Glossary
A
Account Balance
The total amount of money in a trading account.
Arbitrage
The practice of taking advantage of price differences in different markets by simultaneously buying and selling an asset
Ask Price
The lowest price a seller is willing to accept for an asset; also known as the offer price
Asset
Any resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide future benefit
B
Base Currency
The first currency listed in a currency pair; the currency against which exchange rates are generally quoted in a given country
Bid Price
The highest price a buyer is willing to pay for an asset
Bollinger Bands
A type of statistical chart characterizing the prices and volatility over time of a financial instrument or commodity, using a formulaic method
Broker
An intermediary who facilitates the buying and selling of financial instruments for a fee or commission
C
CFD (Contract for Difference)
The first currency listed in a currency pair; the currency against which exchange rates are generally quoted in a given country
Commission
A fee charged by a broker for executing a trade
Carry Trade
A strategy in which a trader borrows money at a low interest rate to invest in an asset that is likely to provide a higher return
Currency Pair
The quotation of two different currencies, with the value of one currency being quoted against the other
D
Day Trading
The practice of buying and selling financial instruments within the same trading day, such that all positions are usually closed before the market closes for the trading day
Drawdown
The peak-to-trough decline during a specific recorded period of an investment, fund, or commodity
Dividend
A portion of a company’s earnings that is paid to shareholders, typically on a quarterly or annual basis
E
Equity
The value of an account if all positions were closed, representing ownership of assets that may have debts or other liabilities attached to them
Exchange Rate
The value of one currency for the purpose of conversion to another
Expert Advisor (EA)
Automated trading software designed to operate within the MetaTrader platform, executing trades based on predefined criteria
F
Forex (FX)
The global market for the trading of currencies, where currency trading is facilitated
Fundamental Analysis
The method of evaluating a security by attempting to measure its intrinsic value by examining related economic, financial, and other qualitative and quantitative factors.
G
GDP (Gross Domestic Product)
The total value of goods produced and services provided in a country during one year
Going Long
Buying a currency pair in anticipation that it will increase in value
Going Short
- Selling a currency pair in anticipation that it will decrease in value.
H
Hedge
An investment position intended to offset potential losses or gains that may be incurred by a companion investment
High-Frequency Trading (HFT)
A type of algorithmic trading characterized by high speeds, high turnover rates, and high order-to-trade ratios.
I
Initial Margin
The initial deposit of collateral required to enter into a position, typically expressed as a percentage of the total value of the position
Interbank Market
The global network of banks and financial institutions trading currencies among themselves
J
JPY (Japanese Yen)
The official currency of Japan, often used as a benchmark for evaluating other currencies in Asia
K
Keynesian Economics
An economic theory stating that government intervention is necessary to help economies emerge out of recession
L
Leverage
The use of various financial instruments or borrowed capital to increase the potential return of an investment
Liquidity
The degree to which an asset can be quickly bought or sold in the market without affecting the asset’s price
Lot
A standard unit of trading on certain exchanges, particularly in forex, usually representing 100,000 units of the base currency
M
Margin
The amount of money required to open or maintain a position, usually a percentage of the full value of the position
Market Order
An order to buy or sell a security immediately at the best available current price
MetaTrader
A popular electronic trading platform used by forex traders for trading, technical analysis, and automated trading
N
Non-Farm Payrolls (NFP)
A monthly report released by the U.S. Bureau of Labor Statistics that represents the total number of paid U.S. workers of any business, excluding the farming industry, government employees, private household employees, and employees of nonprofit organizations
O
Order
An instruction to a broker to buy or sell a currency pair at a specified price or market price
Over-the-Counter (OTC)
A decentralized market where trading is done directly between two parties, without the supervision of an exchange
P
Pip
The smallest price move that a given exchange rate can make, usually equal to 0.0001 in currency pairs involving the U.S. dollar
Position
The amount of a security, commodity, or currency owned or owed by a trader
Profit and Loss Statement (P&L)r
A financial report that summarizes the revenues, costs, and expenses incurred during a specific period of time
Q
Quantitative Easing (QE)
A monetary policy in which a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity
Quote Currency
The second currency quoted in a currency pair in forex. It is the currency that is being bought or sold against the base currency
R
Resistance
A price level where selling interest is strong enough to prevent the price from rising further
Risk Management
The process of identifying, assessing, and controlling threats to an organization’s capital and earnings
Rollover
The process of extending the settlement date of an open position by rolling it over to the next value date
S
Scalping
A trading strategy that involves making numerous trades to capture small price movements
Spread
The difference between the bid and ask price of a currency pair
Stop Loss Order
An order placed with a broker to buy or sell once the stock reaches a certain price to limit an investor’s loss on a position
Swing Trading
A type of trading in which positions are held for several days to capture short- to medium-term market moves
T
Take Profit Order
An order to close a position once it reaches a certain level of profit
Technical Analysis
The study of past market data, primarily price and volume, to forecast future price movements
Trader
An individual who buys and sells financial instruments in any financial market
Trend Line
A line drawn over pivot highs or under pivot lows to show the prevailing direction of price
U
Unrealized Profit/Loss
The profit or loss that would be realized if an open position were to be closed at the current market price
USD (United States Dollar)
The official currency of the United States, often used as a benchmark currency in forex trading
V
Volatility
A statistical measure of the dispersion of returns for a given security or market index, often measured by standard deviation or variance
Volume
The number of shares or contracts traded in a security or an entire market during a given period of time
W
Whipsaw
A condition where a security’s price heads in one direction but then is followed quickly by a movement in the opposite direction
Wire Transfer
An electronic transfer of funds across a network of banks or transfer agencies around the world
X
XAU
The currency code for one troy ounce of gold
XAG
The currency code for one troy ounce of silver
Y
Yield
The income return on an investment, such as the interest or dividends received from holding a particular security
Z
Zero-Coupon Bond
A bond that is issued at a deep discount to its face value but pays no interest