Many trades, professions and interest groups have a sub-language, slang or jargon that evolves over time. Terminology, definitions, abbreviations, acronyms, technical words and expressions are usually made up or taken from similarly related disciplines.
Daytraders try to make money by buying and selling stocks or currency pairs which have significant price changes during the day. The forex market is mainly day trading too, although positions can be held overnight. No Delivery of currency actually takes place.
While a broker is technically an intermediary representing both buyer and seller, a dealer risks capital to take one side of a position in order to make a profit (spread) by 'closing out' that position in a subsequent trade with another party. There are different types of broker and not all are suitable for beginner traders. Retail Market Makers are probably the best type to deal with.
Delivery - A forex trade where each side either makes or receives actual delivery of the currencies traded.
A weakening or reduction of a currency, caused by lower market demand. See Appreciation.
A contract that changes its value in relation to price movements of a related security, future or other financial instrument. Options are the most common form of derivative.
Devaluation is an intentional downward adjustment of a currency's value against others, normally announced by a government spokesman or the head of the country's central bank.
Diversification refers to a stocks and shares portfolio. It's considered wise practice to invest in a range of instruments or areas of business, commodities etc. as a way of reducing risk. However, in today's markets this may not provide the safety a trader expects.
Drawdown is the amount of the decline in value of a forex trading account, expressed either in dollars or as a percentage, between its highest and lowest points. If, for example, the account was opened with $10,000 which first built up $20,000, then dropped to $15,000, then increased again to $25,000, the maximum drawdown was $5,000 (when it fell from $20,000 to $15,000) even though the account was never actually below its starting value.
The European Central Bank is the managing body for the 'euro area' which now includes 15 countries. The twelve original member states who began using the Euro as currency in 2002 are Austria, Belgium, Finland, France, Greece, Ireland, Italy, Luxembourg, Germany, the Netherlands (Holland), Portugal and Spain. More recently Cyprus, Malta and Slovenia have joined, but so far not the United Kingdom which retains its Pound (GBP).
The ECB's primary objective is to maintain currency stability, aiming at inflation rates of around or less than 2% over the medium term. The 'Euro area' in terms of population is actually greater than the United States which is the world's largest economy. Europe is next, then Japan. Based in Frankfurt, Germany the ECB controls European interest rates and monetary policy. Jean-Claude Trichet a former Banque de France governor has headed the ECB since 2003. The first was Wim Duisenberg, previously head of the Dutch Central Bank.
ECN Forex Broker
ECN stands for Electronic Communication Network, one that provides forex traders with direct access to other market participants, both retail and institutional. Advantages can be lower or no price spread (commission is charged instead), without broker manipulation or interference in quoted prices which come from the interbank market; no "stop-loss hunting" and anti-scalping policy. Buy and sell orders are matched automatically at specified prices instead of going through (and possibly manipulated by) a broker or market-maker. Account size minima usually apply. ECN brokerage accounts are preferred by more experienced forex traders. A popular ECN broker is FXOpen but US residents cannot open an account.
Regularly issued government-issued statistics indicating current economic growth and stability. Common indicators include Gross Domestic Product (GDP), employment rates, inflation, retail sales, etc. If they are not in accordance with expectations, they can have a sudden effect on market prices for shares, currencies and commodities and many traders rely on these.
Exchange Rate Risk
The exposure/potential loss a company faces from a movement in exchange rates.
Exchange-Traded Funds or ETFs
An ETF (Exchange-Traded Fund) is a fund which tracks a selection or 'basket' of related securities within a stock market index such as the S&P 500, NASDAQ or FTSE and which can be traded on an exchange like a stock or share. Learn how to trade ETFs profitably. ETFs can be used to boost an IRA too.
Apart from the 'Majors' (the most traded currency pairs), there other currency pairs like the Danish Krone, Mexican Peso and Russian Rouble which are known as 'exotic' currencies. As these pairs are traded in lower volumes by fewer buyers and sellers, they usually have a wider Pip Spread than the Majors.
Federal Deposit Insurance Corporation (FDIC) is the regulatory agency responsible for the administration of bank depository insurance in the United States. Most bank accounts in the US are FDIC-insured to $250,000.
Commonly referred to as 'the Fed', this is the Central Bank which controls the USA's monetary policy. Formerly headed by Alan Greenspan, Ben Bernanke has been Chairman of the Board of Governors of the US Federal Reserve since February 2006.
The Federal Open Market Committee. The monetary policy making and tactical arm of the Federal Reserve. This is the committee which sets US interest rates.
Footsie - see FTSE
A contraction or abbreviation of 'foreign exchange' – foreign currency trading.
Forex Affiliates are people (including market traders) who earn extra income and/or reduce their trading losses by affiliating or partnering with forex and stock market product publishers to sell on commission with virtually no outlay or risk of loss. Learn more here.
Forex Robots, Autotraders, Autopilots
These are programs that work on a trading platform such as MetaTrader 4 to place trades automatically when certain criteria are met. Robots cost from under $100 to several thousand.
The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved. Forwards are considered Over-The-Counter (OTC) contracts which include any contract NOT traded on an exchange.
The pips added to or subtracted from the current exchange rate to calculate the forward price. Different countries have differing interest rates. When buying one currency against another for delivery at a future date, the bank or broker will adjust the spot (immediate delivery) price to take this variation into account. The sale of a low yielding currency (in a low interest-rate economy) and the purchase of a high yielding one will be reflected in a higher net price than the spot rate. This is described as 'points on' for the forward adjustment and 'points off' for a reversal.
FTSE or Footsie
A British company (not part of a stock exchange) owned by the Financial Times newspaper and the London Stock Exchange that specialises in a constantly updated index calculation e.g. the FTSE 100, created in 1984 with a base of 1,000 and containing the 100 largest UK companies by market capitalisation.
Analysis or forecasting of currencies, stocks or economies based on economic and political factors and events.
Futures Contract Trading
A standardised, transferable, exchange-traded contract that requires delivery of a commodity, bond, currency lot or stock index, at a specified price, at a specified future date. Learn more about futures day trading.
Gann Trading W.D. Gann is considered by some to be the greatest trader of all time. There's little doubt his analysis of market cycles and price behaviour is without equal. Gann is believed to have profited by over 50 million dollars trading all the markets. Learn more.
Good Till Cancelled Order (GTC) is an order to buy or sell at a specified price. The order remains open until filled or until the client cancels.
Hedging and Forward Contracts
A hedging transaction is one that protects an asset or liability against fluctuation in the foreign exchange rates. For commercial forex deals the most popular hedging tool is a Forward Contract. A forward contract allows a company to lock in a rate of exchange based on today's spot price (with an adjustment for the 'forward points') for a future date when they need to buy or sell a foreign currency.
Collection(s) of stocks whose value is a benchmark for the overall movement of a particular type of stock or other financial instrument. Although 'indexes' is also used today, the plural of index is indices, pronounced 'inda-sees', and examples are S&P (International), Dow Jones (New York), FTSE (London), Hang Seng (Hong Kong), Nikkei (Tokyo) and CAC 40 (Paris).
Inflation is a national economic condition in which prices for consumer goods rise, making currency have less purchasing power than previously.
Initial margin is the initial deposit of collateral required to enter into a trade position as a guarantee on future performance.
The rates banks and brokers quote other banks and brokers for trades between banks (interbank). In reality the true market price. The prices quoted for transactions in excess of GBP500,000 or equivalent.
ISO is the short name (not acronym) for the International Organization for Standardization.
K or kilo is from the Greek khilioi meaning thousand. M or mega from megos (great) is now used to describe a million. Apart from currencies, K, M, G and T are also used for 'bytes' of computer data or hard drive capacity; G (giga) is from the Latin gigas (huge) and now means a thousand million. T stands for tera (Greek teras 'monster') and is one million million (1,000,000,000,000) in case you're getting confused!
Learn To Trade Markets is an 800 page best-selling ebook that is almost essential to have in your forex trading 'library'. $97 includes two months free subscription to the Technical Trader Hot Sheet which is published twice a month.
'Let Your Profits Run' is a saying often quoted. Traders and investors often tend to sell their winning positions too early. They cash in, fearing the market will change direction and they will lose what they have already gained. Conversely they also tend to hold on to losing positions for too long, in the hope that they will turn around. The key is to not panic in times when volatility increases. Stick to your plan and maintain your convictions about why you entered into that trade. However, cutting losses before they become substantial is a key part of implementing this strategy. A self directed IRA allows for a variety of investment options. You can use a self directed IRA to invest in real estate, gold, precious metals, and more. Successful investors can lose over half the time as long as losses are not allowed to compound. Giving profitable trades room to continue their upward climb takes a tremendous amount of courage but will likely pay off in the future. Learn about this and much more here.
The amount by which the amount to be traded exceeds the margin required to trade. It can be expressed as a ratio or a multiple. For example, if the notional amount traded (also referred to as 'lot size' or 'contract value') is US$100,000 and the required margin is $2,000, the trader can trade with 50 times leverage ($100,000/$2,000) or 50:1, up to 400:1. See Margin, Overleverage.
LIBOR - The London Inter-Bank Offered Rate. British banks use LIBOR when borrowing from other banks.
An order to buy or sell one currency against another when a predetermined price is reached. It is lodged with a broker and floats 24 hours a day until either cancelled or reached. It is used to try and achieve a very favourable price at the very top or bottom of a range. It is free of charge to use and provides an excellent vehicle for companies to attempt to buy or sell their currencies at the best point in a range (without having to constantly monitor the prices and keep calling the broker for prices).
A function of volume and activity in a market. It is the efficiency and cost effectiveness with which positions can be traded and orders executed. A more liquid market will provide more frequent price quotes at a smaller bid/ask spread.
Long position - a trade position that appreciates in value if the market price increases.
Currencies are traded in 'lots'. A standard lot is 100,000 units of the base currency. e.g. with USD as the base (first-named) currency, a lot is worth $100,000. For the GBP/USD pair a lot is £100,000 (currently about $150,000). 'Mini' account trade lots are typically one tenth of standard: 10,000 units. Even smaller trades can now be placed with some brokers at a tiny fraction of the standard lot size. Using leverage a trader can enter positions with a relatively small amount of capital. A minimum of $5,000 is usually recommended for opening a standard forex trading account. A 'Mini' or 'Micro' account can be opened with as little as $50, but $500 will give a lot more flexibility. Trading values are obviously much lower, as will be profits or losses – a good way for forex beginners to begin live trading!
These are the most popular currency pairs available for trading and include EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD and AUD/USD. Less traded pairs are known as 'Exotics'.
The minimum amount of funds required in a trader's brokerage account in order to open a position (enter a trade) or to maintain an open position. See Leverage. More detail.
A warning by the broker of the impending (or automatic) closing of a position if the margin falls below the required minimum during a trade. More funds will need to be transferred to your trading account to keep a position open or being able to enter further trades.
MarketClub is a highly successful stock picking and forex advisory service, with many resources including phone and email support. You can learn more here.
Market Maker is a dealer who regularly quotes both bid and ask prices, and is willing to make a two-sided market for any financial instrument.
An order to a broker to buy a currency lot or stock at the current Ask price.
Market Risk is exposure to changes in market prices.
Mark-to-Market is the process of re-evaluating all open positions with the current market prices. The new values determine revised margin requirements.
Martingale System is basically doubling the stake on a losing bet. Now used in forex, especially automated trading with robots, where variations may be employed. Martingale dates back to a gambling practice in the 18th century where a gambler would use the original stake while winning, but double it if he lost, and do this several times if there was a run of losses. The odds are that a win will wipe out previous losses and he would bet the original stake again. However, it is considered as extremely risky to trade forex this way, especially on a small account which could be wiped out before losses are recovered.
Maturity - The date for settlement or expiry of a financial instrument.
MetaTrader (MT4) – the most popular trading platform for forex robots (EAs - expert advisors). Available free from the publisher or various customised versions supplied by brokers. Many features, best learned from a video course called Master Metatrader in 90 Minutes.
Mobile Forex Trading
At last it's possible to trade forex from your mobile phone, wherever you can connect to the internet. Open a free account with Finexo, then use their web-based PC or mobile trading platforms (no download required). You can trade live with a $25 credit card deposit.
Generally associated with the setting of interest rate levels in an economy to try and stimulate or stifle borrowing and thus control consumer demand/spending. Conventional wisdom states that if interest rates move in an upward direction in one nation (under normal economic circumstances) then the currency in that nation should move up in value against foreign currencies.
When you consider investing in gold and silver for your retirement account,you should know that there are a lot of companies competing for your money.However,you shouldn't decide only after reading reviews of the best gold IRA companies if you want to avoid the pitfalls of such kind of investments,finding unbiased reviews to decide on a reliable gold ira company is by no means your primary step to guarantee a safe and profitable retirement future with gold and precious metals. The rationale is that the rate of return on interest bearing deposits become more attractive and the foreign demand for that currency should increase.
The Monetary Policy Committee of the Bank of England (the UK's Central Bank) is responsible for setting interest rates in the United Kingdom.
MT4 Trading Simulator Pro is a Metatrader add-on, which helps traders to master their trading skills on simulated Forex market. Learn more about MT4 Trading Simulator Pro.
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