Foreign exchange glossary.

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 EUR/USD pair, the EUR is the base currency, in the USD/JPY, 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.

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.

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.

Technical Analysis:

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

Two-Way Price:

Both a bid and offer are quoted.