In our guide we have already dealt with important technical issues, but sometimes you have to step back, because mastering an instrument means first knowing the true and pure meaning of technical terms.
The Terminology is very important and it is too often taken for granted.
The price at which the broker sells the currency pair and the price that trader pays when he buys a currency pair.
Slang name given to Australian dollar (AUD).
It is the first currency that makes up a currency pair, the one that remains constant (eg. If the pair is EUR / USD the “base currency” is the Euro).
It is the dominant base currency. As a result, foreign exchange rates against the Euro will be identified as EUR / USD, EUR / GBP, EUR / CHF, EUR / JPY, EUR / CAD, etc. The British pound is the next base currency used in the hierarchy. The major pairs against the GBP are identified as GBP / USD, GBP / CHF, GBP / JPY, GBP / CAD.
Balance of Payments
The registration of all the transitions between a country and the rest of the world; It includes information on the value of trade in goods and services and on the value of the transfers.
It is an operator or a financial intermediary. A broker is a person or a company that handles customer orders for the purchase or selling of a currency. To do so, he applies a fee for the service provided (commission).
Market where prices rise rapidly, due to the general optimism.
Graphical representation of market prices. It indicates the values (Open, High, Low, Close) for each period (minute, day, week, month).
The lines placed above and below a moving average, constituted according to the absolute value of the standard deviation of the moving average.
The bandwidth will tend to increase when the market phases are very volatile and to contract in case of a limited price variation.
The breaking point or drilling of a level.
Slang name given to GBP / USD.
Interbank interest rate from day to day.
Money generated by a company in a given period of time; available for new investments or compensate invested capital.
Market for immediate purchases and selling of currencies.
It is the main monetary authorities of each country, controlled by the central government. It is responsible for the issuance of the currency, monetary policy, interest rates and the regulation and supervision of the banking private sector. The Federal Reserve (Fed) is the central bank of the United States. In Europe there is the European Central Bank (ECB) and in Japan there is the Bank of Japan (BOJ).
The exchange rates between two currencies generally obtained from the exchange rates of individual interest of two currencies measured by the US dollar.
It is normally expressed as a 5-digit number, with 4 decimal places.
When the EUR / USD is quoted at 1,5000, 1,5000 means that it takes the quote currency (USD) to buy one unit of the base currency.
Risk of suffering losses in case of change in exchange rates.
Contract by which two parties agree to exchange two series of payments, denominated in two different currencies, in order to meet coverage requirements opposing the risk of changes in exchange rates.
Representation of the price bars. The oldest analysis tool widely used in Forex trading. The analysis of prices conducted with these bars is named ‘Candlestick analysis’.
It is the price of the last transaction executed during the period taken as reference.
It refers to transactions that were initiated and closed on the same Forex days. Forex day does not coincide with the calendar day.
General decrease in price levels, which is a negative inflation.
Trading account that simulates market conditions using virtual money.
Decrease of the vale of a currency compared to the value of another currency. When a country devalues its currency, the goods that are imported become more expensive, while the goods that are exported are less expensive and thus more competitive.
The sale of goods by foreign companies at a price below the unit cost, or lower than the price applied in the country to which the company belong.
Sudden and large price movement downward.
Japanese candlestick characterized by equivalent or almost equal opening and closing prices.
Maximum loss recorded by a trading system or a strategy. It is one of the most important parameters for evaluating a system or a trading method.
Abbreviation for European Monetary Systems: the agreement among the European Union member countries to maintain the alignment among the exchange rates of their respective currencies.
United States Central Bank.
Name used by traders to define the euro (EUR).
Fixed Exchange Rate
Official rate set by monetary authorities for one or more currencies.
Position of equilibrium. A book is balanced if a negotiation does not have any positions or all positions are canceled with one other.
Foreign Exchange Swap
Changes in exchange rates. Transaction which involves the actual exchange of two specific dates between two currencies (main) — a date with the rates determined at the conclusion of the contract (“short leg”) and a date long term with a fixed rate at the time the contract is signed.
Market where the purchase of a currency is carried out simultaneously with the sale of another currency. The majority of FX transactions are calculated in reference to the US dollar.
It starts with the opening of Sydney stock market (Australia – 8:00 local time in Sydney) and ends with the closing of New York stock market (United States – 17:00 local time in New York). Since the closing time of New York stock market coincides with the opening time in Sidney, Forex trading works from Sunday to Friday without interruption.
Macroeconomic and trade data analyses that is designed to determine the future evolution of financial markets.
GTC – Valid until revoked
Order to a counterpart to buy or sell at a fixed price. This order is valid until the moment it is not canceled by the client.
Private investment fund, intended for investors who have large capital (generally the minimum investment is $1 million) and specialized in short-term high-risk speculations. Hedge funds operate on bonds, currencies, stock options and derivatives.
Practice that consists in engaging in investment activity in order to cover the losses of another investment, for example by selling to offset a previous purchase. Although hedges reduce potential losses, they also tend to limit the potential profits.
Normally, the negotiated price higher or lower for the underlying asset during the current session.
Company that owns and manages investments in other companies for the purpose of monitoring their activities or to realize gains.
Correlation between different kind of orders; the execution of an order is conditioned upon the occurrence of another order.
Increase in the general price level.
Exchange rates at which large international banks quote other large international banks.
Initial deposit required to enter a position which serves as insurance for future executions.
Collaboration between two or more companies for the construction of a common project for a synergistic use of resources.
Key reversal day
event that occurs on minimum or maximum of the market, with a new minimum or maximum, followed by a closing opposite sign and lower than the day before.
An indicator that has anticipatory characteristics compared to the reference series. Economic variables that are considered to predict future economic activity.
The relationship between the value of an operation and the deposit required to do so. In other words it means to borrow capital trusting to run them over so well getting a higher return.
The order to buy at a lower or equal price to a specified amount, or to sell at a greater or equal price than a certain amount.
Market position where the trader decided to buy a currency that he did not own. When it is used the expression “long on the dollar,” it means the trader wants to buy dollar. The long position will appreciate if the price of the currency pair rises.
The initial investment required to open a position, used as hedging on the risk that runs the broker. The inverse value of the percentage of margin is the leverage ratio.
Demand for additional funds. Condition imposed by a clearing company to a a client to pay a minimum deposit to cover an adverse movement of the market.
Special shape of candlestick graphics characterized by a single candle without “shadows” or “tails”.
Indicator made through the calculation of an average of prices according to a constant extension time, in which the most remote values are gradually replaced with newer ones.
OB – Overbought
Level of the current price of a given market reached by an indicator. Prices are expected to go down.
O. C. O. Order – One Cancels Other Order
Detailed order in which the execution of an order automatically cancels the other.
Market that has not been regulated by a material payment or that was not reversed by another equal or opposite market for the same date adjustment.
It indicates the price of the first transaction carried out in the period under review. Also called Opening Price.
It gives the right to the holder to buy (call option) or sell (put option) within a given time, a specific asset at a predetermined price (strike price). Options can be related to individual equity securities (stock options) or future (future option).
OS – Oversold
Level reached by an indicator which promises a price reaction upwards.
OTC – Over the count
Transaction conducted on the open market not subject to a specific regulatory authorities. It is used to exchange electronically different financial assets listed or unlisted in other official stock markets.
Additional profit beyond expectations
Negotiation that remains open until the next day.
Graphic element whose appearance often anticipates relevant price fluctuations.
Term used in the forex market to represent the smallest possible increment for an exchange rate.
Number of contracts (lots) open at a given location.
Trading activity that provides for the maintenance of the positions on the overnight market.
Price action that often occurs during the breakout of support or resistance. At such action often follows a recovery attempt of the level violated before the final inversion.
Consistent upward subsequent to a horizontal development or to a general drop in prices.
Interval between two price levels, typically the highest and lowest of the session or the period.
Temporary weakness of the price that comes after a growing movement.
Threshold for which there is an obstacle blocking the continuation of the rise on the graph (because of a tendency to sell).
The price movement that goes in the opposite direction compared to the previous tendency.
Numerical sequence also adopted to determine support and resistance levels along with price targets.
Inversion of position.
Inversion of the trend.
Intense trading activity with many short and very short-term operations.
Sell contracts or securities without owning them to gain by purchasing them later or with a lower price.
It happens when a trader sells a currency pair. The short position will appreciate it if the pair drops.
Additional cost compared to the fees due to the difference between the estimated and actual costs in a transaction.
Sudden and large price movement upward
Transaction that occurs immediately while the actual handover of the funds is determined in the next two days.
Current market price.
The difference between the buying and selling price.