading systems will automatically net your positions using the FIFO rule, while other trading systems will reject an order that is not in compliance with the FIFO rule.

Fill Price

The price at which a buy or sell order was executed.

Foreign Exchange (Forex)

The market in which participants are able to buy, sell, exchange and speculate on currencies. The Forex markets is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail Forex brokers and investors.

Forex Contract (unit or lot)

The standard trading unit on anexchanges. A standard lot in the forex market is 100,000 units of base currency. For example: $100,000 of USD/CAD is one standard lot.

Forex Daily Charts

Charts that encapsulate the daily price movement for the currency pair traded. For Example: a Daily candle chart would show a candle per day. The candle would show us where the market opened and closed during the trading day, as well as the high and the low of the trading day. Daily charts are used mainly by longer-term traders, as they can view trends/price movements over a longer period.

Fundamental Analysis

The analysis of economic indicators and political and current events that could affect the future direction of financial markets. In the foreign exchange market, fundamental analysis is based primarily on macroeconomic events. There are a number of fundamental indicators traders may follow that reflect how an economy is changing the movement of the Forex market prices to come.

G

Gross Domestic Product (GDP)

Measures the value of all finished goods and services produced with in a country. GDP is made up of consumer and business purchases, private domestic investments, and net exports of domestic services and goods. GDP is the most comprehensive overall measure of economic output and provides key insight as to the driving forces of the economy. GDP is tracked on a quarterly basis.

H

Hanging Man Candlestick

Hanging Man candlestick is a pattern that is formed at the end of an uptrend and is considered to be "bearish". It is formed when a security moves significantly lower after the open, but rallies to close well above the intracandle low. The resulting candlestick looks like a square lollipop with a long stick. Many traders will sell off of a hanging man as they believe the market is going to dump.

 

Harami

A candlestick pattern that consists of two candlesticks, one that has a small body completely contained within the range of the previous body, and is the opposite color. Coming after a strong trend, this pattern indicates a decrease in momentum and possibly the end of the trend. This candlestick can be considered either "bearish" or "bullish"

 

Head and Shoulders

A price trend pattern which has three peaks, the middle one higher than the surrounding two forming what looks to be a head with two shoulders on either side. This pattern is seen as an indicator of a trend reversal.

 

Hedge/Hedging

Strategy to reduce the risk of adverse price movements on one's portfolio and to protect against the volatility of the market. Hedging typically involves selling and buying of a currency pair at the same time or roughly at the same time . Hedging becomes more prevalent with increased uncertainty about current market conditions. It is a type of protective investment designed to offset adverse price movements in a given currency pair. Many traders will hedge their options bets in the spot forex market to reduce their overall risk.

High-Beta Currency

A currency that has a high yielding interest rate. These currencies are typically best to own during a healthy global economy.

I

Indicators

Fundamental and technical indicators are comprised of statistical or mathematical data. Technical indicators are generally used to track the patterns of historical price data. The calculations and methods behind technical indicators vary depending on the purpose - be it to track price averages, price ranges, or repeated price cycles. Common technical indicators include moving averages, MACD, Oscillators and so on. Fundamental indicators are more often referring to statistical economic data published relating to the money flow and health of a given economy. Common fundamental indicators include GDP, Nonfarm Payroll, Producer Price Index and so on.

Intra-day Trader

An intra-day trader generally prefers to open and close positions within the same trading day. This type of trader is generally trading shorter time frame charts, and tends to stay in positions for hours at a time, as opposed to days at a time.

Inter-day Trader (or swing trader)

The term inter-day describes those traders who prefer to hold positions overnight and possibly for days or weeks at a time.

J

null

K

Kill or Fill

An order that does not permit partial filling. The order must be completely filled during a certain time period if it is not, then the order is to be canceled.

Kiwi

A term used by traders to describe the exchange rate between the US dollar and the New Zealand Dollar.

L

Lagging Indicator

A lagging indicator refers to a technical indicator that gives traders an indication that a trend has already begun, in other words the notification is a bit after the fact, hence the term 'lagging'. Though lagging indicators can be a bit behind, they still help traders catch onto trends that otherwise might have gone overlooked. Moving averages are considered lagging indicators.

Leading Indicator

The opposite of lagging indicators would be 'leading indicators', indicators that work to warn traders ahead of time that something is developing.

Leverage

Leverage describes the set level at which a trader is essentially borrowing money from their broker or bank. Leverage set at 50:1 is to say that a trader can control a position or contract in the market that is 50 times the size of the margin they have posted in order to place the trade. For example, a standard $100,000 contract (1 lot) in the Forex market would require a margin post of $2,000 if a trader were at 50:1 leverage.

Limit Orders

An order with restrictions on the maximum price to be paid or the minimum price to be received. A limit order can be used to protect an existing position or to enter the market at a desired price. For example, to protect your current open position, if your BUY position price of USD/YEN is at 93.00, then the SELL limit would be set at a price above 93. (i.e. 93.105). If you are looking to enter the market at a limit price, then the limit should be set below the current market price to enter the market.

Liquidate

In financial markets the term liquid and its various forms take on a few different meanings; in this instance if a broker's trading agreement refers to the possibility that a trade will be liquidated, that is to say that the trade will be close, and unrealized profit or loss will become realized profit or loss.

Liquidity

A liquid market refers to a market that is cash heavy, and liquidity refers to substantial level of capital or funds existing within a market or bank. Markets with high trading volume and substantial money flow are considered liquid markets. Banks and brokerages that clear trades are considered liquidity providers, as they are providing the funds necessary to support the execution of trades.

London Interbank Offered Rate (LIBOR)

London Interbank Offered Rate - It is an interest rate that charge each other for loans.

Long

The Term 'long' refers to the buying side of the market and is most often used by traders as a verb, i.e. 'I went long the Euro', thus meaning that I bought the Euro/US Dollar. Traders might also say that they are 'long 20 lots on the Pound', meaning of course that they have bought 20 lots of the GBP / USD.

Loonie

A term used by traders to describe the exchange rate between US dollar and Canadian dollar

Lot

In the off-exchange retail Forex market contracts are most often referred to as lots. 1 lot would be the same as saying 1 contract. In a standard account a full lot is equal to $100,000. Thus, a trader placing a 4 lot trade, for example, would be controlling $400,000. In a mini account a full lot is equal to $10,000. Thus, a trader placing a 4 mini lot trade would be controlling $40,000.

M

Margin

Margin describes the amount of funds a trader must post in order to control a leveraged contract in the market. Often, accounts that are traded with leverage are also referred to as margined, or margin, accounts. At 50:1 leverage a standard FX contract of $100,000 will require $2,000 of margin. If a trader's account has less than a $2,000 in equity they would not be allowed to open a position of this size.

Margin Call

Traditionally, a margin call occurs when a brokerage actually contacts a trader and informs them that their trade has moved against them enough to require a deposit of more margin (if they wish to keep the position open). In the FX market the term is more often used to describe a situation in which a brokerage firm actually closes the trader's position, usually without warning. Most brokerages have set margin call levels that traders are informed of when opening their account. It is generally safe to assume that if your position reaches this level, your broker will automatically close the trade.

Market Depth

The market is able to sustain large market orders without affecting the prices. Market depth is the volume available at specific bids or ask.

Market Order

A market order is an order to buy or sell currency at the prevailing market price.

Market Sentiment

Market sentiment refers to the general feeling of the majority of traders in a given market. If, because of a weak Nonfarm Payroll report, the majority of currency traders feel that the US Dollar will weaken; market sentiment surrounding the Dollar is thus negative. Often, a negative market sentiment surrounding a particular currency or economy can become reality. If many traders feel that the dollar should be weak and subsequently start selling the Dollar, the initial market sentiment may become a market reality as a mass of traders all selling the Dollar would in theory weaken its global standing.

Micro lot

The smallest lot available for trade in retail FX, it is 1000 units of base currency.

Mini Account

In the off-exchange retail Forex market, a mini account refers to an account in which the full value of one single mini lot or contract is equal to $10,000 (10% the value of a standard account). Traders can of course set trades that are multiple mini lots, or even fractional mini lots, but a single mini contract will always be equal to $10,000.

Monetary Policy

The process by which a country’s central bank must determine the size and rate of growth of the money supply which will affect interests rates.

Money Manager

A business or bank responsible for managing the securities portfolio of an individual or institutional investor.

N

National Futures Association (NFA)

National Futures Association is the industrywide, self-regulatory organization for the United States futures industry. The NFA oversees and protects investors from fraudulent commodities and futures activities. The NFA also provides mediation and arbitration for resolving consumer complaints. NFA is headquartered in Chicago, IL and also maintains an office in New York City.

Non-Farm Payroll (NFP)

NFP occurs on the first Friday of every month at 8:30am EST. A monthly report is created with an estimation of the number of payroll jobs of all businesses and government establishment that is non-farm. The report also has estimates of the average work week and weekly earnings. The decision to not include agricultural jobs lies in these jobs being largely seasonal that could possibly produce small temporary shifts in labor reporting. For this reason certain government employees, private household employees and nonprofit organization are also not included in the count.

O

Offer

The lowest price (or rate) at which a seller is willing to sell at. Traders will see it as a Ask/Buy price on their Forex trading platform. This price is used to enter a long (buy) position or close a short (sell) position.

Off-Exchange

The term off-exchange is often used to describe the Forex Market place. Because the Forex market has no central exchange, or physical location wherein trading is facilitated, it is considered an off-exchange market place. The NYSE (New York Stock Exchange) and CME (Chicago Mercantile Exchange) are examples of physical exchanges. Forex is essentially a network of banks and brokerages, all of which are connected globally to one another, but not through any one physical foreign currency exchange.

Option

A financial derivative that represents a contract sold by one party (option writer) to another party (option holder).

Order

An instruction by a customer to a broker/trader to buy or sell at certain price or market price. The order remains valid until executed or cancelled by the customer.

Overbought

A currency pair is overbought when its price rises much more quickly than usual in response to net buying.

Over-the-counter Market (OTC)

Where there is no exchange involved in the transaction. One party trades directly with the other.

Oscillate

To oscillate is to volley between two key levels or values within a specified technical indicator. Most often, oscillating indicators are attempting to plot short-term overbought and oversold levels, thus offering traders a visual look at where prices might be too high or two low when an obvious trend is otherwise unidentifiable. Oscillating indicators are very popular, and include: Stochastic Oscillator, RSI, and many others.

P

Pattern Recognition

Technical Analysis that attempts to classify data based on prior knowledge or statistical information in order to determine the direction of the markets by analyzing historical price patterns.

Pegging

A method of stabilizing a country's currency by amending its exchange rate to that of another country.

Pending Order

An order to be executed at some point in the future.

PIP

The term PIP stands for Percentage In Point. Essentially, Forex traders are after profit in terms of pips; not Dollars or Yen or Euros, but pips. The reason for this is because the pip is the last digit represented in most currency's price quotes (on a four decimal price feed). For most pairs this is the equivalent of 1/100 of one percent (or one basis point).

Pivot Point

A technical indicator derived by calculating the numerical average of a particular pair’s high, low and closing prices. The pivot point is used as a predictive indicator. If the following day's market price falls below the pivot point, it may be used as a new resistance level. Conversely, if the market price rises above the pivot point, it may act as the new support level.

Position

The amount of a contract either bought (long) or sold (short) by an investor. Positions can also be opened (current) or closed (past).

Price Volatility

Can also be referred to as price movement; price volatility describes continued and rapid price movement either bullish or bearish, or sometimes both. A market whose prices are fairly stagnant and not moving might be referred to as a sideways market. A volatile market on the other hand refers to prices that are moving and adjusting rapidly.

PPI

Producer Price Index, measures the average price paid by producers for domestic goods and services measured from month to month. This economic indicator is a representation of producer inflation.

Q

Quantitative easing

Quantitative easing is a monetary tool used by central banks to encourage spending within an economy. To do this the money supply is increased in financial institutions, in hopes that this will increase lending and liquidity.

Quote Currency

In a currency pair the quote currency refers to the currency listed on the right hand side of the pair. The quote currency's value is always set in comparison to 1 unit of the base currency. The quote currency, establishes at what rate or price the currency will equal or purchase 1 unit of the base currency.

R

Range

A currency pair's low and high prices for a particular trading period. If a currency pair trades in a range for an extended period of time it is sometime said to be trading in a channel.

Relative Strength Index (RSI)

RSI is a technical indicator that shows potential price changes in the strength of prices. The RSI is valued between 0 and 100, therefore giving a top (ceiling) and bottom (floor) or overbought and oversold for the indicator standards. Typically, when the indicator moves below 30, it is considered oversold and becomes a buy signal. When the indicator moves above 70, it is considered overbought and becomes a sell signal. Furthermore, some traders use the midpoint of 50 as an indication. A movement above 50 indicates a possible bullish market and below 50 a possible bearish market.

 

Requote

Occurs when a trader initiates a trade at a specific price, but the broker returns the request with a different quote. This may occur during fast-moving markets.

RBA

Reserve Bank of Australia. A central bank governing the monetary policy of Australia.

Resistance

The price level that a currency pair has had difficulty rising above in the past.

Retail Sales

Retail Sales is a monthly volume of all goods sold by retailers based on select retail stores of different types and sizes. It can also measure the average consumers spending patterns. It is released at 8:30 am EST around the 12th of each month; this report reflects data from the previous month. The retail sales index is typically used as an indicator of consumer confidence. This report does not include money spent on services, so it represents less than half of total consumption during the month.

Risk Appetite

Also known as “risk-on”, occurs when investors are more comfortable in owning risky assets or high-beta currencies. This may occur with the release of stronger than expected economic data or positive international events. In the FX world, currencies such as the Australian dollar, New Zealand dollar, sterling or the euro are consider risky currencies.

Risk Capital

The amount of money one could risk without impinging on one accustomed lifestyle. These high-risk funds are used in hopes of receiving high rewards investments.

Rollover

Is a charge or credit for holding a currency position overnight. The cost of the process is measured by the interest rate differential between the two currencies in a pair. Rollover only occurs on positions that are held open beyond 5pm EST.

S

Scalping (Forex trading)

1. A legitimate method of arbitrage of small price gaps created by the bid-ask spread.

2. A legitimate method of currency trading based on quick momentum trades triggered by order flow reading setups.

A Forex trader who trades currency in this fashion has been nicknamed a "Scalper" because these traders attempt to take small spread differences between the Bid and Ask price. "Forex Scalpers" do not enter positions and carry them overnight. Scalping is a fast-paced trading where a Forex trader seeks 1-5 pips profit from each trade.

Short

The Term 'short' refers to the selling side of the market and is most often used by traders as a verb, i.e. 'I went short the Euro', thus meaning that I sold the EUR/USD. Traders might also say that they are 'short 20 lots on the Pound', meaning of course that they have sold 20 lots of the GBP/USD.

Sideways Market

Sideways markets typically suggest low volatility and a trading period in which, prices are neither trending up or down.

Slippage

The difference between the entry or activation price of a order and the executed trade. Slippage often occurs during periods of higher volatility, when the probability of pricing gaps increases exponentially causing the market to move past entry or activation levels.

Spot Price

The price at which commodities, securities or currencies are immediately exchanged. Also known as the current market price.

Spread

The difference between the bid and ask/offer price. The spread is typically variable and changes according to the market movement. For example: If the bid price for EUR/USD is at 1.33446 and the ask/offer price is at 1.33452 then the spread (difference between the bid and ask/offer price) is 0.6.

Standard Account

In the off-exchange retail Forex market, a standard account refers to an account in which the full value of one single standard lot or contract is equal to $100,000.

Stop Loss

Stop loss orders are set to help a trader limit losses by closing the trade at a predetermined level. A stop loss order is a type of stop order, where the order is filled at the set price, or prevailing market price.

Stop Order

An order that becomes a market order when the currency reaches a particular price level. A sell stop is placed below the market; a buy stop is placed above the market.

Support

The price level that a currency pair has had difficulty falling below in the past.

Swap

The rollover charge/credit. This is interest applied to positions held open from day to day.

Swiss National Bank (SNB)

This bank is responsible for monetary policy in Switzerland.

T

Take Profit

Take profit orders are set to help a trader realize profits by closing a position at a predetermined level. A take profit order is a type of conditional order, where the order, when triggered, becomes a market order and is filled at the first available price.

Technical Analysis

A technique used to try and predict future movements of a security, commodity or currency, based solely on past price movements and volume levels. It examines charts and historical performance. Technical analysis involves the use of charts and technical indicators to make a trading decision.

Tick

This is pricing of commodity or security from moment to moment. Ticks are not pegged to occur within a specific time unit, instead occur when market experience activity.

Trading Lot

A standard trading term referring to an order of 100,000 base units.

Trading the News

Making trade or investing decisions based on underlying fundamental events in world news.

Transaction Costs

The costs that are incurred by a trader when buying or selling currencies, commodities, or securities. These costs include broker commissions and/or spreads.

Transaction Date

The date a trade occurs/executed. Since forex is traded over a 24 hour period. Trade days typically conclude at 5pm EST.

Trend

In any given market, prices can essentially trend in one of three directions: up, down, or sideways. A trend is formed when prices maintain one of these three directions for a specified period of time, whether it is an hour or a week.

Trend Lines

A straight line drawn across a chart that indicates the overall trend for the currency pair. In an upward trend, the line is drawn below, and acts as a support line; the opposite holds true for a downward trend, the line is drawn on top and used as a resistance line. Once the currency breaks the trend line, the trend is considered to be invalid.

Trend Reversal

By definition, any dramatic change in the direction of a trend can be considered a reversal, but shorter term directional trends should be viewed only as retracements; directional changes lasting the duration of multiple candles, or hours and days on the other hand can be considered actual reversals.

U

null

V

Valuation

The process of determining the value of an asset or company. It is the estimation or appreciation of the worth an asset possesses.

Virtual private server (VPS)

A virtual machine that allows traders to host different services. In the FX world, VPS is typically used by traders who want to host EAs through a secured server.

Volatility

A measure of the amount by which an asset price is expected to fluctuate over a given period and normally measured by the annual standard deviation of daily price changes (historic). Volatility can also be implied from futures/options pricing, which is referred to as implied volatility. If a market has a high volatility it is considered to have a high risk. Common times of high volatility (risk) occur during important economic news releases such as Non-Farm Payrolls and Rate Decisions.

W

null

X

null

Y

YEN

The standard monetary unit (currency) of Japan. It is the third most traded currency in the foreign exchange market after the United States dollar and the euro.] It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling. As is common when counting in East Asia, large quantities of yen are often counted in multiples of 10,000 (man, 万) in the same way as values in Western countries are often quoted in thousands.

Z

ZEW

ZEW Economic Sentiment is the Center for European Economic Research. Similar to the Confidence Indicator, this Institute provides data for confidence and performance of the consumer and business sectors in Europe. It consists of 350 economists and analysts sentiments regarding the economic future of Germany for the next six months.

Risk Disclaimer

Before deciding to participate in the Forex market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose.  There is considerable exposure to risk in any off-exchange foreign exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair.  Moreover, the leveraged nature of Forex trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin requirement, your position may be liquidated and you will be responsible for any resulting losses.