FXEducation Glossary

A

Asset Bubbles

An asset bubble is when assets such as housing, stocks, or ​gold dramatically rise in price over a short period that is not supported by the value of the product.

Austerity

Austerity measures are reductions in government spending, increases in tax revenues, or both. These harsh steps are taken to lower budget deficits and avoid a debt crisis.
B

Trade Balance

Trade Balance is the value of a country’s exports minus its imports. It’s the biggest component of the balance of payments that measures all international transactions.

Bank Of International Settlements

Headquartered in Basel, Switzerland, the Bank for International Settlements (BIS) is a bank for central banks.

Be Liquidated

Closing out a position by taking the opposite position leaving a zero exposure

Bears

A bear is an investor who thinks the market will go down. A bear market is when a market experiences prolonged price declines.

Best Price Basis

A trade at the best price available

Black Swan

A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences.

Black-Box

A black-box financial model is a term used to describe a computer program designed to transform various data into useful investment strategies. The program logic is undisclosed.

Bollinger Band Squeeze

According to John Bollinger, there’s one pattern he calls ‘the Squeeze’. As he puts it, his bands ‘are driven by volatility, and the Squeeze is a pure reflection of that volatility’. It describes a sudden volatility collapse.

Bretton Woods Agreement

Under the Bretton Woods System, gold was the basis for the U.S. dollar and other currencies were pegged to the U.S. dollar’s value. The system was terminated in 1971.

Brexit

Brexit is a portmanteau of the words”British” and”exit” coined to refer to the U.K.’s decision in a June 23, 2016 referendum to leave the European Union (EU). Brexit took place on Jan. 31, 2020.

Bulls

A bull is an investor who thinks the market will go up. A bull market is when a market experiences prolonged price advance.
C

Carry Trade

A carry trade is a trading strategy that involves borrowing at a low-interest rate and investing in an asset that provides a higher rate of return. A carry trade is typically based on borrowing in a low-interest rate currency and converting the borrowed amount into another currency.

Continuation Chart Pattern

Continuation chart patterns indicate that a price trend is likely to continue.

Convergence

When an indicator and the price move in the same direction

Cost Of Carry

Cost of carry refers to costs associated with the carrying value of an investment. These costs can include financial costs, such as the interest costs on bonds, interest expenses on margin accounts, interest on loans used to make an investment, and any storage costs involved in holding a physical asset.

Crosses

Some currency pairs don’t contain USD at all. These are known as cross-currency pairs or ‘crosses’. Some of the most popular crosses are also known as ‘minors’. The most actively traded crosses normally contain EUR, JPY, and GBP (GBPJPY or EURJPY, for example).
D

Day Traders

Traders who go home with squared positions. They do not hold positions overnight.

Deposit

The sum of the funds on your trading account denominated in your account currency

Diffusion Index

A diffusion index refers to how many Business Cycle Indicators (BCI) are moving together. This is useful for assessing the strength of the economy.

Divergence

When an indicator and the price move in differing directions

Dovish

The Fed is Dovish when its rhetoric indicates loosening monetary conditions and likely lower interest rates.
E

Equity

A Stock or Share and also the sum of the funds on your trading account, including the floating profit or loss

Euro Crisis

The European sovereign debt crisis was a period starting on 2008 when several European countries experienced the collapse of financial institutions, high government debt, and rapidly rising bond yield spreads in government securities.

Exotics

These consist of one major currency paired with the currency of an emerging economy, like Brazil, Mexico, Russia, or Turkey (USDRUB or USDTRY, for example). It’s important to remember that trading costs on exotics are generally higher due to wider spreads stemming from low liquidity
F

Failure Swing

Happens when the price or an indicator rallies and then makes a new low or falls then makes a new high

Fibonacci Extensions

These are tools that traders can use to establish profit targets or estimate how far a price may travel after a retracement/pullback is finished. Extension levels are also possible areas where the price may reverse.

Fibonacci Retracements

These levels are horizontal lines that indicate where support and resistance are likely to occur. They are based on Fibonacci numbers. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not official, a Fibonacci ratio of 50% is also used

Filled

An completed order

Fixed-Income Securities

A fixed-income security is an investment that provides a return in the form of fixed periodic interest payments and the eventual return of principal at maturity

Flag Pole

These occur in chart patterns such as Flags or Pennants. They are the first part of the pattern; the impulse moves.

Floating Profit Or Loss

Shows your profit or loss for open positions

Free Margin

Money in your account that is available to finance further positions

Fundamentals

Fundamentals include the basic qualitative and quantitative information that contributes to the financial or economic well-being of a company, security, or currency, and their subsequent financial valuation
G

Gapping

This occurs when the price of a security opens above or below the previous day’s close with no trading activity in between. A gap is the area discontinuity in a security’s price chart. Gaps may materialise when headlines cause market fundamentals to change rapidly or during hours when markets are typically closed; for instance, the result of a weekend central bank annoucement

Global Capital Flows

Global Capital Flows is the inflow and outflow of capital from one nation to another nation

Global Financial Crisis (Gfc),

The financial crisis of 2008 was primarily caused by deregulation in the financial industry.

Go Square

Close out a position leaving no market exposure

Gold Standard

The gold standard is a monetary system where a country’s currency or paper money has a value directly linked to gold. Britain stopped using the gold standard in 1931 and the U.S. followed suit in 1933 and abandoned the remnants of the system in 1973

Golden Ratios

When used in technical analysis, the Fibonacci golden ratios are typically three percentages: 38.2%, 50%, and 61.8%
H

Hawkish

The Fed is Hawkish when its rheteric indicates tightening monetary conditions and likely higher interest rates.

Hedge

A Hedge is a risk-offsetting transaction

High-Frequency Trading (Hft)

High-frequency trading (HFT) is a method of trading that uses powerful computer programs to transact a large number of orders in fractions of a second.
I

Initial Risk

The difference between the entry price and the first protective Stop

International Monetary Fund ( Imf)

The IMF is an international organisation that promotes global economic growth and financial stability, encourages international trade, and reduces poverty
L

Liquidity

If a currency pair is said to have high liquidity, it means that there is a significant amount of trading activity on the pair. This is good because there is always someone who wants the other side of your trade. Low liquidity means the opposite and pertains typically to Exotics, but some majors can suffer from it at times, for various reasons. Highly liquid pairs enjoy the narrowest spreads, keeping trading costs low. Pairs with low liquidity are expensive to trade.

Lot

A unit of measurement. Normally equals 100,000 units of the base currency
M

Majors

These are the four most heavily traded currency pairs in the forex market. The four major pairs at present are the EURUSD, USDJPY, GBPUSD, USDCHF.

Margin

The margin is derived from the amount of leverage you have on your account and works as a deposit to maintain an open order. As we saw in the explanation for leverage , the margin decreased as leverage increased. That’s because higher leverage allows you to open larger trades with less capital.

Margin Balance

LINK back to leverage

Margin Call

The signal that your Margin Level is low and you urgently need to decrease your open positions or increase the Equity

Margin Level

The percentage of Margin to Equity. This information is crucial because a low Margin Level may lead to a Margin Call and a Stop Out. Always monitor the Margin Level and adjust your positions and Equity accordingly

Market Maker

Makes bids and offers for a security on a continuous basis. In the Equities markets, they are called Specialists. They provide liquidity.

Market Order

An order to be executed immediately at the current market price.

Market Watch

The hub inside MetaTrader where you can see live quotes for currencies, indices and commodities. It is normally positioned on the left-hand side of the screen.

Mean-Reverting Traders

Those who sell market strength and buy weakness.

Momentum

The rate of acceleration of a security’s price.
N

Nominal Interest Rate

The interest rate before taking inflation into account.

Normal Run

A statistical term to describe occurences of an event in normal times.
O

Over The Counter (Otc).

OTC means not traded on an Exchange.

Overbought

A condition where an asset has traded higher in price and has the potential for a price fall.

Overleveaging

Overleveraging means that a small adverse movement erodes a signigficant part or all of your capital.

Oversold

A condition where an asset has traded lower in price and has the potential for a price bounce.

Over-Trading

Trading so frequently that the commission and spread significantly and adversely impact profitability.
P

P&L

Profit and Loss.

Paper Trade

Demo trading.

Pending Order

An order to open a trade in the future if the price of the instrument hits a certain level.

Pips

The smallest price movement of a security. Pip is an acronym for ‘percentage in point’. When most currency pairs were priced out to four decimal places, the pip used to be the smallest price move that an exchange rate could make. A pip is thus equivalent to 1/100 of 1% or one basis point. But nowadays most pairs are quoted up to five decimals, so the price may change by less than one pip.

Pivot Points

A turning point in the market price action.

Prop

Propriatory trader.

Pullback

A move against the trend.
Q

Quantitative

Mathamatical or statisitically based trading.
R

Rate Of Change

RoC is used in technical analysis to express the speed at which a security price changes over a specific period of time. RoC is often used when speaking about momentum.

Real Interest Rates

The interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower and the real yield to the lender or an investor.

Renminbi

The official currency of China. Also called the Yuan.

Reversal Chart Pattern

Reversal chart patterns indicate that a price trend is likely to reverse direction.

Risk-Off

Preferring less risky assets such as Bonds over Equities.

Risk-On

Preferring riskier assets such as Equities over Bonds.

Risk-Reward Ratio

The amount of money risked divided by the expected reward.
S

Safe-Haven

Assets or securities considered Safe – for example, guaranteed by a government.

Scalpers

Scalpers enter and exit the financial markets quickly, usually within seconds, using higher levels of leverage to place larger sized trades in the hopes of achieving greater profits from relatively small price changes.

Slippage

Difference between order price and execution usually caused by lack of liquidity or a surprise news event.

Snake Oil Salesmen

Marketing fraudster engaged in the illegal practice of making false or misleading promotional claims for financial gain.

Specs

See Speculators.

Speculators

These traders utilise strategies and typically a shorter time frame in an attempt to outperform traditional longer-term investors. Speculators take on risk, especially with respect to anticipating future price movements, in the hope of making gains that are large enough to offset the risk.

Squark Box

intercom speaker that an ivenstment bank or brokerage firm’s analysts or traders use on trading floors or desks in OTC markets

Standard Deviation

A standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance. The standard deviation is calculated as the square root of variance by determining each data point’s deviation relative to the mean.

Stop Hunters

Professional short-term traders who try to profit from setting off Stop Orders.

Stop Loss

An order to close a trade at a specific price to stem losses. This is used to close a trade to stop your account being wiped out.

Stopped Out

Triggered when the trader has failed to meet the Margin Call requirements, leading to the closure of open positions to bring the Margin Level to an acceptable level.

Symbol

Shorthand for a tradable instrument. GBPUSD or .WTICrud – these are symbols.

Systematic

A systematic trader adjusts a portfolio’s long- and short-term positions on a particular security according to tested rules.
T

Take Profit

An order to close a trade at a specific price to lock in profit without you having to physically close the trade yourself.

Tapering

The gradual reversal of a quantitative easing policy implemented by a central bank to stimulate economic growth.

The Sell-Side

The part of the financial industry that is involved in the creation, promotion, market-making, and sale of stocks, bonds, forex, and other financial instruments.

Trade Efficiency

Your profitability over time, your drawdowns, average time per trade.

Trading Edge

A technique, observation or approach that creates a trading advantage over other market participants.

Trading Log

A log maninted by a trader recording trades and order changes.

Trading Plan

A systematic (rule-based) method for identifying and trading securities that takes into consideration a number of variables including time, risk and the investor’s objectives.

Trailing Stop

A Trailing Stop is stop order that can be set at a defined percentage or dollar amount away from the current market price to proect a position and to run a profit until the price reverses.
V

Volume

Turnover of a market. In MetaTrader you define the size of your trade in lots.
W

Whipsaws

Whipsaw describes the movement of a security when, at a particular time, the security’s price is moving in one direction but then quickly pivots to move in the opposite direction and maybe quickly back again.

World Bank

An international organisation dedicated to providing financing, advice, and research to developing nations to aid their economic advancement. Its objective is to fight poverty by offering developmental assistance to poorer nations