Forex Glossary:

The Industry’s Most Important Terms Explained in the simplest way.

The Forex industry is made up of many definitions and it’s easy to forget some of them along the way. But because no forex education can be complete without a glossary of forex terms, we’ve compiled one which aims at explaining key definitions in the simplest way possible. This way, you’ll never be lost or confused again!

Aggregate Risk

Total amount of exposure a bank has with a customer for both spot and forward contracts.

Arbitrage

The simultaneous buying and selling of foreign exchange for the sake of realizing profits from discrepancies between exchange rates prevailing in the market at the same time in different markets.

Ask

The price at which the currency or instrument is offered.

At Best

An instruction given to a dealer to buy or sell at the best rate that is currently available in the market.

Bar Chart

A charting method which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line to the right of the bar.

Buying Selling FX

Buying and selling in the foreign exchange market always happens in the currency which is quoted first. “Buy Dollar/Yen” means buy the dollar/sell the Yen. Traders buy when they expect a currency’s value to rise and sell when they expect a currency to fall.

Bollinger Bands

A quantitative method which combines a moving average with the instrument’s volatility. The bands were designed to gauge whether the prices are high or low on relative basis. They are plotted two standard deviations above and below a simple moving average. The bands look like an expanding and contracting envelope model.

Bid-Offer Spread

The difference between the buy (bid) and sell (offer) price of a currency or financial instrument.

Bid Price

The price at which a buyer is willing to buy. The best bid is the highest such price available (Also see buying rate).

Bear (Bearish)

Trader going short or advocating this action in the expectation of a depreciation of a currency.

Bank Notes

Paper issued by the central bank, redeemable as money and considered to be full legal tender.

Broken Dates

Deals that are undertaken for value dates that are not standard periods e.g. 1 month. The standard periods are 1 week, 2 weeks, 1,2,3,6, and 12 months. Terms also used are odd dates, or cock dates, broken period or broken period.

Bull (Bullish)

Trader going long or advocating this action in the expectation that the currency will appreciate.

Business Day

A day when banks are open for business.

Buying Rate

Rate at which a bank is prepared to buy foreign exchange. Also known as the Bid Rate.

Candlestick Chart

A type of chart which consist of four major prices: high, low, open, close. The body (jittai) of the candlestick bar is formed by the opening and closing prices. To indicate that the opening was lower than the closing, the body of the bar is left blank. If the currency closes below its opening, the body is filled. The rest of the range is marked by two “shadows”: the upper shadow (uwakage) and lower shadow (shitakage).

Carded Rate

Exchange rate quoted by the trading banks each day for small foreign exchange transactions.

Central Bank

A central bank provides financial and banking services for a country’s government and commercial banks. It implements the government’s monetary policy, as well, by changing interest rates.

Chartist

An individual who studies graphs and charts of historic data to find trends and predict trend reversals which include the observance of certain patterns and characteristics of the charts to derive resistance levels, head and shoulders patterns, and double bottom or double top patterns which are thought to indicate trend reversals.

Closed Position

A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.

Currency Pair

The two currencies that are involved in the exchange transaction.

Cleared Funds

Funds that is immediately available to you for settlement of a transaction.

Confirmation

The written document or email confirming the foreign exchange deal between two parties.

Contract Rate

The agreed exchange rate at which the currency pair may be exchanged on the settlement date.

Cross-Rate

The exchange rate between two currencies, e.g., USD/NZD.

Currency

The type of money that a country uses. It can be traded for other currencies on the foreign exchange market, so each currency has a value relative to another.