Forex, Stocks & Financial Glossary
Forex is Foreign Exchange or International Currency Trading
The following 3 pages are more than a Forex Glossary. Use them as a lexicon or dictionary to find abbreviations, acronyms, definitions, technical words, phrases, terms, jargon, lingo and slang used in stock broking and foreign currency trading, banks, fund managers, dealers, brokers, analysts, commentators, gurus, experts and financial market traders. There's also some background history concerning origins.
Do you know what CHF, GBP, JPY and XAU stand for? Or why names like cable, kiwi, loonie and pip are used? What is 'spread' and what are 'candlesticks' for? Define an ETF. What is 'currency' or 'binary options'? See below for explanations and origins of these terms.
'CURRENCY' is the paper money (notes, bills or coins) issued by the government or central bank of a particular country. It is the legal medium of exchange and trade for that country. Many world currencies can be exchanged between foreign countries for trade or other purposes. Foreign currency exchange is what Forex is all about. See more currency-related terms in the alphabetical dictionary below. You will also find on the side panels books, free courses and other offers we recommend.
You can also visit our Forex Introduction Stock Trading and Options Trading pages to get some idea of how the money markets and online trading work.
As with many other trades, professions and interest groups, a sub-language, slang or jargon evolves over time. Terminology, definitions, abbreviations, acronyms, technical words and expressions are usually made up or taken from similarly related disciplines. The word 'forex' is itself an example, being a contraction of 'foreign exchange'.
Forex brokers, dealers, commentators and traders use many of the same words and phrases that have become the jargon of the 'money business' – banking, finance, currency and stock market trading. Additionally there are nicknames for both currencies and currency pairs. The origins of some of these terms are sometimes uncertain. We include some possible derivations because we at Retire-Asia are active forex enthusiasts too. Some of these explanations are interesting or amusing and we add them as we find them. Bookmark (Ctrl+D) this page for future reference if you like it!
If you're reading this page on your mobile phone, you can trade forex too! Go to Page 2 and see Mobile Forex Trading or visit the FXCC site for a free account.
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Appreciation
A strengthening of a currency's price in response to market demand. See Depreciation.
Arbitrage
The sale or purchase of a financial instrument, at the same time taking of an equal and opposite position in a related market to take advantage of small price differentials between those markets.
Around
Term used by dealers used when the forward premium/discount is near parity e.g. "three-three around" means 3 pips either side of the current spot price.
Asset Allocation
An investment diversification practice for risk management purposes which divides funds among different markets in relation to an investor's objectives.
Ask Price
The price at which a bank, dealer or trader is willing to sell the first-named of a currency pair. e.g. for the GBP/USD this is selling GBP by buying USD. See Offer Price or Bid.
AutoTrader
A semi or fully automated forex trading software program that requires little user intervention after setting up trades. Also called an Autopilot, Robot or EA. Learn more about forex robots.
Back Office
'Behind-the-scenes' administration of a brokerage or trading floor involved in the settlement of financial transactions.
Balance of Trade
This is the value of a country's exports minus its imports and one of the many factors affecting market prices when reports are released.
Bar, Line Chart
Many types of chart are used in Technical Analysis show current prices and the historical price movement of a currency pair, from seconds, minutes or hours right up to weeks, months and years. Bar and line charts basically show by divisions of time, the high and low prices of a currency pair, as well as the opening and closing prices. There are more complex charts including Candlestick. Various lines can be added to charts to show a variety of other indicators like strength, volume, trend and more.
Base Currency
The first-named of a tradable currency pair or the currency in which an investor or issuer maintains its book of accounts. In the forex markets, the US Dollar is normally considered the 'base' currency for quotes i.e. quotes are expressed as a unit of 1 USD per the other currency in the pair. Main exceptions to this rule are the British Pound, the Euro and the Australian Dollar. For example the GBP is the base currency of the GBP/USD pair. The second name in the pair may be referred to as the terms, quote, pip or counter currency and is valued (rated) against the base. If the GBP/USD rate is 1.9650, 1 pound is worth 1.9650 dollars. Outside forex trading, exchange rates may be quoted differently. In our example above, the dollar/pound rate could also be shown as 0.5089 (1/1.9650); $1.00 = £0.51 (51p) or £1.00 = $1.96. The actual value is the same in all cases. See also Lot Size below.
Bear
A Bear is an investor who believes that the prices in the market will decline. A Bear Market is one where prices are falling (e.g. if the GBP/USD rate is dropping). If the decline is expected to continue, the market would be 'bearish'. 'Bear' dates back London stock traders of the 1700s. It may stem from the adage "Don't sell the bearskin before you've caught the bear." This is roughly equivalent to "Don't count your chickens before they're hatched." which is what stock market 'bears' do. Anticipating declining market prices, they sell stock or currency they don't own yet, gambling that the price will fall by the time they actually have to buy it or deliver it, for a large profit.
Bid or Bid Rate
The current price at which a broker/dealer is willing to buy the first-named of a currency pair. e.g. buying GBP/USD means buying Pounds and simultaneously selling Dollars. See Ask Price.
Bid/Ask Spread (or Spread)
The difference in price in 'pips', between the Bid and Ask or Offer price, the amount being used to measure market liquidity. See Pips. This is how brokers make money on every trade entered instead of charging commission.
Big Figure
The first (main) digits of an exchange rate. Because these rarely change in normal market fluctuations they may be omitted verbally in dealer quotes when market activity is high. e.g. if the USD/JPY rate was 107.40/107.45, it might be quoted as simply '40/45'.
Binary Options
Also known as Fixed Return Options (FRO) or Digital Options (they are made online) binary options have only two possible outcomes: the forecast is either correct or incorrect. The trader decides how much to invest in the option; there is no fixed price, only a fixed return.
Book - 'The book' is the summary of a trader's or desk's total positions.
Bottom
A market bottom is an area where prices in a decline encountered heavy support, were unable to progress any lower, and either reversed (i.e. went into a bull trend) or consolidated (traded sideways).
Bretton Woods Agreement
The United Nations Monetary and Financial Conference agreement signed in Bretton Woods, New Hampshire in 1944. It established the International Monetary Fund and fixed exchange rates for major currencies, providing for central bank intervention in the currency markets, and also pegging the price of gold at US$35 per ounce. In 1971, US President Nixon annulled the Bretton Woods Agreement, allowing for floating exchange rates for major currencies and also letting US citizens purchase gold once more.
Broker
An individual or company that acts as an intermediary, putting together buyers and sellers for a fee or commission. A Broker is a 'middle man' (sometimes a bank) acting as a 'negotiator' for both customer (the trader) and supplier (the main market players like commercial or national banks and financial institutions. Bearing in mind that forex lots are typically $100,000 small investors need brokers to manage their online trades and trading account. Where trades are small or happen quickly, certain brokers handle the buying and selling 'in house'. This is more likely to be the case with 'mini' or 'demo' accounts. Although price changes are claimed to be the same as 'the market' it is possible that some brokers may delay or otherwise manipulate prices using their proprietary software to end a trade when it may be more advantageous to themselves than their customers. Choosing a reputable bank or broker is an important aspect of successful forex trading. XTrade is a reliable broker for all of today's popular trading instruments.
Broker Affiliate, Partner or Introducer
A trader or other individual who is paid by a broker or dealer to refer new clients. Commission can be earned from introducing new accounts or a percentage of the profit from trades made through these new trading accounts or by promoting trading courses and tools. Learn more.
Bull
A Bull is someone who believes that market prices will rise. This person would be considered Bullish. A Bull Market is a market where prices are rising. If the advance is expected to continue, the market would be described as 'bullish'. A bull is an aggressive animal when provoked; it tosses its head upwards before it charges. Similar in nature to a snarling lion. The forex market has also been referred to as 'lion country'; one should never enter lion country unarmed – even if only while bird watching! Learn more.
Bundesbank - Germany's Central Bank.
Cable
A term used for the GBP/USD currency pair rate (British Pound vs. the US Dollar). It refers to the Atlantic Cable, a steel cable laid under the Atlantic Ocean in 1850, telegraphically linking the UK with the USA, enabling messages with currency prices to be transmitted between the London and New York Exchanges. Fibre optic cables and satellites have now taken over for both local and international communications. See more Currency Names and Pairs below.
Candlestick Chart
A more informative form of bar chart showing price movement using blocks of different colours or shades called 'sticks' and extended lines above and below them called 'candles'. The top of the candle shows the highest price for the chart division and lower one the lowest price. The colour of the stick and the lengths of both sticks and candles indicate the strength or size of the price movement. In colour displays, red sticks indicate a lower closing than opening price, and green indicates the price is rising. Learn more about a 'crash course' in Candlestick charting.
Central Bank - A government or quasi-government organisation that manages a country's monetary policy. In the US it is the Federal Reserve, the British equivalent is the Bank of England and the German is the Bundesbank.
CFDs - see Contracts for Difference
Clearing - The process of settling a completed trade.
Collateral - an asset offered to secure a loan or as a guarantee of performance.
Commission - a fee charged or received by a bank, dealer, broker or other party as payment for a service. Can be a fixed amount or a percentage of the value of the transaction.
Contagion
The contagious spreading of an economic crisis from one market to another. In Indonesia in 1997, high volatility of the Rupiah caused by political instability began an economic meltdown and devaluation of emerging currencies, affecting many other countries including Thailand. The 'infection' now known as the 'Asian Contagion' then spread to Latin America.
Contracts for Difference are contracts between a "buyer" and a "seller", where the seller pays to the buyer the difference between the current value of an asset (forex, shares, commodities or indices) and its value at contract time. If the difference is negative, the buyer pays the seller). CFDs are financial derivatives that allow traders to take advantage of prices moving up or down (long or short positions) on various instruments and are often used to speculate on financial markets. Similar in some respects to Options but easier to learn how to trade successfully.
Correction
A term used in technical analysis. When a market moves strongly in one direction and then pulls back, it is referred to as a correction which commonly occurs in a bull (up) or bear (down) trend). It is often sharper (occurs more quickly) than the preceding move. Corrections are a component of an overriding trend up or down and not considered as a reversal of the trend. A correction usually strengthens the foundations of the trend to continue and sustain further gains (or losses) in the short term such as the days or weeks ahead.
Consolidation
In technical analysis, it relates to a condition when the rates are moving in a sideways motion usually encountered after a market top or bottom.
Counter Currency
The second named currency in a pair; also called Terms Currency. The first named is the Base currency. In the GBP/USD pair, for example, the dollar is the counter currency.
Cross Rate
From a US perspective, this refers to a pair of 'foreign' currencies e.g. GBP/JPY, EUR/GBP or 'minors' and 'exotics' (pairs less traded than the 'majors'). However in the respective countries these pairs would be considered as primary currency pairs.
Currency - Any form of money in current use issued by a government or central bank as legal tender and a basis for trade.
Currency Codes (ISO)
Currencies, precious metals and other 'trading instruments' all have three-letter international identification known as an ISO code (International Organization for Standardisation). Here is a currency table of both obsolete and current ISO codes for every country and currency instrument in the world.
Currency Names, Slang and Nicknames
Sterling or Pound refer to the GBP – Great Britain Pound. 'Pound Sterling' (sterling silver is almost pure) dates back to 1158; from the Old French esterlin (strong, firm, immovable). Kiwi is the NZD (New Zealand Dollar) named after the national bird; Aussie AUD (Australian Dollar); Swissie for the CHF or Swiss Federation franc (Confederation Helvetia Franc); Loonie (or Little Dollar) for the Canadian Dollar (CAD), also a bird; Euro was the logical if uninspiring name given to the new currency of the European Union (EUR), replacing centuries-old names like the German Deutschemark, French and Belgian franc, Italian lira, Dutch guilder or florin, Spanish peseta, Portuguese escudo, Scandinavian krona, Irish punt and others now of interest only to currency note collectors and historians. The British pound and Swiss franc manage to survive.
Currency Pairs and their Nicknames
'Cable' (see above for the origin) refers to the GBP/USD currency pair. The slash can also be omitted from pairs e.g. GBPUSD. Other nicknames include 'Aussie Dollar' (AUD/USD) 'Dollar Canada' (USD/CAD), 'Chunnel' (EUR/GBP) refers to the English Channel Tunnel linking England and France by rail, 'Fiber' (optic cable) is the EUR/USD and the GBP/JPY may be called the 'Geppy'. There are lesser-known nicknames too.
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