FX Dictionary

We provide you with a free FX Glossary containing all definitions of terms that you will come across while trading at Gulf FX.The definitions have been arranged in alphabetical order.The following are possible terms that you are likely to encounter with Gulf FX platforms.

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Account - A record of every transaction.

Account Balance: Is the total amount of money in the account

Account statement:Information managed by a broker concerning the account status and activity of a trading account.

Agent: An employed individual acting on behalf of another

Aggregate Demand: Sum of government spending, personal consumption and business expenditures.

All or None: A limit price order instructing FCM to fill the whole order at a price stated or not6 at all.

AMEX:American Stock Exchange, AMEX is one of the biggest stock exchange in the USA located in New York formed in 1911 and received its name in the year 1953..

Analytics:This is the analysis of forecasts, expert opinions and Forex market relations

Anti-Crisis:An instrument offered by Forex Club that allows one to control large amount of goods with a relatively little amount of capital.

Appreciation: An increase in the asset value; the rising of a price due to market demand.

Arbitrage: Using countervail prices in various markets thereby earning profits out of small price differentials through purchasing or selling an instrument and simultaneously taking equal and opposite position in a related forex market.

Ask Rate:This is the lowermost price at which a financial device is obtainable for a transaction.

Ask Size: The sum of shares being obtained for transaction at the ask rate.

Asset Allocation:The supply of assets amongst different markets including bonds, stocks, Forex commodities and real estate in order to attain variation for purposes of risk management and expected returns.

Attorney in Fact:A person, who has authority of attorney, is permitted to conduct business and manage documents on behalf of another person.

Back Office - The sections and procedures that is associated with the clearance of financial relations.

Balance: The total sum of money left in the account.

Balance of Payments: The record of a nation rights concerning trade with other nations over a specific period of time for example the produce, facilities and investment.

Base Currency: The amount in which stakeholders maintains their books of accountand the amount against which othercurrencies are quoted. The base currency for quotes in the Forex market is the US Dollar and the quotes are stated as a unit of one USD per the other currency quoted in the pair. The base currency is also the first currency quoted in the pair

Basis: The variance between the commercial price and the stock price.

Basis Point: A hundredth of a given percent.

Bear: A stakeholder who has confidence in the decrease of the price market.

Bear Market: A tendency differentiated by a continued period of price drop accompanied with extensive negativity

Bid: The cost at which buyers are ready to purchase.

Bid/Ask Spread: The market liquidity is measured by the difference between the offer and the bid prices where a narrower profit implies high liquidity.

Big Figure: A supplier expression stating the first few digits of an exchange rate in which the digits hardly change in normal market variations and so they are omitted in dealer quotes, particularly when the market demand is very high for example, a USD/Yen rate may be 107.30/107.35 but is expressed verbally in the absence of the first three digits as, 30/35

Bonds: Trading tools delivered by a debtor to increase capital to make payments on either fixed or floating interest called the voucher. As interest rates fall the bond prices increase and as the bond prices fall the interest rates rise

Book: The summary of the dealer and his/her total positions.

Bretton Woods Accord of 1944: A contract that proofed fixed foreign exchange rates for main currencies provided for central bank intervention agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the exchange market and established the cost of gold at USD 35 per ounce whereby the contract ended within 27 years.

Broker:A person or an organization that functions as an intermediary between buyers and sellers at a commission or fee.In contrast, a seller does the same work but obligates capital and takes one side of a position to make a profit by closing out the position in a subsequent trade with another party

Bull: A stakeholder who trusts that market prices will increase.

Bull Market: A tendency of increase in price for a long period of time

Cable - The term originated in the mid-1800s when the rate was conveyed through a transatlantic chain.It is a merchant terminology referring to the Sterling/USD exchange rate.

Candlestick Chart: It is a visual aid that shows both the opening, closing and transaction kinds for the day. If the close price is lower than the open price, the rectangle is shaded or filled. If the open price is higher than the close price, the rectangle is not filled.

Capital Markets: Marketplaces envisioned for moderate to long term speculation including the US government bonds and Eurobonds

Central Bank: An organization that accomplishes a country’s financial policy; for example the US central bank is the Federal Reserve and others include the ECB, BOE AND BOJ

Chartist: A person who interprets past information, foresee the future and provide support in procedural analysis.

Clearing: The process of settling a trade.

Close a Position (Position Squaring):The removal of an asset from another person’s assortment by either buying back a small position or selling a long position.

Commission: The payment a stockbrokercharges for a business.

Confirmation: A document exchanged by members in a business that approves the terms of alleged business..

Contagion: The inclination of financial crisis that spread from one market place to another.

Contract (Unit or Lot): The normal measurement unit of transaction of certain exchange

Convertible Currency: Money which can be exchanged easily with other currencies at market rates or gold.

Cost of Carry: The amount of money borrowed with an aim of maintaining a position in regard to the interest parity that identifies the forward price.

Counter party: The opposite party in a given transaction; e.g., the buyer as opposed to the seller or vice versa.

Country Risk: The risk occurring during life-threatening political occasions like war and civic conflictled by exchange dealer that a given country’s government may mediate in the market exclusive of the central bank intervention.

Credit Checking: A proof done to ensure all parties involved in the transaction have the credit to insure the business they wish to transact.

Credit Netting: A plan that makes the most free credit and increases the selling procedure by decreasing the purpose to regularly re-check credit.

Cross Rates: An exchange rate amongst two currencies that is non-standard in a given country where the currency is mentioned

Currency: An official exchange unit for a given country given out by its government or central bank as a source for trade.

Currency Risk: Loss incurred due to an adverse change in exchange rate

Day Trading - Trading within the same period during the opening and closing of a given position.

Dealer: A principal actor to a transaction; he/she place an order for purchasing or selling.

Deficit: A negative balance of payments.

Delivery: The process of transferring traded currency possessions

Deposit: The money borrowed or lent.

Deposit rate: The rate of borrowing or lending money.

Depreciation: A decrease in the value of a currency due to market forces.

Derivative:A contract existing between two parties/parties establishing underlying asset value. Some of the derivative instruments include; Interest rate swaps, Options, Caps, Forward rate agreements, Swap Options and Floors.

Devaluation:Downward adjustment of currency in a deliberate manner.

Economic Exposure - Exposure of a company’s cash flow due to forex fluctuations.

Efficient Market: A marketplace where current prices shows all available information of past prices and volumes.

End of Day: The process in which a trader’s book is valued using closing market at the end of each market day.

Estimated Annual Income: Expected yearly earnings

Euro: The European currency.

European Central Bank: TheCentral Bank Europe..

Federal Deposit Insurance Corporation (FDIC) insurance in the US - Insurance regulatory agency that administers U.S. bank depository insurance.

Federal Reserve (Fed): The U.S. Central Bank.

Fixed Exchange Rate: An exchange rate that is officially set by respective monetary authorities to be used for different currencies.

Fixed Interest: Constant interest rate during deal making period like in fixed rate mortgages and bonds.

Flat (or square):Neither short nor long situation. A Flat position has positions that cancel.

Floating Rate Interest: A fluctuating interest rate according to the market or the rates of benchmarking.

Foreign Exchange (or Forex or FX): Purchasing one type of currency while selling another one over- the counter at the same time.

Foreign Exchange Risk: See Currency Risk.

Forex: World currency rate of exchange.

FOREX: World market for currency exchange.

Forex Trader: An individual or firm that is involved in buying and selling of currency with an aim of making profits.

Forward: A deal agreed to start at some time in the future. Unlike the futures market, Forward market is liable to customization in relation to the two parties. It does not involve any central exchange.

Forward Points: Pips subtracted from or added to current exchange in order to compute the forward price.

Forward Rate Agreements (FRA's): A contract exhibited over-the-counter between parties that are determining interest rate or the rate of currency exchange to get received or paid at obligated future date.

Front Office:The corporate finance personnel and sales of a given financial institution.

Futures: Trading currencies/commodities and financial instruments for a given price at a specific future date. Unlike Options, the futures are obligate to buying or selling instruments at a later date in future. It can be used in protecting and speculating against a value in the future for the underlying product.

GTC - Good Til Cancelled,":An order left with a dealer buying/selling at a fixed price. The GTC remains in place till its execution or cancellation.

Hedge - Combining positions thus reducing position of portfolio values

Indicator: A statistic measuring stability and economic growth for example the Gross Domestic Product, trade deficits, employment rates, industrial productions and business inventories.

Inflation:Increase in consumer goods price thereby eroding purchasing power.

Initial Margin: Initial deposit required in order to enter into a position of trade.

Interbank Rates: Forex trade over which large international banks provide quoting for the other international banks.

Interest Rate Swaps (IRS): Exchange of two obligations of debt with different streams of payment. Two parallel loans are transacted, one fixed and the other floating.

ISDA: "International Swaps and Derivatives Association," is a body working to set terms and conditions for given derivative trades.

Low/High: The lowest and highest traded prices in a given period.

Leading Indicators: Economic variables considered in the prediction of future economic event such as unemployment, producer and consumer price indices, personal income, retail sales, prime rate, Federal funds rate and discount rate.

LIBOR: "London Interbank Offer Rate”:Interest rate at whichthe largest international banks are able toprovide lending to each other.

LIFFE: "London International Financial Futures Exchange":Consists of the largest three UK futures markets.

Limit Order: Order to buy at, below or above a specific price.

Liquid and Illiquid Markets: Ability of buying or selling by an investor with minimum effect on stability of price. The market is described as liquid when spread between offer price and bid price is small. Market liquidity is also measured using the volume of buyers and sellers and more players create tighter spreads.

Liquid Assets: Assets that are easily converted into cash e.g. Bank deposits, U.S. Treasury Bills and Money market fund shares.

Liquidation: Closure of an open position by the execution of offsetting transaction.

Long: A position of purchasing more of a given instrument than buying hoping that the value is going to appreciate.

Margin: Depositing funds as collateral, covering any potential losses from adverse price movements.

Margin Call: A broker/dealer’s request for the additional funds or other collateral thereby guaranteeing performance on a position moving against the trader.

Mark to Market: The process in which a trader’s book is valued using closing market at the end of each market day.

Market Maker: A dealer supplying prices and is prepared to buying or selling at the same prices. A market maker is involved in running the trade book.

Market Order: An order of buying or selling of the order at the best prices upon reaching the market.

Market Risk: Risk related to the market generally and not extinguished through hedging or holding different types of securities.

Maturity: Date at which debt is due for payment.

Mine/Yours: Jargon applied in the process of buying and selling. Prospective buyer introduces “Mine: and the seller replies “Yours” as a confirmation to the sale.

Money Markets: Short-term opportunities for financial institutions like banks to invest i.e. below one year. Examples are Certificates of Deposit, Commercial Paper, Deposits, Repurchase Agreements and Overnight Index Swaps.

Net Worth/ Net ASSETS/ Stockholder’s equity: Amount of assets exceeding liabilities. To an individual, net worth refers to the aggregate value of all possessions including houses, bonds, stocks and other securities deducting all outstanding debts like mortgages and loans.

Offer: Prepared price for sell by the seller.

Offsetting Transaction: A trade serving to offset market risk for an open position.

One Cancels Other Order (O.C.O. Order): A contingent order whereby one part execution of the order cancels the other one automatically.

Open Order: Order of buying or selling when the market has moved to a pre-designated price.

Open Position: Unreserved/ Unsettled deal whereby an investor is subject to the exchange movement rates.

Options: Agreement allowing the holder to have an option of buying or selling specific security at a given price within a period set. Examples; put and call options. Whereas put is the right to sell, call is the right to buy.

Order: An instruction given by the client to a broker to trade. An order is placed at the market price or specific price and can be either good until filled or business closure.

Over the Counter (OTC):Transaction that is not conducted over exchange.

Overnight: Trade remaining open to the next business day.

Pegging: Form of stabilization of price that is fixing a given country’s rate of exchange to the other.

Pip (or Point): Smallest move of increment by an exchange rate e.g. 0.0001 for the case of a EUR/USD, USD/CHF and GBD/USD and 0.01 for the case of USD/JPY.

Political Risk: Governmental policy changes by a given country and may lead to adverse effect of investor’s position.

Position: It is a viewpoint of trading (buying/selling). It is also the amount of currency either owed or owned by an investor.

Premium: The number of points that get added to spot price thereby determining a forward or futures price.

Price Transparency: Condition whereby every participant in the market equally access quote descriptions.

Quote: Summation that is showing lowest the ask price and/or highest bid price available on a given security at a particular time.

Rate: Price of a currency in terms of another one.

Re-purchase (or Repo): Selling of an instrument to get repurchased at a given date and time. The sale takes place in short-term money market.

Realized Profit/Loss : Profit or loss occurring upon selling of the shares.

Resistance: A technical analysis term that indicates a specific level of price above which a currency is not able to cross.

Revaluation Rates: Are market prices applied when a trader is running an end-of-day to establish trade profits and losses.

Risk: Exposing of trade uncertain change.

Risk Capital: Amount of money an individual is able to invest that if it is lost, no effect to the person’s lifestyle.

Risk Management: Employing financial and trading techniques in order to hedge one’s risk.

Rollover:Variation of the rate of interest between two currencies once deal settlement is rolled forward to another different date.

Settlement: Transaction finalizing.

Short Position: A position of investment that is resulting from short selling.

Short Selling: Selling an instrument without owning it with hopes of a decline in its price and purchase it back in future at a given profit.

Spot: An immediate/instant transaction. Usually funds change hands within the two days after striking the deal.

Spot Price: Market price currently.

Spread: Difference between ask (offer) price and bid price and is used in measuring liquidity of a market. Narrower/ smaller spreads signify high liquidity.

Sterling: Synonym for the‘Great British Pound’.

Stop Order: An order of buying or selling at an agreed price.

Support Levels: Technical analysis term indicating specific level of price below which a currency is not able to cross. Approximate straight line displays a pattern for a recurring price failure to move below the stated point.

Swap: Temporary holding of a security which after a fixed time is then exchanged. Thereby calculating swap and also finding the rate of interest differential between the two currencies. The value obtained can be used in speculation in order to exploit anticipated interest rate movements.

Technical Analysis: Effort of forecasting future activity of the market data such as price trends, charts and volume.

Tick: Minimum move in price.

Ticker: An instrument showing current or/and recent currency history in either table or graph format.

Tomorrow Next (Tom/Next): Buying and selling of currency simultaneously for delivery of the following day.

Trading system: A strategy for forex market trading.

Transaction Cost: Associated cost of selling or buying financial instruments.

Transaction Date: Date at which tradeis occurs.

Turnover: Volume of trade over a given period.

Two Way Price: Both quotes of a bid and offer (ask) price for a Forex transaction.

Uptick: A new quote of price that is higher as compared to the preceding same currency quote.

Uptick Rule: A trading regulation in the U.S which states that a security may not be shortly sold unless prior trade towards the short sale was at a lower price than at executed short sale price.

US Prime Rate: The rate of interest at which the banks of U.S will lend to their premier corporate customers.

Value Date: The date that both transacting parties agree to exchange their agreed payments.

Variation Margin: Additional requirement margin a broker needs from a client due to fluctuating market.

Volatility: Statistical value measuring price movements of security for a given market over time and is calculated using standard deviation. High volatility is associated with high risk degree.

Volume: Value of given securities that are traded during a particular period.

Warrants: Form of options traded; purchasing rights for bonds or shares that are issued by a given company within a given price and period.

Whipsaw: A high volatility market condition with a sharp quick movement in price and then a sharp reversal.

Yard:Synonym for a billion.

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