Long Or Short, Currency Pair Dynamics And Orders
ADX (Average Directional Index)
A technical indicator that measures a trend’s strength.
To rise in value/price.
To take advantage of a price different between two or more different markets. Also refers to a trade that creates profit by exploiting the difference in prices of two similar (or identical) financial instruments, on different markets or different forms. Considered risk-free.
The opening hours for the Tokyo stock exchange (09:00 to 15:00 JST).
also known as the offer price, the ask price is the buying price of a base currency. It measures how many units of quote currency an investor needs to buy a single unit of base currency.
Australian Dollar, also referred to as AUD, Aussie, or AU$.
The total financial result of a completed transaction, as well as deposits/withdrawals from an account.
Balance of trade
The difference between a country’s imports and exports. Found by subtracting imports from exports.
The Interest rate at which a country’s central bank lends money to the country’s commercial banks.
The first of a currency pair. The second is called the quote currency.
The interest rate set by a country’s central bank to be used as a benchmark for all other interest rates.
Bank of Canada, Canadian central bank.
Bank of England, UK central bank.
Bank of Japan, Japanese central bank.
A debt security under which the issuer owes the holder of the bond a debt. Depending on the terms of the bond, the issuer may be obliged to pay interest and/or repay the principal at a later date (known as the maturity date).
A record of all positions held by a trader.
Benchmark for North Sea oil. Brent futures are traded on the ICE (International Commodities Exchange).
An intermediary between a buyer and a seller. Brokers may chare commissions or brokerage fees on transactions made.
A market with a prolonged upward trend in prices.
An investor who anticipates a rise in prices.
The Central bank in the Federal Republic of Germany.
An order placed with a broker to buy an asset when the price falls to a specified level. A sell limit is an order for a broker to sell an asset when the price rises to or beyond a specified level.
A pending order placed above current market prices. A buy-stop order is triggered if the market price of the instrument reaches the level of the stop order, opening a long position.
(Cotation Assistée en Continu): The benchmark French stock market index. It is a capitalization-weighted measure of the top 40 companies among the 100 with the largest market capitalization on the Euronext Paris.
Canadian Dollar, also referred to as a Loonie.
Used in technical analysis to show an instruments price action over a defined period of time. They are formed by a rectangle whose edges are defined by opening and closing prices, with thin lines on both ends recording highs and lows over the period measured by the candlestick.
Buying a currency with a high interest rate and funding it using a currency with a lower interest rate, with the aim of profiting from the interest rate differential.
(Commodity Channel Index): A cyclical indicator that is used to detect overbought and oversold states in the market.
Central bank intervention
A process by which a central bank attempts to influence exchange rates. The central bank may buy or sell its currency in a market to manipulate the price, or make a “verbal intervention” and vocally support weakening its currency’s exchange rate.
(Contract for Difference): a trading instrument that enables traders to speculate on stocks, commodities, and other instruments without needing to buy the actual asset. Contracts are entered into at the asset’s price at time of purchase and sold at the price for time of sale, with only the difference between prices being exchanged.
Someone who uses charts and technical analysis to find market trends.
A long or short position may be closed by making a trade in the opposite direction. A trader can close a short position by buying the same instrument, or close a long one by selling it. A closed position is said to be flat.
The price at which a financial instrument/security is liquidated. It also refers to the price of an instrument/security at the end of a trading session.
something pledged as security for the repayment of a loan. In case of a lack of payment, the collateral is forfeited.
A fee collected by a broker for handling an operation.
Raw materials used in manufacturing and in the production of foodstuffs. Commodities include metals, energy, grains, meats, fibers, oils, etc.
A principle utilized in technical analysis to show a short-term movement in price that goes in the opposite direction of a longer-term trend.
Also referred to as the “quote currency”, it is used as the reference or second currency in a currency pair.
A measure of borrowers’ credit-worthiness, they provide a consistent framework for comparing the credit quality of different issuers and bonds. Ratings are reached by an examination of a company or government’s financial history, current assets, liabilities, and future prospects. The main credit rating agencies are Standard & Poor’s, Moody’s, and Fitch. Ratings fall into three broad groups—Investment, Sub-investment, and Junk.
when a broker receives buy and sell orders for the same stock at the same price, and executes the trade internally without going through the market place.
A currency pair that doesn’t include the US dollar.
Currencies belonging to commonwealth countries—the Canadian Dollar, the British Pound, the New Zealand dollar, and the Australian dollar.
Oil that hasn’t been refined into products. Oil is priced by a benchmark (or reference crude). The two main benchmarks are the WTI (West Texas Intermediate) in the US, and Brent in Europe.
A system of fiat money used in a particular country as a form of exchange.
(Deutscher Aktien Index): A total-return index of 30 major German companies on the Frankfurt Stock Exchange.
A speculator who opens and closes a position in the same day.
The amount by which an asset reduces in value over time.
A payment made by a company to its shareholders, usually as a distribution of profits.
A person, company, or policymaker that prefers monetary policies based around promoting growth as opposed to fighting inflation (inclined towards maintaining low interest rates).
Dow Jones Industrial Average (DJIA)
A price-weighted average of 30 large US companies that lead their industries.
DXY (Dollar Index)
The USD Index is a measure of the value of the USD relative to a basket of currencies that includes the EUR, JPY, GBP, CHF, SEK.
EA (Expert Advisor)
A computer program used by trading platform software to manage positions and execute trader orders automatically with little or no manual control using pre-determined criteria.
EBS (Electronic Brokering Services)
A screen-based, anonymous trading system used by banks and other institutional investors to trade foreign exchange (also referred to as FX, FOREX), and other precious metals.
European Central Bank, the central bank of the Eurozone.
Statistical data about a country’s economy. These figures can include unemployment, consumer price index (CPI), gross domestic product (GDP), money supply, and housing related data.
Elliott Wave Theory
A set of principles used in chart analysis based on 5- and 3-wave patterns.
Emerging market currencies.
Countries that are developing economically. Economies can be any size (as large as China, or as small as Colombia). These markets are beginning to make up an increasing proportion of trading in financial markets.
EMU (Economic and Monetary Union)
A group of policies aimed at converging the economies of the European Union’s member states. EU Countries that are not part of the Eurozone are still included in the EMU.
The price at which an instrument was purchased.
End of Day order. An order set to be executed at the end of a trading session.
The total value of securities held in a margin account including what has been deposited by the client.
Exchange Traded Fund. A type of fund or trust that is publicly traded on stock exchanges.
Euro, the Eurozone’s currency.
US dollars held in European banks or common term referring to the currency pair EUR/USD.
Trading hours in most European countries. From 07:00 to 16:00 GMT.
A capitalization weighted index of 50 major European stocks that are “super sector leaders”.
The group of countries that used the Euro currency as their base currency. There are currently 18 Eurozone members.
One that sells goods to another country.
The Federal Reserve System is the central bank in the United States. Its FOMC (Federal Open Market Committee) is in charge of setting rates and monetary policy for the US.
The levels with a high probability of trend breaks or bounces, calculated as the 23.6%, 32.8%, 50% and 61.8% of the range. These numbers are reached using a Fibonacci sequence.
A series of numbers in which each number is the sum of the two previous numbers (e.g. 0, 1, 1, 2, 3, 5, 8….).
FIFO (First in First Out)
When a currency pair’s position is closed in the order in which it was opened.
A neutral state when all positions are closed and an investor is no longer exposed to market movements.
An analysis that uses the flow of buy and sell orders to explain exchange rates, as well as forecast future variations.
FOMC (Federal Open Markets Committee)
Comprised of the seven governors of the Federal Reserve System and the presidents of the 12 Federal Reserve Banks. The FOMC oversees the Fed’s open market operations and is in charge of setting US monetary policy.
Foreign Direct Investment
Direct investment in factories, stores, or other physical operations in another country by a foreign group or company. FDI plays a significant role in a globalized economy, since multinationals transfer manufacturing to countries with lower labor costs.
The buying and selling of currencies. Also referred to as FX and Forex.
Frankfurt Stock Exchange.
Equity – Margin. This refers to the amount of funds in a client’s account available for trading. Pending orders will be deleted if a client’s free margin isn’t enough to cover the margin required for opening an order.
Also known as the “Footsie”, the FTSE (Financial Times/Stock Exchange) index is a capitalization weighted index of the 100 largest qualifying UK companies traded on the London Stock Exchange.
Financial analysis based on economics and geopolitics. It is different from technical analysis.
A contract to engage in a financial transaction at a set point in the future, with a set price. This can include transactions in commodities, currencies, and even money lending.
Group of ten refers to a group of advanced industrial countries that was formed in 1962 that agreed to make their financial resources available to the IMF. Today, the term is used as shorthand for the leading industrial countries and more specifically their currencies, which are the most widely traded. This G10 includes the US, Japan, Norway, Sweden, Canada, New Zealand, and Australia.
A group consisting of the finance ministers and central bank governors of the US, Japan, France, the UK, Italy, and Canada. The former G8 included Russia, but they were expelled after the invasion of Crimea.
The difference between the previous period’s closing price and the next opening price. Since the FX market runs 24 hours a day, prices only close on Friday. Thus gaps usually only occur between Friday and Monday, but can also occur when major news cause major variance in prices.
The top 30 companies listed on the DAX.
Greenwich Mean Time. This time zone runs through Greenwich, England. GMT doesn’t change between seasons, despite London time changing.
Good ‘til cancelled. An order to buy or sell a currency with a fixed price or worse. The order is alive until it is manually executed or cancelled.
A currency that usually comes from an industrialized country and is freely convertible and widely accepted as a form of payment for goods and services. Hard currencies are expected to be relatively stable and highly liquid in the FX market.
Haven Asset (or safe haven)
Currencies or other instruments that investors will turn to in times of market turmoil. The most widely used haven currencies are the CHF and JPY. The USD and EUR have functioned as haven currencies at certain times.
Someone who prioritizes fighting inflation over boosting growth. Hawks prefer to keep interest rates high.
Taking a market position to offset open positions and neutralize them to a certain degree with respect to market movements.
The Hang Seng Index of Hong Kong stocks.
(International Monetary Fund): An organization dedicated to fostering global growth and economic stability. It offers policy advice and financing to member nations in economic straits. It also helps developing nations achieve macroeconomic stability and reduce poverty.
A sustained increase in the general price of goods and services in an economy over time. Most economic policy is aimed at achieving a moderate rate of inflation, and is usually directed by a country’s central bank.
Payments made to a creditor in return for use of borrowed money.
Introducing Broker (IB)
A person or legal entity that has entered into a business relationship with a broker for the introduction of clients.
Borrowing part of the money for an investment. In Forex, the money usually comes from a broker. Leverage allows investors to take a position larger than would otherwise be possible using only one’s own funds, thus increasing potential rewards and risks than otherwise possible.
An order for a broker to buy an asset at a predetermined lower price or sell an asset at a higher price or better. This is different from a stop order because it can only be done at the limit price or better. Limit orders are not executed if markets don’t reach limit price, or if the market is moving quickly.
The ease with which one can execute a trade or the size of a trade one can make without moving the price. Assets that have multiple participants ready to buy or sell at all times and where large orders can be easily executed are referred to as liquid.
07:00 to 16:00 London Time.
To buy a financial instrument expecting it to rise in value. To own an asset. In FX, because of the nature of currencies priced as pairs, entering a trade means you will always be long one currency and short another simultaneously. According to convention, going long on a currency pair means you are long the base currency and short the quote currency.
A placed order of 100,000 units for currencies and 100 shares for stocks. The traditional way to trade currency pairs is in standard lots, meaning that one is buying 100,000 units of base currency while selling the quote currency. A mini lot is 10,000. While a micro lot is 1,000.
The London Stock Exchange Group is a diversified international exchange group based in London.
(Moving Average Convergence/Divergence): A technical analysis indicator used to show changes in the strength, direction, momentum, and duration of a trend in an asset’s price.
The collateral provided by a trader when opening a leveraged position. This amount is required to be deposited by a trader into their account in order to open a position on credit, as well as maintaining it open.
An account that allows investors to trade assets worth a certain multiple of money deposited, as opposed to one-for-one investment in the underlying asset.
A demand by a brokerage that the investor contribute more funds to a margin account. This call is made when the value of investments fall to such a degree that the initial margin required for the initial position is insufficient. If this request cannot be met, the brokerage will sell securities held in the account until the investor can meet the margin requirement. This can result in considerable losses.
An order that enters at the current price, regardless of price. These can be long or short.
An order to buy or sell an asset at the current market price.
The current price for which the financial instrument is traded for on the market.
The overall attitude of investors towards a particular security or the general financial market. It is not always based on fundamentals.
MIFID (Markets in Financial Instruments Directive)
An EU law that aims to provide a uniform regulation of investment services across all the member states of the European Economic Area (28 member nations plus Iceland, Norway, Liechtenstein).
MoM (Month Over Month
The change in data in a given month compared to the previous month.
A tool used in technical analysis to measure the speed and strength of a price movement by comparing prices to earlier ones. This is usually displayed as a line on a chart where Y represents magnitude and X representing time. The slope is proportional to the speed and strength of the movement. It is used to show overbought and oversold conditions, as well as points where investors might want to buy or sell.
Moving average (MA)
A basic technical indicator. It shows the average rate as calculated over a series of time periods.
The largest stock market in the US. The NASDAQ-100 is a modified capitalization-weighted dindex of the 100 largest and most active non-financial issues listed on the NASDAQ exchange.
Nikkei 225 Index
A price weighted average index comprising the top 225 companies on the Tokyo Stock Exchange.
New Zealand Dollar, also referred to as the Kiwi.
OCO (One Cancels the Other) Order
A pair of orders that negate the other. If one is executed, the other is automatically cancelled.
OECD (Organization for Economic Cooperation and Development)
A group of 34 industrially and developmentally advance countries. The organization’s purpose is to promote the socio-economic well-being of countries around the world.
The price at which a seller is willing to sell.
A trade that hasn’t yet been closed.
A contract that gives the buyer the right (NOT the obligation) to buy something at a preset price within a fixed period of time.
A request to a broker to carry out a transaction on one’s behalf.
OTC (Over The Counter)
A market trade conducted directly between dealers and principals over a phone and computer network as opposed to via an exchange.
A term used when prices are seen to be rising more than they should according to fundamental factors or technical analysis.
A trade that stays open after markets close.
a term used when prices are seen to be dropping faster than they should according to fundamental factors or technical analysis.
PAMM (Percentage Allocation Management Module)
A broker-side system that lets investors invest with traders, and allows traders to manage investors’ funds using the broker’s platform
The surplus dollars held and invested by members of the oil producing countries.
Basic units used to measure the change in the exchange rate for a currency pair. Pips can be broken down into pipettes, decimals, or fractionals.
A collection of investments owned by an individual or financial institution. These can include stocks, bonds, futures, options, or real estate investments.
The net balance of outstanding purchases and sales held by a trader. This can refer to a trader’s net balance with a particular security or market, or in all the ones the trader is active in.
An investment bank that offers a wider range of services to the specific needs of large clients. Additionally, these companies can also raise funds and manage cash.
The initial amount of money invested.
Positive money gained for closing a position.
Creating profits by closing an existing position.
An attempt to circumvent a total drop in interest rates (to 0%) and continue monetary easing by increasing the amount of money available. This involves the central bank buying government bonds or similar assets from the private sector. Central banks do this to prevent economies from falling into deflation.
Reserve Bank of Australia. Australia’s central bank.
Reserve Bank of New Zealand. New Zealand’s central bank.
The profit or loss taken after liquidating a position.
Also referred to as the Yuan, this is name of the official currency from the People’s Republic of China
A price level where heavy selling is likely to happen, making it hard for the price to go above the level.
An individual trader, not an institution.
A temporary reversal in a price’s direction.
Sveriges Riksbank. Sweden’s central bank.
Calculating one’s risk and taking steps to reduce it so investors do not lose money.
RSI (Relative Strength Index)
A technical indicator that measures the power of directional price movement. It compares the ratio of high closes versus low closes. RSI is usually calculated in 14 day spans. It oscillates between 0 and 100, where a value of 30 means oversold and 70 means overbought.
A capitalization-weighted index of the shares of the 500 largest publicly traded companies on the New York Stock Exchange or NASDAQ. It is designed to be representative of the US’ industries, though there are non-US companies on it.
A capitalization-weighted index of the Australian Securities Exchange.
Seasonally Adjusted Annual Rate
A trading style that consists of taking positions that are opened for extremely short windows with the aim of making quick, small profits.
SEC (Securities and Exchange Commission)
The regulatory US agency charged with oversight of the US’ financial markets.
When falling prices create panic that leads to investors selling their holdings, further lowering prices and creating a self-reinforcing downward spiral.
Risk that one party in a transaction will not deliver its terms of contract at settlement.
Also known as a stock, a share represents a part ownership of a company, as well as the right to receive a portion of the company’s profits.
A single candle formation that signals potential for a trend reversal. It has a small body, little to now shadow, and a long upper shadow.
To borrow and sell a financial instrument expecting it to decrease in value, at which point one can buy it back and repay the loan at a profit.
Borrowing a security and selling it with the aim of buying it back at a later time, with a lower price, and returning it to the lender, creating a profit from the decline in price. Short covering refers to buying back that asset and reducing or closing the short position.
In FX, this occurs when a limit order or stop loss happens at a worse rate than originally established in the order. Slippage happens when volatility in the market makes an order at a specific price impossible to execute. When this happens, many dealers will execute the trade at the next available price.
The purchase or short-selling of securities with the goal of profiting from short-term price variations. Speculation is sometimes perceived negatively. Speculative trading injects capital and liquidity into financial markets and in normal times helps normalize prices. However, in cases of economic or political crises, It can exacerbate market fluctuations.
A market where securities and other assets are traded instantly.
The difference between the ask (buying) and bid (selling) price of a currency. The bid is always less than the ask price. Spreads are higher when there is overall low liquidity or higher volatility.
A betting method that allows traders to take a position on market fluctuations, without requiring a purchase of the underlying asset. This kind of betting is leveraged. Spread bettors are betting on markets rather than trading them.
When buy and sell positions are equal.
100,000 units of a base currency that is being bought or sold.
A market where financial instruments are bought and sold.
A measure of change in an economy or a securities market. With financial markets, indexes are numerical representations of how stocks performed compared to a base reference date. Every index has its own calculation methodology and is represented in terms of changes from baselines. Percentages are more important than actual numeric values.
An order that is triggered by an asset reaching a set price. After it does so, the trade is executed at current market price. By combining with a limit order, investors can avoid having orders completed at unfavorable prices.
A way to register with a broker head of time the price to close out a sale if they lose money. Stop losses are vital because some trades will inevitably lose money. Stop losses permit traders to decide how much they can lose, as well as ensuring that limit is respected.
STP (Straight Through Processing)
When a broker passes an order directly from a client to a market.
Also known as a resilience test, it examines a bank or insurance company’s ability to withstand major market fluctuations.
In technical analysis, support levels are prices on the chart that are below the current price level. In these areas, demand is considered strong enough to prevent further price drops.
A temporary stop in trading.
Interest that is paid or earned for extending a position at closing without settling. Swap rates are calculated as the overnight interest rate differential in a currency pair. These rates can generate extra profit or loss.
A change in value.
Currency of Switzerland. Also referred to as the Swissie.
Risk that an event could cause losses to all members of a group. The interconnections between a group would cause all members to collapse if one party in the group fails.
Take Profit (T/P)
An order placed with a broker to close a trade at a set price in order to lock profits.
The study of historic market behavior using statistical analysis and charts, that aims to forecast future price fluctuations.
A market with little or no liquidity or flow.
The smallest movement in the price of a security or contract. It also refers to the change in prices of securities from trade to trade.
Purchase of sale of an asset to be delivered the following trading day.
A temporary stop in trading
The spread between the lowest and highest price of an asset for a given time frame.
The amount of units in a currency trade. This refers to lot sizes in trading.
A government debt security issued with a maturity of 10 or more years. Any time period under ten years is referred to as a note, while securities with under a year of maturity are referred to as bills.
A general direction in the market.
Used in technical analysis to connect high and low points in price charts. Lines that connect peaks show chart resistance, while lines connecting troughs indicate support.
A pattern used in technical analysis where trendlines converge to reflect a price range narrowing over time.
A line found in MACD theory that aims to predict upcoming trends. This line is a 9-period exponential moving average of the MACD.
A pattern used in technical analysis. It forms when a market rises or falls three times to a similar level before reversing. This indicates strong support or resistance, and a possible fluctuation in market trends.
A potential profit or loss on a still open position.
A higher price quote for an instrument from the previous transaction.
A rule set by the SEC that all short sales must be at a higher price than the previous transaction. This was put in place to prevent sellers from selling into a falling market.
The amount of money in a trading account available for trading.
The amount in a trading account used to hold positions open.
The final date for a bought or sold financial instrument to be delivered.
Virtual Private Server (VPS)
A virtual environment on a dedicated server which is used to run software independent of a user’s PC. FX traders use VPS to host platforms and expert advisors without risk of interruptions.
A measure of the price fluctuation for a financial instrument. Volatility doesn’t measure direction of changes, but magnitude and frequency of these changes over a period of time. Currencies can be very volatile, without actually changing prices.