Glossary

In order to understand the financial markets, it is important to get familiar with the language of the markets. This refers to being able to understand and use the common terminologies and words that constitute the language of the financial markets. That is why this glossary has been compiled; to break down these commonly used words so as to enable a good grasp by the beginner.

Here is the glossary of financial terms, arranged alphabetically from A-Z for easy understanding.

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

A

Acquisition

An acquisition refers to the takeover of one company by another, either by the purchase of a majority or the entire stake of the acquired company.

Appreciation

Appreciation describes a situation where the price or cost of an asset rises in response to market forces. Appreciation is desired when a trader has bought an asset.

Arbitrage

A form of trading in which a trader buys an asset on a cheaper exchange/location, and sells it on another location or exchange where the asset commands a higher price, so as to benefit from price differentials on the same asset.

Ask

This is the price at which a dealer offers an asset for sale to the buyer/trader. This is the price shown on the right hand side of a price quote. In a quote of 1.3105/1.3108, the ask price in the quote is 1.3108.

Asset

An asset refers to an instrument which is traded in the financial markets. Commodities, currencies, ETFs, options, cryptocurrencies, bonds, interest rate instruments, are all referred commonly to as assets.

Asset Classes

This is the method of arranging instruments in groups, based on the display of certain commonly held characteristics by certain assets. The common asset classes are currencies (FX), stocks, commodities, indices, bonds, ETFs, etc.

At the money

The term “At the money” is used commonly in options trading to describe the closeness of an asset price to the strike price. In other words, at-the-money describes the proximity of the market price of an underlying asset to the price at which the contract is exercised.

Automated trading

This is the use of software to execute buying and selling orders. It could also be used to refer to the use of trading algorithms/computer programs to automatically execute orders in the market.

Averaging Down

It is a method of reducing cost of purchase of an asset, in which the trader first purchases a certain quantity, and then purchases a lot more if the price of the asset falls. When an average of the trading cost and number of asset units purchased is done, it reduces the cost of the initial, more expensive asset purchase.

B

B

Bank of England

Also known as the BoE, the Bank of England is the Central Bank of the United Kingdom. The Bank of England is also known colloquially as the “Old Lady of Threadneedle Street”.

Base Currency

This is a terminology used in the FX market to describe the currency shown on the left side of a currency pair. For example, in the currency pair EUR/USD, the base currency is the Euro.

Base Rate

This is the rate at which the central bank of a country will lend to a commercial bank. It is also known as the interest rate, monetary policy rate, cash rate, etc.

Bar

This is a Western method of price representation which features a vertical line and two short horizontal lines, one at each side of the vertical line.

Basis Points

A basis point is one-hundredth of one percent, or 0.01%. It is a unit of measurement of the interest rates of a country. It is also abbreviated as the bp, and pronounced as “beep”.

Bear Market

A bear market is one characterized by a continuous downward trajectory in the value of an underlying asset or a market. A currency pair is said to be in a bearish mode if its price action heads downwards.

Bid Price

This is the price shown on the left of a price quote. It is the price at which a dealer is willing to purchase an asset from a trader. In a price quote that states 1.3005/1.3008, the bid price here is 1.3005.

Blue-chip stocks

These are shares of companies that are reputable and financially stable. Typically, blue chip stocks are the most expensive stocks in a stock market.

Bonds

Bonds are debt instruments where individuals or corporate entities provide lending to governments and companies for a fixed period of time, and get paid an interest for doing so. Depending on the entity you are lending to, bonds are classified into government bonds and corporate bonds.

Brent Crude

This is a benchmark for trading heavy crude oil contracts, derivatives and futures.

Bretton-Woods Agreement

This is the agreement made in 1944 in the US town of Bretton Woods by the major world powers to set out a post-World War 2 economic blueprint for the world. This conference led to the emergence of the US Dollar as the global currency of trade, and introduced the gold peg to the world.

Brexit

A word coined from “Britain” and “exit”, it refers to the impending withdrawal of the United Kingdom from the European Union, according to the results of a referendum to that effect in June 2016.

Broker

A broker is an individual or firm that acts as an intermediary in trades by bringing buyers and sellers together on an exchange. In some cases, brokers trade on an exchange on behalf of their clients.

Bull Market

A bullish market is one characterized by rising trend in the market, or a rise in value over time of the underlying asset.

C

C

Cable

The Cable is a market slang that is used to refer to the pairing of the British pound sterling and the United States Dollar (GBPUSD). This name came about because the rates of the two currencies were transmitted between London and New York in the 19th century via transatlantic cables.

Call

This is a contract in the options market which gives the buyer the right, but does not obligate the buyer to purchase a certain asset at a certain price before the market expiry.

Candlestick

The candlestick is a form of price action display on the charts which uses shapes that resemble a candle. They are of Eastern origin, being first used by the Japanese to trade rice contracts in the 17th century.

Central Bank

This is an agency of a central government that determines and manages the monetary policy as well as controls the money supply in that country. Examples of central banks include the US Federal Reserve, Bank of England (BoE), the European Central Bank (ECB), the Bank of Canada (BoC)and the Swiss National Bank (SNB).

Chartist

A chartist is a market professional or trader who uses price information on charts to determine the future movements in the price of an asset. Chartists are also known as technical analysts.

Closing Price

This is the last price that an asset traded within a trading day.

Commodity

This is a basic asset that is either obtained from the ground, or derived from agriculture, which is used as a raw material in many industrial processes. Examples are gold, silver, platinum (minerals), corn, cocoa, coffee (agricultural).

Contracts for Difference

Also known as CFDs, Contracts-for-Difference refer to a form of financial trading where the physical assets do not exchange hands between the seller and the buyer. Rather, it is the difference in entry price and expiry value that provides the basis of trade settlement, either in profit or loss.

Counter Currency

A term used in the FX market to describe the currency listed on the right hand side of a currency pair. For example, the counter currency in the AUD/USD is the US Dollar.

Cross Currencies

Counter currencies refer to pairings of currencies that do not feature the US dollar. Examples include the EUR/GBP, GBP/JPY and EUR/CAD.

D

D

Day Trading

Day trading is a trading style where trades are opened and within the market hours of a single trading day.

Dealer

A dealer is an individual or firm that acts as a counter-party to a trading transaction. They earn a profit when the opposing party suffers a loss in the trade.

Dealing Desk

The department in a retail brokerage office that fulfills trade orders off-exchange instead of sending them to an exchange or the interbank market for fulfillment. Dealing desks are a common feature in the spot retail FX market.

Delta

The delta is a term commonly used in the options market to refer to the price movement of a derivative in relation to the price change of its underlying asset. It is also known as the hedge ratio.

Depreciation

This is a drop in the value of an asset as a result of reduced demand or increased supply. In other words, depreciation is a market-driven fall in the value of an asset.

Derivative

This is a financial product that allows traders to speculate on the change in the value of the asset without owning the asset themselves. Two parties are required to execute a derivatives contract.

Devaluation

This is a government-induced drop in the value of an asset. Market forces do not play a part in devaluation, and it is used as a component of a country’s fiscal or monetary policy.

DMA

DMA or direct market access, is a form of order dealing which provides the trader with pricing and execution from the global markets as opposed to a local/Over-the-Counter execution. In forex, DMA provides access to the interbank market and bypasses the dealing desks.

Discount rate

This is the rate at which banks and other financial institutions borrow finance from the central bank.

E

E

Earnings Per Share

A term commonly used in the stock markets to refer to the total amount of profit that a company has made, divided by the number of shares of that company that are listed on a stock exchange. It is also known as EPS.

Economic Indicators

These are data issued periodically to indicate the state of various components of national economies. Data include those on employment, manufacturing, inflation, gross domestic product (GDP), etc.

Euro

This is the currency or legal tender for the European Union member states. It came into being in 1999 and by 2002, it replaced the national currencies of EU member states.

European Central Bank (ECB)

This is the central bank for the European Union. Also known as the ECB, it is responsible for monetary policy in the Eurozone and is also a lender to the central banks of individual Eurozone countries.

European Monetary Union

This is the agency that set out the framework for the launch and operation of the single Eurozone currency known as the Euro.

Exchange

This is a marketplace where assets and derivatives are traded. An exchange can be a physical exchange (such as the Chicago Mercantile Exchange), or it can be virtual e.g. the FX market.

Exchange Rate

This is the price at which one currency can be exchanged for another currency.

Execution

This is the completion or fulfillment of all trade orders made in a market or exchange, and is usually carried out by brokers.

Expiry Date

This is a term commonly used in the options and futures markets to define the date at which all open positions for a futures or options contract must be exercised or they are automatically closed.

Exposure

Exposure refers to the percentage of a trader’s equity that is committed to open trades in the market. It can also be defined as the total possible risk at any given time.

F

F

FCA

FCA stands for the Financial Conduct Authority, which is the agency responsible for the regulation of the financial markets in the United Kingdom.

Federal Reserve

Also known as the Fed, the Federal Reserve is the central bank of the United States. It is composed of the different Reserve Boards, whose constitute the US Federal Open Market Committee that regulates money supply and interest rates.

Fill

This is the fulfillment of a trade order to completion. An order in which the total number of units to be traded has been exchanged between the buyer and seller is a “filled” order.

Fixed Exchange Rate

This is a currency system in which the exchange rate is controlled by the national government through its central bank. An example of a country maintaining a fixed exchange rate system is China, which sets the reference rate between the Yuan and other currencies.

Floating Exchange Rate

This is a system where the value of a national currency relative to other currencies is determined by the forces of demand and supply and not by government fiat.

Forex

This is also known as foreign exchange or FX. This is the buying and selling of a foreign currency with another currency.

Fundamental Analysis

This is a method of asset valuation using extrinsic information such as economic, financial, market-based and political events, as a means of predicting future price movements of that asset.

Futures Contract

A futures contract is an agreement between two parties to deliver a physical asset on a given future date and at a specified price.

G

G

Good for Day (GFD) Order

This is a limit order that remains open until the end of the trading day, when it is then cancelled automatically.

Gross Domestic Product (GDP)

This is the total value of the goods and services produced within a country’s borders over a certain period of time. It indicates the overall health of a country’s economy.

GTC (Good Till Cancelled) Order

This is a form of limit order for future fulfillment, which remains open until it is either triggered or cancelled by the trader.

Guaranteed Stop Loss

A form of stop loss order which provides an absolute guarantee of order fulfillment at the set price, irrespective of market conditions or volatility.

H

H

Hawks and Doves

A term used to categorize members of a central bank’s voting committee ahead of an interest rate decision, on the basis of those who support tightening of monetary policy (hawks) and those in favour or loosening or rate reduction (doves).

Hedging

This is a trading practice in which an order is placed in order to reduce the risk of another open position in the market.

High Frequency Trading

This is the practice of placing and fulfilling many orders in super-fast time using advanced computer software known as algorithms. Also known as HFT for short, this style of trading is used to get the best price for very large orders, or to profit from quick entries and exits on assets.

I

I

Inflation

This is an economic condition where the cost of goods and services erodes the purchasing power of the national currency.

Interbank Market

This is the global market where foreign currencies are priced and traded.

Intervention

This is a market action taken by a central bank to either shore up or depress the value of its national currency. Interventions are used as a tool in a country’s monetary policy to control the exchange rates.

J

J

J Curve

This is the effect that devaluation of a national currency is expected to have on the country's trade balance.

K

K

Kiwi

This is the trading slang for the New Zealand Dollar (NZD). It gets its name from a flightless bird known as the Kiwi, which is found only in New Zealand.

L

L

Leverage

This is a tool that enables the trader to increase market exposure without committing additional capital or equity.

Limit Order

This is an instruction to the broker to execute a trade in future at a rate that is more favourable to the trader.

LIBOR

The London Interbank Offered Rate is the rate at which a bank can borrow money from another bank, within the United Kingdom.

Liquidity

This is the ease at which traders can buy and sell assets in a market or an exchange without noticeable impact on the cost of the transaction, or price stability.

Long

A “Long” is a term used to refer to an order to buy an asset so as to benefit from a rise in price.

M

M

Margin

This is the equity that a trader must put up as collateral for a leveraged trade.

Margin Call

This is an instruction by a broker to provide additional trading funds to cover an over-exposed position. It is usually issued when a position has moved against the trader and is about to erode the entire equity.

Market maker

A market maker is a dealer who is ready to take up two opposing trade situations for the purpose of offering the underlying asset to traders on both sides.

N

N

Non-Farm Payrolls

This is the data released by the US Department of Labor, which measures the employment change in all sectors of the US economy except the agricultural sector.

O

O

Offer Price

This is the same as ask price. It is the rate at which a dealer wants to offer the asset for sale.

Option

This is a financial instrument that offers the trader the right – but not the obligation – to purchase or sell an asset when a certain price is attained within a given time period.

Order

This is an instruction sent by the trader to the broker to either close or open a position at a given price, either immediately or in the future.

OTC

OTC or Over-the-Counter trading is a form of trading which does not occur on a formal exchange.

P

P

PIP

The Percentage Interest Point is the unit of measurement of the movement of an asset, commonly used in the FX market.

Position

This is the total net exposure of equity in a trading account to a given asset.

PPI

The Producer Price Index is a measure of the degree of inflation which affects materials used in production or manufacturing.

Profit Taking

This refers to the closure of open positions in order to convert unrealized profits in open positions to actual profits.

Q

Q

Quantitative Easing

An economic policy deployed by many central banks following the global financial crisis to stimulate economic recovery by reducing interest rates and increasing the money supply.

Quote

This is to describe an indicative market price at which currencies can be bought or sold, usually for the trader’s information (but not for dealing).

Quote currency

This is the currency listed on the right side of a currency pair. It is the same as the counter currency.

R

R

Rally

This is a period of sustained recovery and increase in price following a period of price decline.

Range

This is the difference between the highest and lowest prices on an asset for a given time period, especially in a sideways market where prices are neither trending upwards or downwards.

Ratio Spreads

This is an options trading strategy where the trader holds call and put options in an unequal ratio on the same asset.

Resistance

This is a price area at which sellers enter the market and prevent prices from attaining further increases.

Revaluation

This is a government-induced, market-independent increase in the value of a national currency. This is usually achieved by selling a foreign currency in large numbers and using this to buy up the national currency.

Rollover

A rollover is the process of keeping a position open overnight, or beyond its expiry time. This comes at a cost, either payable to the dealer if the long position is on a lower yielding asset, or to the trader if the position is on a higher yielding asset

S

S

Scalping

This is the practice of opening and closing positions in the market within minutes of each other, as a way to make quick but small profits from minute price movements.

SEC

SEC stands for the Securities and Exchange Commission. In the United States, this agency is responsible for the regulation of the stock markets, oversight of mergers and acquisitions, listing of companies or assets on exchanges and protection of investors.

Shares

Shares or stocks are the units by which company ownership is allotted to investors. These are usually tradable on a stock exchange, where ownership can be transferred at a price determined on the secondary market.

Short Position

This is a trading position in which the trader benefits from a drop in the price of an asset.

Short Selling

This is the practice of speculatively selling an asset that is not owned, in order to benefit from an expected fall in prices.

Slippage

This refers to a situation where the price at which an order was filled is at variance with the price in which the trader desires the order to be filled. It is usually a negative event which incurs a loss or increased cost for the trader.

SNB

This is the abbreviation for the Swiss National Bank, which is the central bank of Switzerland.

Spot

“Spot” in trading terms, refers to the process of buying and selling an asset at a given price for immediate settlement and delivery. This distinguishes it from futures contracts, where settlement and delivery is done at a future date.

Spread

This is the difference between the bid and ask prices in a price quotation. The spread is the broker’s compensation for bringing the buyer and seller together in the transaction.

Stockbroker

A company which brings together buyers and sellers of stocks and gives them access to a stock exchange, and also trades on behalf of some of these traders.

Stock Exchange

This is a venue for the buying and selling of shares.

Stock Index

This is a collection of a group of stocks that have similar characteristics, which provide a measure of a sector, an exchange or an economy. Stock indices are also traded as CFD assets.

Stop Loss

This is an instruction to the broker to close an open trade if the trade goes against a trader by a preset price level. It is used to conserve equity if the market movements are unfavourable to the open position.

Straddle

This is an options trade technique in which a trader simultaneously buys and sells two or more contracts on opposite sides of the price action (i.e. below and above market price). It is also used to profit from price movements when the direction that the price will assume is not known.

Support

This is the price area at which buyers will enter the market to stop a market decline.

Swissy

This is the slang for the Confederatio Helvetica Franc/Swiss Franc.

T

T

Technical Analysis

This is the practice of using intrinsic data such as price and volume data to make an evaluation of the future price movements of an asset.

Trading Floor

This is a physical venue on an exchange where buyers and sellers can trade financial assets. It is also known as the trading pit.

Treasuries

Also known as Treasury Bills or T-Bills, these are the bond instruments used by the US government to borrow money from investors. Treasuries also exist in other countries by various other names.

Trend

The trend refers to a sustained move of a market or an asset in an upwards or downwards direction. The highs and lows must be moving in the same direction for the market to be in a trend.

V

V

VIX

VIX stands for the Volatility Index, which is a tool used by the Chicago Board of Options Exchange to calculate and track the volatility of the S&P 500 Index, an index on which many other index assets are referenced.

Volatility

Volatility is the degree of unforeseen, rapid price changes in an asset at a given time period.

Volume

Volume is the amount of an asset that has been traded over a certain period of time. It is generally recognized as an important data in trading, which shows the leaning or bias of buyers/sellers in the market at a given time.

W

W

Weekend Trading

The practice of placing trades during the weekend hours when most markets are closed, or during markets only open on weekends (e.g. the cryptocurrency market).

Weighting

This is a method of assigning a percentage to the composition of a fund or index, usually from a basket of assets.

WTI

WTI stands for West Texas Intermediate, which is a benchmark for trading of light sweet crude oil contracts in the commodity market.

Y

Y

Yen

This is the national currency of Japan. It has the symbol of JPY.

Yield

This is interest or dividend income that is earned from an investment, usually in the bond markets.

Yuan

This is the national currency of China, and has the symbol CNY.