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GLOSSARY

Arbitrage: 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.

Ask  Price:  The price at which the market is prepared to sell a specific Currency in a Foreign Exchange Contract or Cross Currency Contract.

Bar Chart: A type of chart which consists of four significant points

Base Currency: The first currency in a Currency Pair. It shows how much the base currency is worth as measured against the second currency.

Bear Market: A market distinguished by declining prices.

Bid/Ask Spread:  The difference between the bid and offer price.

Bretton Woods Agreement of 1944: 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.

Bull Market: A market distinguished by rising prices.

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.

Carry Trade: Refers to the simultaneous selling of a currency with a low interest rate, while purchasing currencies with higher interest rates. Examples are the JPY crosses such as GBP/JPY and NZD/JPY.

Closed Position:  Exposures in Foreign Currencies that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position.

Commission: A transaction fee charged by a broker.

Cross Currency Pairs: A pair of currencies that does not include the U.S. dollar. For example: EUR/JPY or GBP/CHF.

Currency symbols
AUD – Australian Dollar
CAD – Canadian Dollar
EUR – Euro
JPY – Japanese Yen
GBP – British Pound
CHF – Swiss Franc

Currency: Any form of money issued by a government or central bank and used as legal tender and a basis for trade.

Currency Pair: The two currencies that make up a foreign exchange rate. For Example, EUR/USD

Currency Risk: the probability of an adverse change in exchange rates.

Current Account: 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).

Day Trader: Speculators who take positions in commodities which are then liquidated prior to the close of the same trading day.

Dealer: An individual or firm that acts as a principal or counterpart to a transaction.

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.

EURO: the currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).

Federal Reserve (Fed):  The Central Bank for the United States.

Foreign Exchange: The simultaneous buying of one currency and selling of another.

Fundamental Analysis: Analysis of economic and political information with the objective of determining future movements in a financial market.

FX: Foreign Exchange.

Going Long: The purchase of a stock, commodity, or currency for investment or speculation.

Going Short: The selling of a currency or instrument not owned by the seller.

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.

Introducing Broker: A person or corporate entity which introduces accounts to FOREX.com for a fee.

Leverage: Also called margin. The ratio of the amount used in a transaction to the required security deposit.

LIBOR: The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.

Liquidity: The ability of a market to accept large transaction with minimal to no impact on price stability.

Long position: 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.

Lot: A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.

Margin:  The required equity that an investor must deposit to collateralize a position.

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.

Offer (ask):  The rate at which a dealer is willing to sell a currency. See Ask (offer) price

Open position: An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.

Over the Counter (OTC):  Used to describe any transaction that is not conducted over an exchange.

Pips:  The smallest unit of price for any foreign currency. Digits added to or subtracted from the fourth decimal place, i.e. 0.0001. Also called Points.

Position:  The netted total holdings of a given currency.

Range: The difference between the highest and lowest price of a future recorded during a given trading session.

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.

Risk Management:  the employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.

Short Position: An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.

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.

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. Refer to Trading Handbook for FOREX.com’s Stop Loss Policy.

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.

Transaction Date: The date on which a trade occurs.

Turnover: The total money value of all executed transactions in a given time period; volume.

Unemployment Rate:  Measures the total workforce that is unemployed and actively seeking employment, measured as the percentage of the labor force.

Unrealized Gain/Loss:  The theoretical gain or loss on Open Positions valued at current market rates, as determined by the broker in its sole discretion.

Value Date:  The date on which counterparts to a financial transaction agree to settle their respective obligations.

Volatility:  A statistical measure of a market’s price movements over time.

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