Alerts Tutorial

Glossary

Commonly Used Terms in the Foreign Exchange

Ask (Offer) Price - Ask is the market selling price, the price at which the market is prepared to sell a specified Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation, for instance 1.4527-1.4532

Base currency - This is the first currency in a Currency Pair, a currency against which the exchange rate is applied. Usually, it stands first in the codes of currency rates. It shows how much the base currency is worth as measured against the second currency. For instance, if the USD/CHF rate equals 1.6215, then one USD is worth CHF1.6215.

Bear Market - A market in which prices are declining

Bid Price - Bid is the market buying price, the price at which the market is prepared to buy a specified Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can sell foreign exchange. It is shown in the left side of the quotation, for example:1.4527- 1.4532

Bull Market - A marketing in which prices are rising.

Closed Position - Exposures in Foreign Currencies that no longer exist. The process of closing a position is the selling or buying a certain amount of currency to offset an equal amount of open positions. This will "square" the open position.

Counter Currency - The second listed Currency in a Currency Pair.

Cross Currency Pairs - A foreign exchange transaction in which one Foreign Currency is traded against a second Foreign Currency.

Cross rate - An exchange rate between two non-US currencies.
Currency symbols:

AUD - Australian Dollar

CAD - Canadian Dollar

EUR - Euro

JPY - Japanese Yen

GBP - British Pound

CHF - Swiss Franc

Daily Cut-off - The point in time for each Business Day selected by the broker to signify the End of the Business Day.

End of Day Order - Any order that is placed for execution during only one trading session. If the order cannot be executed that day, it is automatically canceled.

Day Trading - Refers to establishing and liquidating the same position or positions within one day of trading, thus ending the day with no established position in the market.

Delivery - The tender and receipt of an actual commodity, financial instrument, or cash in settlement.

Equity - The amount currently held in a customer’s account calculated as if all the opened positions will be closed at the current market quotes. The account is comprised of Unrealized gains, less Unrealized Losses and plus or minus storage.

Euro Zone - The group of twelve countries that have combined their currencies into a single currency (Euro). They still have separate sovereignties, but also have a combined central bank (ECB) which handles economic policy issues for them as one group.

Filled Trade - A trade that is fully executed on behalf of a Customer’s Account pursuant to an Order. Once filled, an Order cannot be cancelled, amended or waived by Customer.

Floating profit (loss) - Unrealized profit (loss) in an open position.

Free margin - Available funds in the client’s account not currently being used to support existing trading positions, which can be used to open new positions.

Leverage - The ratio of the amount used in a transaction to the required security deposit (margin).

Long Position - In foreign exchange trading, when the base currency in the pair is bought, the position is said to be long in that currency. It is understood that when the base currency in the pair is ’long’, the second currency will be ’short’.

Loss - Loss incurred as a result of a transaction.

Lot - A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.

Margin - The amount of cash or other Eligible Collateral that the broker requires a Customer to deposit or maintain in the Customer’s Account in connection with the Customer’s trading activity.

Market Order - An order to buy or sell the identified currency, or pairs of currencies, at the current market price. An order to buy is executed at the ask price; and order to sell is executed at the bid price.

Market Rate/Quote - The current quote of a currency pair.

Market Value - The Dollar Value, determined by the current foreign exchange rates that the Customer would receive if the position were liquidated for immediate delivery in the relevant market.

Open position - Any deal that has not been offset by an equal and
opposite deal.

Overnight Position - Trader’s open long or short position that is not closed by the end of a trading day.

Opening Transaction - An order that, when executed, establishes a Long Position or Short Position, or increases an existing position.

Order - Generally, an instruction by a Customer (or Customer’s authorized agent) to the broker to attempt to execute a trade for Customer’s Account.

Pip/Point - The smallest unit of price for any Foreign Currency (e.g., for USD/CHF one point (or pip) equals .0001 Swiss Francs and for USD/JPY one point (or pip) equals 0.01 Japanese Yen).

Position – An interest in the market, either long or short. Once an investor has bought or sold to enter the market, they have taken a position.

Posted Margin - That part of the Margin Balance that is posted to the broker in support of the Customer’s Open Position and Unrealized Losses.

Profit / Loss or "P/L" or Gain/Loss - The actual gain or loss in U.S. Dollars resulting from trading activities on Closed Positions, plus the theoretical gain or loss on Open Positions that have been Marked to Market.

Quote - A simultaneous bid and offer in a currency pair.

Rally - An upward movement of prices after a decline. The opposite of a reaction.

Range - The high and low prices or high and low bids and offers recorded during a specified time.

Reaction - A decline in prices after an advance. The opposite of a rally.

Realized Gain/Loss - The actual gain or loss resulting from closing an Open Position.

Scalp - Scalping normally involves establishing and liquidating a position quickly, usually within the same day, same hour, or even within a few minutes.

Short Margin - The client’s account condition when Equity becomes smaller than the amount required to keep the positions open.

Short position - Selling a currency in which you have no position in anticipation of it falling in value. At that point you will be able to "cover" your short by buying back the currency at a lower price. (If physical delivery of the currency is involved, the short seller will need to borrow the currency in order to make the delivery to the buyer). In foreign exchange, when the base currency in the pair is sold, the position is said to be short in that currency. It is understood that when the base currency in the pair is ’short’, the second currency will be ’long’.

Spot Contract - A Contract where settlement is in two Business Days.

Spot Rate - The rate of exchange between two Foreign Currencies for "Spot" value (normally settlement in two Business Days), generally quoted either in "U.S. Terms" (price of one unit of Foreign Currency expressed in U.S. Dollars and Cents) or in "European Terms" (price of one U.S. Dollar expressed in units and decimals of the Foreign Currency).

Spread - The difference between the ask (offer) and bid price in a market quote. The spread is the reason why a newly opened position’s mark to market, or valuation, will likely be negative. If a trader buys a particular currency she will pay the ask (offer) price, but the current mark to market will be based upon what the marketplace is presently paying for this currency. That price would be found on the bid side of the market quote, 5 pips lower than where she just bought the currency.

Stop/Loss Order - An order to buy or sell at a specified Foreign Exchange Rate away from the current market for the purpose of liquidating an Open Position during market conditions in which the Open Position has declined in value. Execution of such an order can occur at rates below (or above) the specified Foreign Exchange Rate.

Technical Analysis - Analysis of market price action. Technical analysis studies historical price changes with the aim to forecast future price movements. By studying price charts and a host of supporting technical indicators, we in effect let the market tell us which way it is most likely to trend.

Tick – Refers to a change in price, either up or down. Also called one PIP on the FOREX.

Trend – The general direction of the market.

Unrealized Gain/Loss - The theoretical gain or loss on Open Positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains/losses become Profits/Losses when position is closed.

Used Margin - The amount in the client’s account required to support all the current positions.

Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.