Mason Dean Capital | The Future or Futures and Forex Trading

Glossary

Please click on the section below to review the corresponding glossary of terms. (Source: CFTC and NFA):

FOREX Glossary of Terms


Arbitrage
Buying or selling of a financial instrument and simultaneous taking of an equal and opposite .

Appreciation
When the value of a currency increases.

Ask
The price that a trader is willing to pay. Normally this is the lowest price a seller will accept in order to sell. Base currency The currency that is being bought or sold. An example in a trade of USDJPY the base currency is the USD.
Bear
Trader that expects that a given currency price will go down. Bears are sellers.

Bid
The price that a trader is willing to buy at. Normally is the highest price a purchaser is willing to pay.

Bid/Ask
The Bid is the price that you can sell at. The Ask is the price that you can buy at.

Bull
A trader that believes that a market will rise in value. Bulls are buyers.
Cross
Currencies are traded by buying one currency with another. These two currencies result in a cross such as, GDPUSD. Where GDP is purchased with USD.

Cross rate
The price which is calculated from the two other exchange rates. The trade rate price between two currencies which are not the official currencies of the country that the exchange was quoted in. Cross rates most often do not involve the U.S. dollar.

Counterparty
The counterparty is the person who is on the other side of an OTC trade. For retail customers, the dealer will always be the counterparty.
Depreciation/decline
When the value of a currency goes down against other currencies.
Exchange rate
Value of one currency in relation to another, as an example the Canadian dollar might be worth 0.98 USD or 0.64 GDP.

EURUSD
Represents that you trade the EUR against dollars. So if you buy EUR you pay in USD or if you are selling EUR you receive USD.
FX, Forex, Foreign Exchange
These are the common names for the exchange of one currency for another.
Interbank
Shortterm, mostly overnight borrowing and lending between banks.

Interest rate differential
The yield spread of two different debt instruments with value determined in different currencies.
Leverage or Gearing
The buyer only pays for part of the transaction and borriows the balance.

Long
When one buys a currency of a particular country.

Long position
A position that will go up in value if the market price increases.

Liquidity
The ability to get out of a trade with a minimum loss. There is enough activity to complete the orders of buyers and sellers.
Margin
The amount of cash in ones account required when entering into a position in order to cover possible losses.
Open position
A position in a currency trade that has been bought but has not yet been sold. The position is closed when the currency is sold.

Over the counter
Transactions that takes place directly between two entities versus thru an exchange.
Pips
A pip is the smallest unit that a Forex cross price varies. When a GBPUSD bid is at 1.4267 and it moves up 2 pips, the quoted price will be 1.4269.

Position
The act of buying or selling currency cross.
Risk
The utilization of a trading strategy to control gains or losses within an acceptable range.
Secondary currency
The currency that the buyer trades the base currency against. Example is that GBP is the base currency in EURGBP.

Short position
A position that goes up in value when the market goes down.

Short
When one sells a currency of a particular country.

Speculative
Buying or selling hoping to make a profit instead of trading for a business related need.

Spot rate
The current price of a currency.

Spread
The difference between the price of the bid and the price of the ask.