Forex glossary

Forex is an abbreviation of “Foreign Exchange”. It involves the exchange of currencies or conversion of currencies from one into other. The forex market is complex world having numerous terminologies that often confuse traders. For e.g. Pips, Lots, Bid etc. Forex glossary is, therefore, considered necessary to explain or at least define some basic terms. We tried to compile a list of abbreviations and different forex terms to present them with their meanings and definitions.

Given below are some forex terminologies along with their definitions;

Definition of words starting with A

Aggregate Risk
The risk that financial institution is exposed to, concerning forex contracts from individuals.
Ask
The price acceptable to pay for a security by a trader.
Asset
An item that is owned or controlled by an entity.

Definition of words starting with B

Bank Rate
The central bank’s rate at which money is lent to domestic banks.
Base Currency
Currencies are written in form of a pair, base currencies are always the first currency. e.g. in the GBP/JPY pair, the base currency is GBP.
Bear Market
The definition of a bearish market can be seen as when a price of different securities and assets observes a declining trend.
Bid
The price acceptable to receive against a security by a trader.
Bull Market
When a price of different securities and assets observes an upward trend.
Buy Limit Order
A transaction carried out at, or lower than the defined price. Limit refers to a specific price.

Definition of words starting with C

Closed Position
When a transaction is completed following a position that has been closed.
Currency Appreciation
The definition of currency appreciation is said to be an increase in the value of one currency against the other.
Currency Futures
A contract to sell or buy a security at a specific price in future irrespective of the price fluctuations in the exchange. Futures are mainly used to hedge risk.
Currency Pair
The pair of two different currencies traded in the forex market. For example GBP/USD.

Definition of words starting with D

Daily Chart
A graph showing the price movement of securities in a day.
Day Trade
A trade that lasts for as long as a day.
Demo Account
The definition of a demo account is a trading account offered by brokers to their clients without making them deposit any funds. Instead, it is funded virtually. It makes traders learn different trading strategies without putting their real investment on a stake.
Depth of Market
The buy and sell orders of a security at various prices being open represents the depth of the market.

Definition of words starting with E

Exchange Rate
The rate which is used to exchange one currency with another.
Execution
When a trade is originated and completed.

Definition of words starting with F

Fill
When order is completed.
Fill Price
The price of order completion.
Floating Exchange Rate
The rate which is not fixed and may vary as per the supply & demand of a specific currency in relation to other currencies.
Forex Chart
A graphical representation of price movements of a pair of currencies to assist traders to make appropriate decisions.
Forex Scalping
A strategy which is supposed to bring you more profit provided that your positions are kept open for a very short interval as compared to the long term positions.
Forex Spot Rate
The contemporary rate to buy or sell a currency pair.
Forex Trading Robot
A robot that is designed to trade automatically on trader’s behalf following a predefined set of rules.
Fundamental Analysis
The study of the impact of socioeconomic events on the prices of different securities such as (interest rate implications and lack of opportunities for employment).

Definition of words starting with H

Hedge
A technique used to avoid or reduce the risk of price fluctuations to a minimum level.

Definition of words starting with I

Interbank Rate
The rate at which interest is charged on liquid inter-bank loans.

Definition of words starting with L

Leverage
When a trader can trade high volumes even with a very low investment. For e.g. 500:1 means that a trader can trade for up to £500,000 by investing just £1000.
Limit Order
A trade execution order following a specific price.
Limit Price
A price which is specified in a limit order.
Liquidity
The availability of volume in the market concerning a specific pair of currency.
Long Position
When a position on a currency is held for a long period with the intention to buy it.
Lots
A standard quantity of the trading instrument is called as a lot. In forex, a lot is considered equals to 100,000 units of a specific currency.

Definition of words starting with M

Margin
The minimum amount that a trader is required to have in his/her account so that a position can be held.
Margin Call
The definition of the margin call is the notification served to require you to make more deposits in your trading account so that existing positions can be held.
Market Order
When an order is placed to be executed following the best price available.
Market Rate
The current price quoted for a pair of currency.
Micro Lot
When a base currency has 1000 units, it is called a micro lot.

Definition of words starting with N

No Dealing Desk
When a trader initiates a trade and it is placed directly on the market by a broker without any intervention.

Definition of words starting with O

Open Position
When a position in a currency pair is held with a view to make a profit but is open to the risk of loss as well.
Over the Counter
The traditional way to trade forex using electronic devices or telephones.
Overnight Position
When a position is held as long as it enters the next trading day.

Definition of words starting with P

Pip
Definition of Pip can be “the smallest unit of an exchange rate to measure profit”. It represents the smallest change in price. Where a price is quoted up to four decimal place, the last figure is known as Pip (Percentage In Point).
Profit Taking
When a position is closed to take profit.

Definition of words starting with Q

Quote Currency
Currencies are quoted in form of a pair. The first currency is called as the base currency and the second currency is known as quote currency. In GBP/JPY for example, JPY is the quote currency.

Definition of words starting with R

Regulated Market
A market which is supervised by respective authorities to protect the interest of all stake holders.
Resistance
The level of a price difficult to break by a currency or stock leading to a declining trend.
Risk Management
Methods and strategies that a trader use to reduce the potential risk to the minimal level.
Rollover Rate
An amount of interest payable by a trader for holding a position overnight.
Round Trip
The sum of funds concerning the opening and closing of a position.

Definition of words starting with S

Slippage
When a trade is executed at an unexpected price at least very different to what is expected by a trader. This usually occurs when the market tends to be highly volatile.
Spike
An abrupt positive or negative movement in price over a short period of time.
Spread
The definition of spread is the amount that broker charge as their commission on each transaction. It is the difference between Bid and Ask price of a currency pair.
Stop Loss Order
An order placed to get a position closed as soon as a specific price is reached. It is done to avoid losses beyond a specific point.

Definition of words starting with T

Take Profit Order (T/P)
An order placed to get a position closed as soon as a specific price is reached. Usually, it is done to make a profit.
Technical Analysis
The interpretation of trading results and price behavior of the market done by traders using trend indicators and charts.

Definition of words starting with V

Volatility
The definition of volatility is the uncertainty level concerning the fluctuation of prices of a specific security or currency pair.

Definition of words starting with Y

Yield
Yield in itself is a word that represents output.