Foreign exchange glossary

Below are some of the terms used in the interpretation and analysis of Foreign Exchange (FX).

View a glossary of financial markets.

A - E

Ask 

Also known as the offer, it's the price a seller is willing to sell at. 

Base Currency 

The currency used as the base to quote a pair. For instance in the EURUSD pair, the EUR is the base currency, in the USDJPY, the USD is the base.

Bear 

Someone who believes the prices/market will decline. 

Bear Market 

A market in which prices decline sharply against a background of widespread pessimism (opposite of Bull Market). 

Bid 

The price at which a trader will buy a currency. 

Bid/Ask Spread 

See 'Spread' 

Broker 

An agent who handles investors' orders to buy and sell currency.

Bull Market 

A market characterised by rising prices. 

Cable 

Dealers slang for the Sterling/US Dollar exchange rate.

Call Rate 

The overnight interbank interest rate. 

Cash Market 

The market for the purchase and sale of physical currencies. 

Central Bank 

The institution that manages a country's monetary policy. 

Counterparty

The customer or bank with whom a deal is made. The term is also used in interest and currency swaps markets to refer to a participant in a swap exchange. 

Cross Rate 

An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, measured against the United States dollar. 

Currency Option 

Option contract which gives the right to buy or sell a currency with another currency at a specified exchange rate during a specified period. 

Day Trading 

Refers to opening and closing the same position or positions within one day. 

 

F - M

Federal Reserve (Fed) 

The Central Bank of the United States. 

Flat / Square 

To be neither long nor short is the same as to be flat or square. One would have a flat book if he has no positions or if all the positions cancel each other out. 

Floating Rate Interest 

As opposed to a fixed rate, the interest rate on this type of deal will fluctuate with market rates or benchmark rates. 

Foreign Exchange Swap 

Transaction which involves the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed at the time of the conclusion of the contract and again at a date further in the future at a rate agreed at the time of the contract. 

Forward 

A forward is an agreement with us to exchange one currency for another on an agreed date in the future, at an agreed exchange rate.

Fundamental Analysis 

Analysis of economic and political data with the goal of determining future movements in a financial market.

GTC

"Good Till Cancelled". An order left with a Dealer to buy or sell at a fixed price. The order remains in place until it is cancelled by the client.

Hedging

The practice of undertaking one investment activity in order to protect against loss in another, e.g. selling short to nullify a previous purchase, or buying long to offset a previous short sale. While hedges reduce potential losses, they also tend to reduce potential profits.

High/Low

Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.

Initial Margin

The required initial deposit of collateral to enter into a position as a guarantee of future performance.

Interbank Rates

The foreign exchange rates at which large international banks quote other large international banks.

Limit Order

An order to buy at or below a specified price or to sell at or above a specified price.

Long Position

A market position where the client has bought a currency he/she previously did not hold/ own. 

Margin

The amount a customer must deposit as collateral to cover any potential losses from adverse movements in prices.

Margin Call

A demand for additional funds. A requirement by a clearing house that a clearing member brings margin deposits up to a required minimum level to cover an adverse movement in price in the market.

N - S

Offer

The price, or rate, that a willing seller is prepared to sell at.

One Cancels Other Order (O.C.O. Order)

A contingent order where the execution of one part of the order automatically cancels the other part.

Over The Counter (OTC)

Used to describe any transaction that is not conducted over an exchange.

Pip (or Points)

The term used in currency market to represent the smallest incremental move an exchange rate can make. For example 0.0001 in the case of EUR/USD, GBD/USD, USD/CHF, NZD/USD and .01 in the case of USD/JPY.

Resistance

A price level at which you would expect selling to take place.

Rollover

Where the settlement of a deal is rolled forward to another value date

Settlement

For spot foreign exchange trades it is the actual physical exchange of one currency for another.

Short

To go 'short' is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit.

Spot

A transaction that occurs immediately, but for foreign exchange transactions the funds will usually change hands within two days after deal is struck.

Spread

The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity.

Stop Loss Order

An order to buy or sell at the market when a particular price is reached.

Support Levels

A price level at which you would expect buying to take place.

 

T - Z

Technical Analysis

An effort to forecast future market activity by analyzing market data such as charts, price trends, and volume.

Two-Way Price

Both a bid and offer are quoted.