IFC Markets Forex Broker

Trading Terminology: Glossary of Forex and CFD Terms

This page provides a collection of terms necessary for traders to understand the complex terminology of Forex and CFD trading. The most commonly used trading terms, acronyms, and abbreviations are presented here explaining the core ideas and methods used by traders every day.

Each term is given a specific concept explaining its exact meaning in the financial market. At first sight, the terms in the dictionary of a trader may seem difficult for beginners, but this useful Forex and CFD trading glossary will make the learning process much easier.

In the terms of Forex and CFD trading you may find expressions you are unaware of and learn their meanings. By a simple click, you can get much more detailed information of these terms.

 

A   B   C   D   E   F   G   H   I   J   K   L   M   N   O   P   Q   R   S   T   U   V   W   X   Y   Z   A

Accelerator/Decelerator

The Accelerator/Decelerator technical indicator shows the acceleration or deceleration of the current market driving force.

Arbitrage

Simultaneous purchase of an undervalued financial asset and sale of its overvalued equivalent in order to make further risk-free profit from the price difference of assets which emerged as a result of temporary market inefficiency.

Ascending Triangle

The Ascending triangle graphical price pattern is a chart pattern of an existing trend continuation, which is usually formed in an uptrend and confirms its further direction.

Ask price

The ask price is the price at which one buys any financial instrument.

Ask Rate

See ask price

Asset

An instrument which has an economic value and may generate income in future.

Automated Trading

Automated trading gives an opportunity to make the trading process absolutely automated.

Awesome Oscillator

Awesome Oscillator (AO) is an indicator which reflects precise changes in the market driving force which helps to identify the strength of a trend including the points of its formation and reversal.

B

Balance/account balance

The total financial result of all the completed transactions and operations of the deposit/withdrawal of funds from a trading account.

Bank of Canada (BOC)

The Bank of Canada is the central bank of Canada.

Bank of England (BOE)

The Bank of England is the central bank of the United Kingdom.

Bank of Japan (BOJ)

The Bank of Japan is the central bank of Japan.

Bar chart

This type of chart contains four values of an asset price for each time interval: high, low, opening, and closing prices. High and low prices are reflected by a vertical line, while the opening and closing prices - by horizontal lines. The line on the left of the bar is the opening price, while the line on the right of the bar is the closing price.

C

Candlestick chart

This type of chart shows the opening and closing prices and also the highest and the lowest prices during a period. In case the opening price is higher than the closing price the body of the candle is shaded. In contrast, when the closing price is higher than the opening price, the body is not shaded.

CFD

The abbreviation CFD stands for “Contract for Difference”. It is a contract between two parties: the seller pays the buyer the difference between the current value of an underlying asset and its value at the moment the contract is made if the difference is positive, and, vice versa, if the difference is negative, the buyer pays the seller. With CFDs traders can get access to underlying assets without actually owning them.

Channel

The Channel is a sustainable corridor of fluctuations in the asset price with a constant width.

Clearing

The procedure of settling orders between transacting parties.

Commodity currencies

Currencies of the countries, whose exports are mainly based on natural resources. The group may include currencies of both developing and developed countries, such as the Canadian dollar, the Australian dollar, the New Zealand dollar, the Russian ruble and others.

Cross pair

An exchange rate between two currencies derived from their corresponding rates with a third currency. As a rule, the term refers to a currency pair which does not contain the US dollar.

D

Depreciation

Decrease in value of an asset.

Derivative

A financial contract, the value of which depends on the value of one or more underlying assets. Such underlying assets may include indices, stocks, commodities, currencies and other assets.

E

EURJPY

The currency pair, formed from Euro and the Japanese yen, shows how many Japanese yen are needed to purchase one Euro.

Expiration

The last day, when the deal on a derivative contract (futures, option, etc.) may be either executed or cancelled.

F

Forex Dealer

A Forex dealer is a financial company authorized to organize foreign currency trading.

Forward transaction

Forward transaction is an urgent transaction in which the seller and the buyer agree to deliver the sold asset (currency, commodity) on a certain date in the future, while the price of the asset is decided at the moment of making the deal.

G

Gap

A break between prices, when the asset is having a big move up or down without trades occurring.

H

Hedge/hedging

A strategy to decrease the risk of impact of volatile price fluctuations on trader’s positions. As a rule, hedging involves the sale or purchase at the forward price or the opening of a position on a similar asset. Hedging becomes more popular with the increase of market uncertainty.

I

Inflation

A process of a persistent rising of general level of prices of goods and services.

L

Libid/Libor

LIBID stands for London Interbank Bid Rate. LIBOR stands for London Interbank Offered Rate.

Limit order

An order to buy or sell the given amount of an asset at a specified price or at a better one. For example, if the current price of USD/JPY is 108.24/108.26 (Bid/Ask), the trader can set a buy limit order, for example, at 107.50, if the price falls and the Ask price reaches 107.50, the deal will be made and the corresponding Buy position will be opened.

Liquid market

A market where traders can buy and sell large volumes of assets anytime and with low transaction costs.

Lot

Standard quantity of financial assets in one transaction.

M

Margin call

Company’s request for additional deposit of funds into a trading account.

Money Flow Index (MFI)

Money Flow Index (MFI) is a technical indicator developed to evaluate money inflow intensity into an asset by comparing price increases and decreases over a certain period, considering trading volumes.

Moving Average Envelopes

The indicator is used to determine the overbought and the oversold situations.

O

OCO order

OCO order is a combination of two pending orders set to open a position at prices different from the current market price. Execution of one of the two orders brings to an automatic removal of the remaining one.

Offer

The suggested price at which a currency can be bought (“Ask” price).

Open position

Any transaction that has not been closed by a corresponding opposite transaction.

Order

Any instruction by a client on performing trading operations.

P

Pair

A financial instrument, which shows the value of one currency unit in terms of another.

Profit

A positive financial result from trading operations.

Q

Quoted currency

The second currency in a currency pair is called a quoted currency.

R

Rate

The value of one currency in terms of another.

Relative Strength Index (RSI)

Relative Strength Index was developed to assess the strength or, on the contrary, the weakness of a trend, measure the speed of the price change by comparing its increases and decreases on the basis of closing prices.

Retail customer

Any party to a forex trade who is not an eligible contract participant as defined under the Commodity Exchange Act. This includes individuals with assets of less than $10 million and most small businesses.

Risk management

The identification and assessment of the risk level, as well as taking actions to eliminate the risk to a new desired level and monitoring that new risk level.

Rollover

The process of extending the settlement date on an open position by rolling it over to the next settlement date.

S

Settlement

The business process whereby securities are delivered to the buyer in exchange for payment to the seller, which usually takes place one to three days after the deal.

Spot market

A market, where trades are conducted with instant execution. Also note, that in the spot market the proprietary rights are transferred from the seller to the buyer at the moment of making a deal, and the final settlements may take up to two working days.

Spot price

The current price in the spot market.

Spread

The difference between the Bid and Ask prices. In the quotes flow, received by the client in the trading terminal, both prices are presented. The current spread for a currency pair or an asset is an important part of liquidity of that financial instrument.

Stop Loss order

Stop loss order is designed to limit possible losses and is set at a price worse than the price of position opening or the price of pending order execution.

Strike price

The exchange rate at which the buyer of a call has the right to purchase a specific currency pair or at which the buyer of a put has the right to sell a specific currency pair. Also known as the 'exercise price.'

Swap

The operation of crediting or debiting acertain amount of money from a client’s account when rolling the position over to the next value date (“to the next day”). The size of swap is proportional to the volume of the position and depends on the current difference of interest rates of base and quoted currencies (or assets) in the interbank lending market.

Symmetric Triangle

The Symmetric triangle graphical price pattern is a chart pattern of an existing trend continuation, which may be formed both in an uptrend and in a downtrend, and serves to confirm its further directions.

T

Take Profit order

Take Profit is designed to close a position once the targeted profit level has been reached by setting it at a price better than the price of position opening or the price of pending order execution.

Technical Indicators

Technical indicators are the inseparable part of technical analysis. Their aim is to predict the direction of the market to help a trader. There is a great number of indicators used by traders for determining the market movement. Some traders prefer to use those indicators which have proved to be efficient in trading in the past, while others try using new indicators. Bill Williams' indicators, Oscillators, Trend and Volume indicators may serve as examples.

Tick

The smallest movement possible in the price of a financial instrument.

Trailing Stop

Trailing Stop mode maintains the mechanism of automatic shift of a linked Stop Loss order according to the following rule: if the profit of a position becomes higher than the set fixed distance, the Stop Loss order moves to the level on which the difference between the current market price and order price is equal to this distance.

Transaction date

The date of the deal.

Trend Continuation Patterns

Trend continuation patterns (graphical models, patterns) are formed during the pause in the current market trends, and mark the movement continuation rather than its reversal.

Triple Top

The Triple top graphical price pattern is usually formed in an uptrend anticipating its further reversal and decrease in prices. This pattern is considered to be more significant than the “double top”.

V

Volatility

A measure of risk, usually a statistical indicator, which evaluates the degree of the price fluctuation of an asset.

Volume Indicators

The Volume of deals characterizes the activity of market participants involved in asset trading, its strength and intensity.

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