Glossary

Our Forex Glossary contains the most commonly used terms in finance and investment.

A
Ask
The price at which the trader is ready to buy the currency. Also known as the offer which is the price at which the seller is willing to sell.

B
Base Currency
The currency is the base for a pair of quotes. For example, in a pair EUR/USD, EUR is the base currency while in the pair USD/JPY the base is USD.
Bear
Market participant who believes that prices will decline and the market will decline. Bear Market
A market in which there is a sharp decline in prices due to general pessimism. (opposite phenomenon - Bull Market (bull market).
Bid
The price at which the trader is willing to sell the currency.
Bid / Ask Spread
- The difference between demand and supply
See also "spread". BOC
Bank of Canada, the Central Bank of Canada.
BOE
The British bank, Central Bank of the United Kingdom.
BOJ
Bank of Japan, Central Bank of Japan.
Broker
An agent who carries out orders of the investor to buy and sell currencies. In the Forex market no commission is charged since the broker makes a profit through spreads.
Bull
Market participants, who believes that prices will rise, and the market will rise.
Bull Market
Market characterized by rising prices.

C
Call Rate
One-day interbank interest rate.
Cash Market
The market for buying and selling real available rates. Central Bank
The body that regulates monetary policy of the country. Convertible Currency
Currency which can be freely exchanged for other currencies or gold without special permission from the appropriate central bank. Cross Rate
The exchange rate between two currencies, usually formed by individual exchange rates of two currencies against the U.S. dollar. Currency Risk
The risk of incurring losses resulting from unfavorable changes in exchange rates. Currency Swap
The contract by which two opposite sides must make some way of exchange of interest payments in different currencies within a specified period of time and to exchange principal amounts in different currencies at a predetermined exchange rate at the time of the maturity date of exchange. Currency Option
Option contract that gives the right to buy or sell a currency for another currency at a specified exchange rate within a specified time.

D
Day Trading Refers to opening and closing the same position or positions within one trading day.

E EC The European Central Bank. EMS Abbreviation phrase "European Monetary System", refers to an agreement between the member countries of the European Union to maintain a certain ratio between the exchange rates of these countries. European Monetary Union The main purpose of the EMU was to create a single European currency called the euro, which would officially replace the national currencies of EU member states in 2002. The current members of EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, Netherlands, Italy, Spain and Portugal.

F Federal Reserve (Fed) Central Bank of the United States of America. Fixed Exchange Rate Official rate set by financial authorities for one or more currencies. In practice, even fixed exchange rates can fluctuate between definite upper and lower limits beyond which leads to the interventions. Floating Rate Interest In contrast to fixed rate, the interest rate on such transactions will vary following the fluctuations in market rates or interest reference rates. One example of a floating interest rate is a standard mortgage. Foreign Exchange (or Forex or FX) The simultaneous buying of one currency and selling of another in the OTC market. Fundamental Analysis Thorough analysis of economic and political nature in order to determine possible future changes in the financial market.

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

H
High / Low - «Hi / Lo" Typically, the highest and the lowest price for a particular financial instrument during the current trading day.

I Initial Margin
The value of the required initial deposit to be made to open a position as a guarantee for transactions in the future.
Interbank Rates
Foreign exchange rates at which large international banks quote other large international banks.

L Limit Order Order to make a purchase at a specified price or cheaper, or to sell at a particular rate or higher.
Long Position Market position where the customer bought the currency he previously did not hold own.

M
Margin Clients must contribute funds as collateral to cover any potential losses that may arise as a result of unfavorable price movements.
Margin Call That is the requirement of a clearing house for its members (or brokerage firms to their client) for additional margin deposits up to the minimum necessary level to cover adverse price movements in the market.
Market Maker The dealer who determines the price and ready to contract for the stated sales and purchase prices.

O
Offer
Price / rate at which the seller is prepared to make a sale.
One Cancels Other Order (OCO Order)
Such an order the execution of one part of which automatically cancels the execution of the other part.
Overnight Trading
Transactions on buying or selling committed between 21:00 of the previous day and 8:00 of the next day.

P
Pip (or Points)
The term is used in the currency market to indicate the minimum possible change in the exchange rate.
Political Risk
Uncertainty about income from investments because of the possibility that the Government may take adverse to the interests of the investor.

R
Risk Capital
The amount of money that the owner can afford to invest anything and the loss of which will not affect his standard of living.
Rollover
Used to describe a situation where the calculation of the transaction is carried forward to another value date with the difference between the rates of two currencies.

S
Settlement
Actual physical exchange of one currency for another.
Spot
The transaction, which takes place immediately, but the transfer of money for which usually occurs within two days after the conclusion of this transaction.
Spread
The difference between the buyers and the sellers prices. Used to describe the liquidity of the market. Smaller bank margin usually means greater liquidity.
Stop Loss Order
Order to sell or buy when the market price reaches a certain level, which may be above or below the price that prevailed in the market at the time of the order.

T
Technical Analysis
An attempt to predict the future situation in the market by analyzing market data such as charts, trends in rates, the number of transactions.

U
US Prime Rate
The rate at which U.S. banks are ready to give loans to their most reliable clients.

V
Value Date
Day of the calculation of the forward transaction or transaction spot.
Variation Margin
Additional margin that the broker requires from a client due to fluctuations in the market.
Volatility
The statistical rate of change of the market and exchange of securities over time. Calculated using the standard deviation. High volatility is associated with a high degree of risk.