Commonly Used Forex Terms
Know the Language
In Currency Trading, traders often use technical language that can be intimidating when you're just starting out. When you see a word you don't understand, you should refer to this page. As you familiarize yourself with the language, you'll find that your understanding of Forex concepts as a whole will improve.
A record of transactions of goods and services owed to one person by another.
An intermediary or person hired to carry out transactions on behalf of another person.
Total demand in an economy, consisting of government spending, private/consumer and business investment.
Refers to requests for a broker to fill an order completely at a predetermined price or not at all. Refers to both buy and sell orders.
An option that can be exercised anytime during its life. The majority of exchange-traded options are American.
Visible bids and offers on the market without the identity of the bidder and seller being revealed. Anonymous trades allow the high profile investors to execute transactions without the scrutiny and speculation of the market.
An increase in the value of a currency in response to market demand.
When a price differential arises, creating an opportunity to profit through buying and selling. Arbitrage is a "riskless" opportunity to profit, as there is no uncertainty involved. In regards to the foreign exchange market, arbitrage arises when a profit can be made through differentials in exchange rates. Arbitrage opportunities in the foreign exchange market are rare.
An option whose payoff depends on the average price of the underlying asset over a certain period of time. These types of option contracts are attractive because they tend to cost less than regular American options
The lowest price that shares will be offered for sale, such as the bid/ask spread in the foreign exchange market.
The number of shares a seller is willing to sell at his/her ask rate.
The diversification of one's assets into different sectors, such as real estate, stocks, bonds, and forex, to optimize growth potential and minimize risk.
An interest rate swap used to alter the cash flow characteristics of an institution's assets in order to provide a better match with its liabilities.
A person given the right or authority to act on behalf of another to carryout business transactions and implement documents.
A procedure implemented to protect an option holder where the Option Clearing Corporation will automatically exercise an "in the money" option for the holder.
When the bid on an order is lower (or the ask price is higher) than the current market price for the security.
Be aware that trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.