Forex jargon for "newbies"

[ilearn2t]

Forex Jargon:

Back Testing: The process of designing a trading strategy based on historical data.

Balance: The net value of an account.

Bank for International Settlements (BIS): An international organization which fosters monetary and financial cooperation and serves as a bank for central banks. The BIS often acts as an agent in the forex market, allowing central banks to mask their identity in an attempt to dampen market impact.

Base Currency: The base currency is the currency in which an investor or issuer maintains its book of accounts. In forex, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.

Bear Market: Any market that shows a declining trend.

Bid: A buy order placed at or below the market.

Bid/Ask Spread: The difference between the bid and the ask price.

Buba: The market nickname for the Bundesbank, Germany�s inflation-obsessed central bank.

Bull Market: A market where prices are rising or are expected to rise.

Cable: Nickname for GBP/USD.

Central Bank: A banking organization, usually independent of government, responsible for implementing a country's monetary policy and for printing money.

Commission: A fee charged by broker or agent for carrying out transactions/orders.

Currency Pair: Currencies are quoted in pairs, such as EUR/USD or USD/JPY. The first listed currency is known as the base currency, while the second is called the counter or quote currency.

Delta: The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative. Sometimes referred to as the �hedge ratio�. Thanks to Investopia.com

Eurogroup: A group of finance ministers of countries who are members of the euro.

European Central Bank: The central bank of the EMU, responsible for the monetary policy of all member countries.

Fed: Federal Reserve central bank of the United States, responsible for monetary policy.

Fiber: EURO The "paper" used for Euro banknotes and has 100% pure cotton "fibre".

Fibonacci retracements: A useful tool for traders as markets correct during trends. Technicians look for support on pullbacks at 38.2% of the uptrend or rebounds in an downtrend, 50% and 61.8%.

Foreign Exchange (Forex): The buying and selling of currencies.

Fundamental Analysis: The analysis of economic indicators and political and current events that could effect the future direction of financial markets.
Funds: Market nickname for the USD/CAD currency pair.

Hedge/Hedging: Strategy to reduce the risk of adverse price movements on one's portfolio and to protect against the volatility of the market. Hedging typically involves selling the good forward or taking a position in a related security. Hedging becomes more prevalent with increased uncertainty about current market conditions.

Loonie: Nickname for the Canadian dollar. ( bird on Canadian coin) (Not myself)

Offer: A sell order places at or above the market price.

Old Lady: A nickname for the Bank of England.

Open Order: An order to buy or sell that remains valid until it is executed or canceled by the customer. An order that is executed when the price of a share or currency reaches a predetermined price.

Pip (Point): The smallest amount an exchange rate can move, typically .0001.

Prime brokers: Firms which allow clients like hedge funds to use their credit facilities to access financial markets.

Quantitative ease: A strategy used by central banks once targeting short-term interest rates becomes ineffective because rates have reached zero (or close to it). The central bank buys assets, typically government bonds, in an effort to inject money into the economy.

Resistance: A price level at which most investors expect prices to decline further. A price at which there is sufficient supply to turn a previously uptrend downward. With regards to the forex market, it is the level at which a currency cannot rise above.

Stop-loss: An order which closes out a market position once a certain price level trades in the market. For example, a sell order placed below the market price to protect against accelerating losses.

Sovereign wealth fund (SWF): A fund set up by a country with large foreign exchange reserves to help manage those reserves. Typically SWFs purchase long-term securities to try and enhance investment returns beyond what central banks typically earn holding government debt. Examples include the Government of Singapore Investment Company and the Abu Dhabi Investment Authority.

Support: A price level at which there is sufficient demand to turn a downtrend up.

Tick: A minimum price movement.

Yard: Term for a billion JPY.

[lizerzoltan]

a great topic for beginners. as always, very helpful
i suggest you keep editing and adding things so, they can be a one stop help.
i suggest adding things like: trailing stop, limit buy, limit sell, buy stop, sell stop, swap, equity, margin, etc...

[ilearn2t]

a great topic for beginners. as always, very helpful
i suggest you keep editing and adding things so, they can be a one stop help.
i suggest adding things like: trailing stop, limit buy, limit sell, buy stop, sell stop, swap, equity, margin, etc...

Hello lizerzoltan

Buy stop: an order to open a Buy position at a price higher than the price at the moment of placing the order. It is triggered when the market price touches or goes through the buy stop price.

Equity: The total cash value of an account, including the amount of profit or loss that would be incurred if the existing positions were liquidated at the current settlement price.

Limit orders: Indicates that you want to buy or sell a given currency at a specific price or better. Limit orders can be placed to both buy and sell. Usually this type of order is used when price is more important than time.

Margin: This is the amount of equity that must be maintained in a trading account to keep a position open. It acts as a good faith deposit by the trader to ensure against trading losses. A margin account allows customers to open positions with higher value than the amount of funds they have deposited in their account.

Sell stop: an order to open a Sell position at a price lower than the price at the moment of placing the order. It is triggered when the market price touches or goes through the sell stop price.

Swap: Once a foreign exchange transaction settles, the holder is left with a positive (or long) position in one currency, and a negative (or short) position in another. In order to collect or pay any overnight interest due on these foreign balances, at the end of every day institutions will close out any foreign balances and re-institute them for the following day.

Trailing stop: Is used to lock in profits. If the price keeps increasing and the position becomes even more profitable, the trader may move his or her trailing stop up yet again, thereby "locking in" more profits.

[lizerzoltan]

great Paul! what i tried to suggest that you might edit these and some upcoming definitions into the opening post, thus all will be there

[Norlac]

This is just the perfect start for newbie. The knowledge on all the forex glossary and abbreviations is the solid foundation for good performances and result ahead.

[Totom]

adding leverage and margin call is a good idea i think..

[danrage]

Leverage: indicates the amount you are borrowing from the broker to place the order. For instance, with a 100:1 leverage you are paying 1% and borrowing the remaining 99% of the amount to trade from your broker.

Drawdown: The magnitude of a decline in account value, either in percentage or dollar terms, as measured from peak to subsequent trough

Trend: direction of market which has been established with influence of different factors.

Margin Call: when the broker/dealer request additional collateral to guarantee performance on a position that has moved against the investor.

[ilearn2t]

Liquidation: is the process by which a company (or part of a company) is brought to an end, and the assets and property of the company redistributed. Liquidation can also be referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation. The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.

It may either be compulsory (sometimes referred to as a creditors' liquidation) or voluntary (sometimes referred to as a shareholders' liquidation, although some voluntary liquidations are controlled by the creditors.

[oyedepo1]

This is a good resource for newbies like me. Thanks for sharing.

[CortneyWilliams]

Wow, thanks to this post, I won't have to constantly look for forex terms in google. Good job.

[jennypeters]

This is such a informative post for forex beginners and through this post one can easily start forex trading. I am also new for forex market and also happy to found this forum.

[CortneyWilliams]

I'm quite new to forex and these roster of definitions you've given certainly helped me understand some words concerning trade and trading.

[ilearn2t]

BOC: Bank of Canada

BOE: Bank of England

BOJ: Bank of Japan

RBA: Reserve Bank of Australia (central bank)

SNB: Swiss National Bank, the Swiss central bank

[ilearn2t]

Correlation: One of the most common and most useful statistics. A correlation is a single number that describes the degree of relationship between two variables.

Correlation, in forex, is the statistical measure of the relationship between two currency pairs. The correlation coefficient ranges between -1 and +1. A correlation of +1 implies that the two currency pairs will move in the same direction 100% of the time. A correlation of -1 implies the two currency pairs will move in the opposite direction 100% of the time. A correlation of zero implies that the relationship between the currency pairs is completely random.

The EURUSD and USDCHF had a near-perfect negative correlation of -1.00. This implies that 100% of the time, when the EUR/USD rallied, USD/CHF sold off. This relationship even holds true over longer periods as the correlation figures remain relatively stable.

Other +/- correlation pairing to consider:

GBPUSD AUDUSD NZDUSD like EURUSD.
USDCAD USDJPY like USDCHF.

[ilearn2t]

Major and Minor Currencies:

Around 85% of all global currency trading involves just eight currencies, known as major currencies. The major currencies are USD, EUR, JPY, GBP, CHF, CAD, NZD and AUD.
All other currencies are considered minor currencies.