to be a successful forex trader you need to know the meaning of the following terms:-Turnover - The total money value of all executed transactions in a given time period; volume. Two-Way Price - When both a bid and offer rate is quoted for a FX transaction. Uptick - a new price quote at a price higher than the preceding quote. Uptick Rule - 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. US Prime Rate - The interest rate at which US banks will lend to their prime corporate customers Value Date - The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date. Variation Margin - 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. Volatility (Vol) - A statistical measure of a market's price movements over time. Whipsaw - slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal. Yard - Slang for a billion.
Spot Price - The current market price. Settlement of spot transactions usually occurs within two business days. Spread - The difference between the bid and offer prices. Sterling - slang for British Pound. Stop Loss Order - Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor's position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49. Support Levels - 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. Swap - A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate. Technical Analysis - An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc. Tomorrow Next (Tom/Next) - Simultaneous buying and selling of a currency for delivery the following day. Transaction Cost - the cost of buying or selling a financial instrument. Transaction Date - The date on which a trade occurs.
Overnight - A trade that remains open until the next business day. Pips - Digits added to or subtracted from the fourth decimal place, i.e. 0.0001. Also called Points. Political Risk - Exposure to changes in governmental policy which will have an adverse effect on an investor's position. Position - The netted total holdings of a given currency. Premium - In the currency markets, describes the amount by which the forward or futures price exceed the spot price. Price Transparency - Describes quotes to which every market participant has equal access. Quote - An indicative market price, normally used for information purposes only. Rate - The price of one currency in terms of another, typically used for dealing purposes. Resistance - A term used in technical analysis indicating a specific price level at which analysis concludes people will sell. Revaluation - An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation. Risk - Exposure to uncertain change, most often used with a negative connotation of adverse change. Risk Management - The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk. Roll-Over - Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies. Settlement - The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another. Short Position - An investment position that benefits from a decline in market price
Margin call - A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer. Market Maker - A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument. Market Risk - Exposure to changes in market prices. Mark-to-Market - Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements. Maturity - The date for settlement or expiry of a financial instrument. Offer - The rate at which a dealer is willing to sell a currency. Offsetting transaction - A trade with which serves to cancel or offset some or all of the market risk of an open position. One Cancels the Other Order (OCO) - A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled. Open order - An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders. Open position - A deal not yet reversed or settled with a physical payment. Over the Counter (OTC) - Used to describe any transaction that is not conducted over an exchange
Good 'Til Cancelled Order (GTC) - An order to buy or sell at a specified price. This order remains open until filled or until the client cancels. Hedge - A position or combination of positions that reduces the risk of your primary position. Inflation - An economic condition whereby prices for consumer goods rise, eroding purchasing power.Initial margin - The initial deposit of collateral required to enter into a position as a guarantee on future performance. Interbank rates - The Foreign Exchange rates at which large international banks quote other large international banks. Leading Indicators - Statistics that are considered to predict future economic activity. LIBOR - The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.Limit order - An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 102.00/05, then a limit order to buy USD would be at a price below 102. (ie 101.50) Liquidity - The ability of a market to accept large transaction with minimal to no impact on price stability. Liquidation - The closing of an existing position through the execution of an offsetting transaction. Long position - A position that appreciates in value if market prices increase. Margin - The required equity that an investor must deposit to collateralize a position
Dealer - An individual who 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. Deficit - A negative balance of trade or payments. Delivery - An FX trade where both sides make and take actual delivery of the currencies traded. Depreciation - A fall in the value of a currency due to market forces. Derivative - 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. Devaluation - The deliberate downward adjustment of a currency's price, normally by official announcement. Economic Indicator - A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc
Broker - 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. Bull Market - A market distinguished by rising prices. Cable - Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800's. Candlestick Chart - A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded
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