Forex Glossary

A

What is Automated Currency Trading

Automated Forex Trading is a process of buying and selling Forex currencies via the use of computer algorithms. These algorithms are programmed to identify 24/5 opportunities in the Foreign Exchange Market and selectively to open and to close trades automatically without any human intervention.

What is Automatic Forex Trading Software

The computer software that connects with a trading platform and allows the process of automated Forex Trading.

What is an American Option and a European Option

An American option is a derivative product (see options below) that can be exercised at any time throughout the life of the contract. On the other hand a European Option can only be exercised at the end of the life of the contract.

What is API Trading

API means Application Programming Interface and it is a trading technology which allows users to create their custom functionality into their own trading software systems.

What is Arbitrage

Arbitrage is a risk-free trading practice where the same asset is purchased and sold simultaneously in two different financial markets. Arbitragers make profits by exploiting the price difference between these two markets.

What is an Asian Option

An Asian option is an options contract that pays off according to the average price of the underlying asset, over time.

What is the Average Profit Trade (APT)

It is a simple calculation formula that divides the Gross Trading Profit by the total number of profitable trades.

What is the Average Trade Time (ATT)

It refers to the average holding period of each executed trade, in terms of hours.

What is the Average Losing Trade (ALT)

It is a simple calculation formula that divides the Gross Trading Loss by the total number of losing trades.

B

What is Back-testing Strategies

Back-testing is a very popular method among robotic Forex traders who need to evaluate the performance of any automated trading strategy over time. Typically Forex traders use MetaTrader-4 back-testing feature and apply historical back-testing based on at least 10 years of daily data.

What is Back Office

The office of the Forex Broker where the final processing of any trading transactions is made.

What is a Bar Chart

A bar chart is a chart that presents price action by using rectangular bars with lengths proportional to the values that they represent.

What is a Barrier Option

An options contract whose pay-off depends on whether or not the price of the underlying asset breaks a predetermined level (barrier) during the life of the contract.

What is a Basis Point

A basis point equals 0.0001 (one hundredth of 1%)

What is a Basket of USD Shorts

It is a basket of trades that including selling the US Dollar against various other Forex currencies.

What is Breakaway Gap

It is a price gap that usually occurs in the beginning of a new price trend.

What is Options Butterfly Spread

It is a combination of two options spread transactions.

C

What is Cable

Cable is the Forex slang of GBPUSD (British Pound Sterling against the US Dollar). The origins of the term is found in 1880s when a real transatlantic cable was used in order to connect US and UK.

What is Carry Trade

Carry Trade is profitable Forex trading practice according to which the carry trader sells currencies offering low interest rates and at the same time buying currencies offering higher interest rates.

What are Camarilla Pivot Points

Camarilla is an indicator which applies a mathematical pattern to highlight the current price levels with the use of yesterday’s open, high, low and close prices. The concept of camarilla pivot points was originally introduced in 1989 by a famous bonds trader, called Nick Scott.

What is Candlestick Chart

A candlestick chart combines a line-chart and a bar-chart. Each bar incorporates the four most important pieces of daily information (open, close, high and low).

What is a Cross Currency

The cross rate is an exchange rate that does not include the US Dollar.

What is a Currency Swap

A currency swap is a contract between two parties that involves the exchange of interest payments in different currencies after a pre-determined time period.

D

What is Day Order

A day-order is simply a trading order that is valid until the end of a single trading day.

What is Dollar Drain

A Dollar Drain means that a country is importing more goods and services from another country than it is exporting in return.

What is Delta Ratio

The Delta Ratio is used as a comparison measure between the price of an underlying asset and the corresponding price of its derivative. This is also known as the hedge ratio.

What are Derivatives

Derivatives are financial instruments designed as tools of risk management. Such instruments include futures, forwards, options, swaps, etc.

E

What is an ECN Forex Broker

ECN means Electronic Communications Network and an ECN broker is a Forex broker that transfers all his client’s orders directly to the liquidity of the ECN network without the use of a Dealing-Desk. ECN Brokers are called NDD (Non-Dealing Desk Brokers)

» Compare ECN Brokers at TradingCenter

What is Epsilon

Epsilon measures the % change in the price of an option that is associated with 1% change in the implied volatility.

What are Exotic Currencies

Exotic Forex currencies are unpopular currencies suffering from limited liquidity. These currencies are traded against the US Dollar and are offered in expensive spreads. Exotic currencies include currencies from Asia, Middle-East, South America etc. such as the United Arab Emirates Dirham, the Mexican Peso, the Taiwanese Dollar, the Malay Ringgit and the Indonesian Rupiah.

What is an Expert Advisor (EA)

An Expert Advisor or EA or Forex Robot is a software code programmed specifically for a trading platform such is the MetaTrader Platform or JForex. An Expert Advisor is able to execute trades automatically using specific algorithms after analyzing the real price action, identifying market opportunities and generating trading signals.

» Expert Advisor Reviews

F

What is a Fast Market

Fast market means a financial market moving very rapidly. This is usually happening after important news is released.

What is a Flat Market

A flat market is a financial market without clear direction and that means that either prices are stabilized due to limited liquidity or either prices are moving in short-ranges due to important upcoming news or events.

What is Floating Exchange Rate

A Floating Exchange Rate or else a Flexible Exchange Rate means a currency that is not fixed by the regime and may freely fluctuate against other currencies.

What means FRODOR

FRODOR means Foreign Official Dollar Reserves.

What is a Forward Contract

Forward contracts are specific arrangements between a bank and a customer aiming to offset the market risk exposure of a customer. The market risk occurs due to economic transactions such as imports, exports etc.

What is Futures Contract

A contract traded on a futures exchange which requires the delivery of a specified quality and quantity of a commodity, currency or financial instruments a specified future month, if not liquidated before the contract matures.

HotForex Pamm V2

G

G5

The G5 consist the world’s 5 leading industrial economies - US, Germany, Japan, France and UK

G7

The G7 consist the G5 plus Canada and Italy.

G8

The G8 consist the G7 plus Russia.

G10

The G10 consist the G7 plus Belgium, Netherlands and Sweden.

What is Gamma

Gamma measures the rate at which Delta changes over time based one 1 unit change in the price of the underlying asset.

What is GTC

It is a popular trading order type and means "Good Till Cancelled". According GTC a trading order remains in the market until it is cancelled by the client.

What is Greenback

It is the Forex slang of US Dollar notes.

H

What is Hard Currency

A hard-currency means a currency that is expected to remain stable or appreciate against other currencies.

What is Hedging Strategy

Hedging means opening trades in the opposite direction of the master position in order to protect against market risk. Hedging is practice applied with the use of derivative products.

What is Hedge Ratio

The Hedge Ratio refers to the number of derivative products (futures or options) required in order to hedge an exposure in the cash market.

I

What is Intelligent Forex Systems

An Intelligent Forex System refers to an automated trading system which is programmed to execute trades based on certain events.

What is Interbank Market

The Interbank Market is the electronic market where assets such as currencies, financial products and loans are traded between commercial banks, central banks, financial institutions, large companies etc.

What is Interbank Rate

This refers to the interest rate charged on short-term bond issues between banks.

What is Interest Arbitrage

The practice of buying spot and selling forward in order to exploit abnormalities between interest rates.

What is IMF

International Monetary Fund (IMF) is a global organization that supervises the global financial system and provides technical help and financial aid to countries facing economic turmoil.

» The IMF

What is an Introducing Broker (IB)

IB is a professional of the financial industry that partners with Forex brokers and introduces them new customers. IBs are able to offer their customers discounted Forex rates or Cash-Backs Rebates which are called as Forex Trading Rebates.

» IB services at Forex-Rebates.com

L

What is a Leading Indicator

A leading indicator is an economic indicator that tends to modify before the general economy is modified.

What is LIBOR

LIBOR means London Interbank Offered Rate and it is the interest at which banks borrow loans from other banks. The LIBOR is set in a daily basis at 11:00 GMT by the British Bankers Association.

What are Limit Orders

Limit orders are trading orders that limit the price range at which a position will be opened or closed.

What is Leverage

Leverage is the ratio of the amount traded to the required deposit. If leverage is 100:1 that means that for $1,000 deposit a trader can open a position worth $100,000.

What is Lot

Lot is a trading unit that measures the value of a transaction. One standard lot equals $100,000, one mini lot equals $10,000 and one micro lot equals $1,000.

What is LLT

LLT means Largest Losing Trade.

What is LWT

LWT means Largest Winning Trade.

M

M0

The M0 is a measure of Cash in circulation (used only in the UK).

M1

M1 is Cash in circulation plus demand deposits at commercial banks.

M2

M2 includes demand deposits, time deposits and money market mutual funds excluding large CDs.

M3

M3 (used in the UK) is M1 plus public sector’s and private time deposits

M4

M4 (in the US) is M2 plus negotiable CDs.

What is Margin

Margin is a cash collateral that traders need to deposit in their trading account in order to start trading.

What is Margin Call

If a trader’s position had moved unfavorably then a broker may issue a margin call which means an extra margin is required for this position to remain open.

What is Market Maker

A market maker or dealer is a dealing-desk broker (DD) who receives bids and asks from his clients and create a market within a market.

What are Maximum Positions (MP)

The number of opened positions of a particular pair that a trading system can hold simultaneously.

What are Maximum Draw Down (Max DD)

This refers to the largest drop of the net balance peak to the net balance valley.

What is the MetaTrader Platform (MT4)

MetaTrader is a very popular Forex trading platform supported by hundreds of Forex Brokers worldwide. MetaTrader is a free software created by MetaQuotes allowing automated trading and Expert Advisors.

» http://www.metaquotes.net/

N

What is a Neural Network

A  Neural Network is an intelligent network system designed to analyze and forecasts certain events that may occur in the Foreign Exchange Market based on historic data and events. Neural networks aim to create connections between events and the time they occurred.

What is NFA

The NFA is the US National Futures Association found in 1982. The organization has the mission to control and regulate the US futures market. NFA

» http://www.nfa.futures.org/

O

What is One Cancels Other Order (OCO)

OCO is a multiple trading order consists two individual orders. If one of the two orders is executed the other is automatically canceled.

What is an Option Contract

An option contract is a derivative product providing the right but not the obligation to its holder to buy (call) or to sell (put) a specified instrument at a predetermined price within a specific time period.

What is Option Class

An options class is a category of same-type options that share the same underlying financial instrument.

What is OTC

OTC means Over-the-Counter and describes transactions which are not conducted in a specific exchange. Foreign Exchange market is an example of an OTC market.

P

What is Pip

Pip means Percentage in Point and consist the smallest value that an exchange rate can move. In Forex trading a pip refers to the 4th decimal point of the exchange rate and that means 1 pip equals 0.0001. Note that one pip movement in Japanese Yen refers to two decimal places.

What is Profit Factor

This Profit Factor of a trading system presents how many times the gross profit exceeds the gross loss.

What is PPP

PPP means Purchasing Power Parity and it is a popular model used to determine the fair exchange between two currencies. This model is based on the Law of One Price.

R

What is Range

General a Range refers to a price channel within which an asset tends to trade. In futures trading, a range is the difference between high and low price during a trading session.

What are Reserves

Reserves in general refer to funds held by an organization. These funds include Foreign Currency, Gold and SDRs and can be used against future contingencies.

What is Resistance

Resistance refers to a price level above the current price at which sellers are expected to become active. The exact opposite is called a Support Level which refers to a price level below the current price level at which buyers are expected to become active.

What is Risk Premium

The Risk Premium refers to an extra return that is paid in order to offset the existence of a particular risk.

What is Rollover

Rollover is a settlement of a deal that is carried forward to a future date.

S

What is Stop Entry

A Stop-Entry is a trading order to buy below the market price or to sell above the market price.

What is Stop-loss

A Stop-Loss is a trading order that closes a trade when the market moves a trading position. The Stop-Loss order is used to limit trading losses.

What is Swing Trading

Swing trading is a popular trading style aiming to exploit mid-term price trends. Swing-traders maintain their positions opened from a couple days to a couple of weeks.

T

What is Theta

Theta is used in options trading as a measure of price sensitivity over the option’s time to expiry.

What is Thin Market

Thin market is a limited liquidity market consisting only a few bids and asks.

What is Trailing Stop-Loss

Trailing Stop-Loss orders are very popular in automated trading and refer to stop-loss orders that automatically moved to the trader's advantage as the market moves to their advantage.

What is a Tick

Tick refers to minimum change in price. Many Forex brokers offer Tick charts via their platfoms.

U

What is the US Prime Rate

The US Prime rate refers to the rate at which US banks lend capital to their corporate clients.

V

What is a Vanilla Option

Vanilla options are simple option contracts whose terms include only exercise style, expiry time and strike price.

What is Vega

Vega is used in options trading and measures the price change of an option contract for 1% change in implied volatility.

What is Velocity of Money

Refers to the speed at which the money circulates in an economy.

What is Volatility

Volatility measures the fluctuations in the price of an asset or a market.

W

What is Win%

Win% is used in automated Forex trading as a ratio measuring the winning percentage of a trading system out of its total number of trades.

What is World Bank

The World Bank is a global organization aiming to assist its members with loans in order to develop their economy.

» http://www.worldbank.org/

Y

What is Yard

Yard is a Forex slang refer to 1 billion units of a currency.

Z

What is Zero Coupon Bond

A Zero-Coupon Bond is a bond paying no interest to its holder. The bond in order to offset this disadvantage is offered at a discount price.

What is Zero Uptick

Zero uptick means a transaction is made at the same price as in the case of the previous transaction.

 

Automated Forex Glossary

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