We have gathered all the terms that might be useful for you in trading. From now on this vocabulary, which is permanently updated with necessary trading terms, is at your disposal.
Knowledge of the terms below will help you to understand expert forecasts, news and analytical materials, as well as to efficiently communicate with other traders.
A contract for difference (or CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time (If the difference is negative, then the buyer pays instead to the seller). In effect CFDs are financial derivatives that allow traders to take advantage of prices moving up (long positions) or prices moving down (short positions) on underlying financial instruments and are often used to speculate on those markets.
For example, when applied to equities, such a contract is an equity derivative that allows traders to speculate on share price movements, without the need for ownership of the underlying shares.
NDD (No Dealing Desk) – innovative order execution system allowing to eliminate conflict of interests between a broker and a trader. By virtue of the NDD technology a client’s orders are transmitted directly via a special bridge to liquidity providers - the largest international banks (market makers), and the broker acts as an intermediary party. Notably, liquidity providers always compete with each other in terms of quotes, thus, ensuring that client’s orders will be executed at the best market prices available. For the intermediary services a brokerage company charges a part of the spread from each client’s transaction – mark up. Thus, the main conflict of interest in the Forex market is eliminated, for the broker stops being the counterparty for a client. Moreover, profit in the form of spread part (mark up) stimulates a broker to develop a client’s trading skills, for a successful trader makes transactions more frequently and of larger volume, thus, ensuring a larger remuneration for the broker.
The main advantages of trading using the NDD system:
- Transactions are executed directly in the interbank market.
- Small floating spreads and the most objective market prices.
- High order execution speed regardless of order lot volume.
- Convenience of using expert advisors and good opportunities for scalping.
- Anonymity of orders transmitted to liquidity providers. Market makers are not informed of price levels client's protective orders are placed at, therefore, they cannot affect the execution.
NDD system comes in two ways:
1. STP - Straight Through Processing
STP broker transmits clients’ buy and sell orders to the interbank market. This ensures split-second transaction execution. At that, a broker might have access both to one or several banks – the more their quantity is, the more advantageous the order execution conditions are for a trader. This execution model doesn’t imply conflict of interest between a client and STP broker, for they are not counterparties. All clients’ orders are automatically sent to a liquidity provider, while a broker charges a transaction commission.
2. ECN - Electronic Communications Network Within the framework of ECN system all players join in the form of united market without intermediary parties. ECN is a platform, where all players (which are banks, market-makers and individual traders) are counterparties to each other. Participants of the intrasystem trading relations are offered the best prices at each moment of time. All transactions are carried out in real time. Commission is charged for transactions within the system.
It is practice implying that positions with the same currency pair are opened and closed in several markets with the purpose to take advantage of short-term difference in quotes.
Forex-slang term for the Australian dollar (AUD).
One hundredth part of a percent. It’s used to measure changes in percentage rates of financial instruments. Each percent equals to 100 basis points. Percentage rate of 5% exceeds the one of 4.5% by 50 basis points.
The first currency in a currency pair, i.e. a currency you sell or buy.
Initial amount of funds you invest.
Pending order to buy at a price lower than a current one. The order is executed, if a current Ask price reaches the order level.
Pending order to buy at a price higher than a current one. The order is executed, if a current Ask price reaches the order level.
Indicates a current status of a trader’s deposit, excluding running transactions. Once a transaction is over, balance changes. If a trade brings profit, the balance increases, in case of loss it decreases.
Legal entity or an individual acting as intermediary party interconnecting a seller of a commodity, securities or currencies with a buyer. Broker gets remuneration in the form of commission.
Excess of country’s expenditures over revenue. The case that revenue exceeds expenditures is called surplus.
Total market value of all goods and services produced within a country in a year. This includes production of all sectors of economy, both by residents and non-residents.
Total market value of all goods and services produced in a year within all sectors of economy by a country’s residents both inside and outside of the country.
The second currency in a currency pair used to express price of a base currency. For instance, in the EURUSD pair the quote currency is USD.
A selected group of currencies used to determine a national currency's exchange rate against other currencies, or with the purpose to establish an international unit of account considering dynamics of all currencies included in the basket. This might be of dual currency type, i.e. consisting of two currencies, and of multi-currency type comprised of several currencies.
Amount of currency units of a country paid for a currency unit of another country. For a currency pair: Amount of quote currency units paid for a base currency unit. For instance, EURUSD rate = 1.4000 means that 1 Euro is equal to 1 dollar and 40 cents.
Financial characteristic indicating the intensity of price fluctuations. If a currency’s exchange rate fluctuate heavily, it's a case of high volatility. And vice versa, low volatility implies insignificant rate fluctuation amplitude. Volatility is prime financial indicator and notion of financial risks management.
International organization established in 1995 with the purpose to liberalize international commerce and to regulate trade and political relationships between participating countries. WTO is successor to General Agreement on Tariffs and Trade (GATT) established in 1947 that have been actually functioning as an international organization during almost 50 years. WTO is responsible for development and implementation of new trading agreements. Moreover, it makes sure that participating members observe all agreements signed by majority of countries and ratified by their parliaments.
Discontinuity. A price range not containing any quotes. It's visualized as a gap on a price chart.
A date of contractual obligations fulfillment. In the Forex market Spot date is conventional, i.e. settlement is made on the second business day after a transaction was made.
The case that a national currency officially depreciates in respect to foreign currencies or gold. Devaluation is a tool used by central banks to control national currency’s exchange rate opposite to revaluation. Within the framework of floating exchange rate a central bank can only affect the rate indirectly (currency interventions), instead of setting a fixed rate directly. Under these conditions depreciation or appreciation of a currency doesn't result from any official document being released, instead a currency's exchange rate is influenced by market mechanism.
The difference between maximum and minimum price within a certain time period.
Distribution of investments across various financial instruments.
The company’s employee entitled to process requests and orders of clients regarding their trading operations.
Technical analysis indicator measuring trend strength and probability of reversal.
(inflation index) - one of the price indices designed to determine average prices of goods and services (consumer goods basket) within a certain economical period.
A country’s central bank’s influence on the currency exchange market and currency exchange rate implicating purchase or selling a large amount of a foreign currency.
Generally, it’s quantitative index, computed using mathematical formula basing on time-series in accordance to a forecast objective.
British Pound Sterling (GBP). The origin of the title is that initially quotes were transmitted via a transatlantic submarine cable.
Forex-slang term for the New Zealand dollar (NZD).
A broker's remuneration for his intermediary activity.
The process of quotes flow provision by a broker to a trader in order for him to make trades.
Data concerning a financial instrument’s current exchange rate presented in the form of Ask and Bid prices. Example quote: EUR / USD 1.42251 / 1.42267, where 1.42251 is the price, at which a client can sell euro to a dealer, while 1.42267 is the price, at which a client can buy euro from a dealer
Proportion between borrowed and own funds. Leverage provides a trader with the opportunity to operate an amount exceeding his own funds 500 and more times. Thus, with $5000 on your account, you may dispose the amount of $2 500 000. At that, although borrowed capital is involved, in case of a lossmaking transaction you cannot lose more than you have in deposit. In our company it's guaranteed by our dealer. What is the advantage of a leverage? Here is a simple example: You have $ 5000 on your account. You choose a credit leverage of 1:100 (max. 1:1000) and buy 500 000 units of USD/JPY. Alternative 1. Within the day USD/JPY rate grows by 1%, and you obtain profit of $5000, i.e. you double your deposit. Alternative 2. Within the day USD/JPY rate falls by 1%, and you lose $5000, i.e. you lose your deposit. Conclusion: leverage is great financial might! Using a leverage one might multiply his capital fast or lose it.
Exchange rate between two currencies derived from exchange rates between each of the two currencies and the third currency. For instance, to calculate USD/JPY exchange rate EUR/USD and USD/JPY rates are used.
Straight line on a price chart connecting local minimums in case of ascending trend and local maximums in case of descending trend. Trend line visualize existing market trend. If it’s broken through, we can assume probable trend reversal.
Oppositely directed positions on the same financial instrument and of the same lot volume opened on a trading account. Buy and sell positions on the same instrument and of the same lot volume are called locked positions.
Transaction volume is measured in lot units. One standard lot amounts to 100 000 units of a base currency. In the trading platform one standard lot is designated as 1.0. Minimum lot equals to 1000 units of a base currency. In the trading platform minimum lot is designated as 0.01. Maximum lot equals to 10 000 000 units of a base currency. Maximum lot is designated as 100 in the trading platform.
Forex-slang term for the Canadian dollar (CAD).
Security deposit required by a dealer in order to keep an open position or a position a client is willing to open. Margin is determined specifically for each instrument.
Security deposit required by a dealer in order to keep an open locked position or a locked position a client is willing to open. Margin is determined specifically for each instrument.
It’s margin deficiency notification, i.e. funds on an account are insufficient to keep open positions.
It’s trading with the use of credit provided by a broker on security of margin. Proportion between margin and credit is determined by a credit leverage. In case of margin trading transaction volume far exceeds security margin.
A brokerage company’s remuneration included in spread. Floating spreads are comprised of two components:
1. Mark up – fixed value in points (a broker’s profit).
2. Variable part – liquidity provider’s spread (counterparty).
Major financial institutions and companies that might affect an exchange rate due to the fact that their operations constitute significant part of the market. Market makers carry out transactions both with each other and other lesser organizations. These transactions result in establishment of currency exchange rates valid during a certain time period.
Instantaneous order execution at prices a client sees in the trading platform.
A transaction kept open until the beginning of the next day.
A client’s order to a dealer regarding buying/selling of a currency or cancellation/modification of another order.
A client’s order to a dealer to buy/sell a currency once the order level is reached by the price.
Profit/loss of open positons. It’s also called paper profit.
Existing trade, open order.
Excess of profit over loss per a trade.
The difference between theoretical price (a price that seems the most probable at the moment) and actual price.
Conventional minimum value of a currency exchange rate change. For the majority of currency pairs (EURUSD, GBPUSD, USDCHF, etc.) a pip corresponds to the fourth decimal digit of a quote (0.0001), and for USDJPY (and other cross rates with JPY) it’s 0.01. Example of a one pip price change: 1.42805 -> 1.42815. The company transmits quotes with five decimal signs. Thus, minimum exchange rate change is 0.1 of a pip. For cross rates with JPY the company transmits quotes with three decimal signs. Thus, minimum exchange rate change for such cross rates is also 0.1 of a pip.
Market execution of orders. Position opening orders are executed at a market rate, without lags and requotes. If you choose this type of execution, you can be sure the order will be opened unconditionally at a price available in the market at the moment.
Forex-slang term for the Swiss Franc (CHF).
A fee charged for keeping positions opened the next day. Depending on interest rates in countries that issued currencies involved in a transaction a client might both make profit and lose funds due to swaps. Swap is charged at 4:00 AM, Moscow time, except Monday. From Friday to Monday swap is charged on Saturday at 01:00 AM, after trading process stops. In the night between Wednesday and Thursday triple swap-point value is charged.
Pending order to sell at a price higher than a current one. The order is executed, if a current Bid price reaches the order level.
Pending order to sell at a price lower than a current one. The order is executed, if a current Bid price reaches the order level.
A price level, where active sell transactions are likely to reverse ascending trend.
The difference between ASK and BID prices, expressed in terms of points.
Forceful closure of a client's open positions carried out by a dealer in case the client's account contains less than 20% of funds necessary to maintain Margin for open trades.
Pending order that helps a client to limit potential losses from an open position in advance. I.e. lossy position will be closed, in case the market reaches the order price.
Chart time period used to visualize price change in the financial market. Price change during a selected time period is displayed as one candlestick (one bar).
Pending order allowing a client to specify beforehand a level a profitable position should be closed at. I.e. profitable position will be closed, when the market reaches the order price.
Usage of price charts and their mathematical processing results (indicators, neural networks, lines, patterns, etc.) to forecast further market movement.
Minimum step of a price change. For example, if a price changed, we can say a tick occurred.
Unique id number assigned to each opened position or pending order in the trading terminal.
Buying or selling of any instrument carried out by a client.
Trading within the duration of a business day. All trading positions are closed the same day as they were opened, without keeping positions open after midnight.
A stop-order set at a specified distance from a current price. In case the price moves in the profit direction, the order moves along with it by a specified distance measured in pips. In case the price moves in direction of profit reduction, the order remains still. This tactics allows profits to run, while limiting the losses.
Tendency. Persistent and long-term market movement in a certain direction. Trends can be: ascending (bullish), descending (bearish) and sideways (flat). A trend line is often drawn on a chart connecting two or more price lows in case of ascending trend (line is located below a chart, visually supporting it) or two or more price highs in case of descending trend (line is located above a chart, visually limiting it). Trend lines are support lines (for ascending trend) or resistance lines (for descending trend).
Price range (in points) from a current market price. Within the range Stop loss, Take profit and other pending orders cannot be set. Prior to release of important economic news and several minutes after the release Stop&Limit levels might be increased.
“Freeze” level of orders that are approached by a current market price. Modification, deletion or closing of position that are about to be executed are forbidden.
Independent financial body executing functions of central bank of USA. Established on 23 December 1913.
Quote change of 100 pips visualized on a chart.
(sometimes shortened to FX; acronym from FOReign EXchange). Global market being a platform for transactions carried out to sell or buy the world's currencies.
Price movement prediction method based on analysis of economic data, political events, news, rumors and expectations.
A price, at which a client can buy a currency (larger value in a two-sided quote).
A price, at which a client can sell a currency (smaller value in a two-sided quote).