The price offered to a buyer in a market. In a Short position, traders will receive the Ask price when they close their position.
The central Bank of the United Kingdom (London).
The Central Bank of Japan (Tokyo).
The currency that other currencies are quoted against in an exchange rate i.e. the first currency in a currency pair. For example, in EUR/USD, EUR is the base currency meaning that if the price is 1.2000 then 1 Euro is worth 1.20 US Dollars.
A Bear is a seller in a market.
Bearish is a directional bias describing a currency/ market that is/ will devalue.
The price offered to someone who wants to sell a market. The Bid price will always be lower than the Ask price. In a Long position, traders will receive the Bid price when closing their position.
The ‘middle-man’ between retail traders and the underlying interbank market. Brokers are what allow retail trading to occur by offering traders the liquidity provided by banks. They also provide optional leverage to traders.
A Bull is a buyer in a market.
Bullish is a directional bias describing a currency/ market that is/ will increase in value.
A method of presenting price action which was founded in Japan. Each Candlestick displays the Open, High, Low and Close (OHLC) of the specific trading session. The thicker ‘real body’ of the Candlestick represents the range between the open and closing price and the upside and downside wicks represent the price action to the sessions high and low respectively.
A national financial Institution that determines a country’s monetary policy and controls the production (supply) and distribution of money.
A financial market where all transactions go through one exchange.
The charge a trader pays to a broker for opening a position in the market.
A raw material, primary product or basic good which can be traded, bought and sold. For example, Gold, Oil, Cotton, Wheat etc.
When a market isn’t trending up or down but is trading within a range determine by 2 price points.
Two currencies whose value are compared against each other to form a (tradable) price in a market.
Forex trading where traders are offered a price determined by their broker who take the other side of their trade i.e. if a trader wants to open a long position the broker will sell the relevant currency to them to allow them to do this, essentially opening a short position of equal size. Brokers that operate with a Dealing Desk often have fixed spreads. The alternative to using a Dealing Desk is straight through processing (STP).
A network of participants that interact to form a marketplace with no specific (centralised) location.
The Central Bank for the Euro which is based in Frankfurt, Germany.
Electronic Communications Network is a system which automatically links buy and sell orders in a market giving retail traders direct access to liquidity providers.
Assets minus Liabilities. In Margin Trading it is the value of a trader’s account minus the amount borrowed from the broker (i.e. leverage).
An Exchange Traded Fund is an investment product/ security which tracks the performance of an Index, commodity or basket of assets allowing traders to invest in a broader range of assets. ETF’s usually have lower volatility than their individual counterparts because they essentially function as an average.
The Currency for Eurozone countries.
The price for which one currency can be exchanged for another.
The Central Bank of the United States of America (Washington DC).
A form of payment deemed as legal tender where a value is assigned to an otherwise worthless material object such as paper with no underlying asset or commodity. The value of fiat currency is determined by its relationship between supply and demand.
Spending and Taxation actions taken by the government to alter the demand of a currency.
A method of currency valuation where the price/ value of a currency is pegged to the value of another currency, basket of currencies or commodity such as gold.
A method of currency valuation where the exchange rate is determined solely by supply and demand and can be altered with central bank/ government intervention.
Determining directional bias of a market by assessing economic data, news and announcements.
A centralised market of contracts agreeing to buy/ sell an asset/ commodity at a specified price on a specific date. Futures contracts can function as a risk management tool that allow companies to hedge their business.
An investment aimed to limit the potential for financial losses from other activities/ investments.
An Indicator measuring the change in value of a security or currency. For example, the Dollar Index tracks the Dollar’s performance against a basket of other currencies.
A Financial Institution is a company/ establishment such as a bank that carries out financial or monetary transactions.
Institutional Trading is the trading/ investments made by Institutions which are carried out in large volume- usually denominated in millions of Dollars.
The Network of banks that trade foreign currencies with each other in large volume.
A form of trading where positions are opened and closed on the same day. This type of trading requires a lot of time/attention and can often be riskier, however, profit potential is also increased.
A form of credit offered to retail traders by their broker whereby the trader is able to hold a much larger position in the underlying market than the actual funds that they hold in their account. 100:1 Leverage means that a trader can trade a $100,000 position in a market with only $1,000 in their account whereas 250:1 means they require only £400. The purpose of this is to maximise profit potential. Although, Leverage also functions to maximise risk and in certain circumstances may cause traders to lose more money than the amount held in their trading account.
Liquidity represents the volume of money traded within a market. In a very liquid market an individual or firm can quickly purchase or sell an asset without causing a drastic change in the asset’s price. Therefore, greater liquidity reduces volatility.
A long position represents a buy order in a market. A long bias is a speculative view of a market where one expects the price to rise in value.
A standard lot is the equivalent to 100,000 units of the base currency in a forex trade. 1 Lot = $10 per pip in the FX market. (Contract size may vary depending on the market and broker so it’s best to check first).
Currency manipulation is the intentional increasing or decreasing of a currency’s value through massive buying/selling operations in the Interbank market and is usually represented by rapid price movements. Currency manipulation often comes from Central Bank intervention or political developments.
Margin relates to trading with Leverage and represents the deposit amount required by your broker to hold your position in the market. The greater the leverage, the smaller the margin requirement. Margin is often expressed as a percentage of the full amount of the chosen position. For instance, 100:1 leverage has a margin requirement of 1%; 200:1, 0.5%; and 400:1, 0.25%.
Monetary policy consists of the actions of a central bank or other regulatory committee that determine the size and rate of growth of the money supply using tools such as interest rate manipulation.
Options are contracts that give buyers the right to purchase or sell a security at a predetermined price on or before a specified day.
Over-the-counter (OTC) trading is performed directly between two parties, without the supervision of a formal exchange.
A pip, short for point in percentage, is a very small measure of change in value of a currency pair in the forex market. A pip is a standardized unit and is usually the smallest amount by which a currency quote can change. Sometimes an even smaller unit is quoted called a micropip which is 0.1pips.
A quote currency is the second currency of a currency pair.
Retail trading is a small portion of the market where individuals speculate on the exchange rate between different currencies in order to make a profit.
A Risk:Reward ratio refers to the amount of profit one can expect to lose on a position, relative to the potential profit.
Scalping is a trading style which focuses on very small changes in price, trades are often executed and closed very quickly- literally ‘scalping’ profits from the market.
A security is a tradable financial asset. Examples of debt securities include: banknotes, bonds and debentures. Examples of equity securities include: common stocks and derivatives (futures, options and swaps).
Sentiment is the overall attitude of investors toward a particular security or financial market. For example market investors may have a bullish sentiment meaning the overall attitude is for the market to head higher.
To go short on a currency means that you sell it, hoping for a decline in the market price.
The spot market is for financial instruments such as commodities and securities which are traded immediately- as the name suggests- on the spot.
The spread is the difference between the bid and the ask price. Spreads will vary depending on currency pair and liquidity providers and some brokers offer fixed spreads.
A stop–loss is an optional level that can be placed on a trade to close the position in order to limit losses. A stop-loss is essentially a trade placed of equal volume, in the opposite direction to the original trade.
STP or Straight Through Processing is a method of managing orders that some brokers use where upon receipt of a client order, they will pass the orders directly on to their liquidity provider. This means that the client receives the best possible price which is not determined by the broker.
Swing trading is a method of trading which attempts to take advantage of the larger price movements/‘swings’ of a market. Duration of trades can typically be anywhere between 2 days to a number of weeks.
Take profit is an optional level placed on a trade which instructs the broker to close the position at a specified price. This is the opposite to the stop loss level and as the name suggests, automatically takes profit from the market (as opposed to ‘stopping loss’).
Technical analysis implements the study of historical price movement in order to obtain a directional bias.
Volatility is the change in price over time. Greater volatility in a market means that a large change in price can occur during a short period of time.
Volume is the amount of capital traded in a market. Greater volume causes lower volatility.