Even if you have available various sources of information where to get informed regarding forex, the principles used and how this market really works, there are some terms you might not understand.

In order to fully understand how forex works and to be successful as a forex trader, a forex glossary is a reliable and efficient material. You can check it whenever you need and find out comprehensive and relevant explanations for some terms used in forex trading.

Letter A

Aggregate = The whole amount of exposure of a bank related to a customer having both forward and spot contracts.

Appreciation = Term used to describe a strength in the currency as a response to the market demand and not the official action.

Arbitrage = Term used to describe a risk-free trading type in which the same investment instrument is purchased and sold in the same time period, but on two different markets with the purpose to make profit from the differences of price between the two markets.

Ask Price = The lowest accepted price for the buyer.

At Best = Term used by the investor so that the dealer will purchase or sell national currency at the best rate currently available.

At Par Forwards Spread = Describes the situation in which the Spot Price equals the Forward Price.

At the Money = Describes the situation in which the Exercise Price is equal or near to the current Market Price of a specific instrument.

Letter B

Balance of Payments = Term used to describe the systematic recording process of the economic transactions within a specific period related to a specific country. This term is often used to express the combination between the capital account, the trade balance and invisible balance. The balance of payments also shows the results from the current account, but also the results of such a combination.

Balance of Trading = Expresses the total value of exports less the imports, case in which the invisibles are excluded. If invisibles are not excluded, the balance of trade is referred to as mercantile trade.

Bank Notes = Piece of paper issued by the Central Bank, but are usually are not considered as part of forex market. The bank notes are convertible in some countries in the forex market, case in which are priced using a premium price to the current spot price.

Basis = Term used to describe the difference of cash price and the futures price. There are several types of basis: basis point – 1% from 1%, basis price – the price level expressed according to the yield of maturity or rate of return on an annually basis.

Bearer = A person who supposes/beliefs/thinks that the price will start to decline. Similarly, the bear market refers to a market in which the prices will decline, a pessimistic market.

Bid Price = The bid represents the highest price level at which one seller is decided to offer a specific currency at a specific moment in time. By decreasing the bid price from the ask price, we get the spread which should be stated as a percentage.

Boris = Term used to denote Russian trading.

Break even point = BEP = The price level reached by a financial instrument at which the premium is recovered, without any loss, but neither profit. For a call option, we may conclude that the break even point is the premium added to the exercise price.

Broker = An agent who performs trading transactions on forex, executing the orders to purchase or sell various financial instruments for a commission or based on a spread percentage. The brokers act according to the investor’s decisions and are the perfect intermediate between banks and the investors.

Bull = A person who supposes/beliefs/thinks that the price will start to rise. Similarly, the bull market refers also a market in which the pricing are rising, an optimistic market.

Butterfly Spread = This is a type of combination which includes a bear and bull spread, traded at different prices, three or four options with various strike prices.

Letter C

Cable = Term used on forex for the rate US Dollar/ British Pound.

Call = Term used to describe an option that gives its holder the right to buy it at a specific price within a specific period of time.

Call option = The call options gives its holder only he right to buy stocks, futures or shares but not the obligation.

Cash and Carry = The process of purchasing an asset today and sell a future contract based on that asset. There is also a reverse situation, when you can sell an asset and purchase a future contract.

CD = Abbreviation used for “Certificate of Deposit”.

Central Bank = The Central Bank is the main participant which provides banking and financial services, but also financial instruments.

CME = Abbreviation used for Chicago Mercantile Exchange.

Compound Option = Term used to the situation in which there is a fixed price and date, for an option on another option.

Contract = A signed agreement in which there is specified the amount of currency to buy and sell, for a specified future month.

Counterparty = The other party either as a bank or customer with whom the foreign exchange deal will be executed.

Coupon = Term used to denote the rate of interest for a fixed interest security instrument.

CPI = Abbreviation used for Consumer Price Index.

Letter D

Day Order = Term used to describe an order which if not executed in the specific day, it will be canceled.

Deal Date = The day on which the deal was agreed.

Deficit = A fall in the balance of payments, balance of trade or the budget of the government.

Delta = This is also referred to as “hedge ratio” and it is the ratio resulted by comparing the price chance of a specific asset and the price change of the derivative.

Discount Rate = The rate at which the bill will be discounted, either offered by the central bank in order to ease the financial instruments’ liquidity.

Letter E

Economic Indicator = An indicator which express the current rate of economic growth and the trends appeared.

ECU = Abbreviation used for European Currency Unit.

EMU = Abbreviation used for European Monetary Union.

Exchange Rate Risk = Term used to describe the potential loss which could be incurred from the movements in the exchange rates.

Exercise Price = The price for which the option can be exercised. It is also referred to as “strike price”.

Expiry Date = The moment at which the option can be purchased or sold. In the same time, the expiry date also refers to the last day in which the holder of the option is able to exercise his right to purchase or sell the instrument.

Letter F

Fed = Abbreviation used for the US Federal Reserve.

Fixed Exchange Rate = The official rate for a currency set y the monetary authority. The fixed exchange rates can also fluctuate, case in which the central bank intervenes.

Floating Exchange Rate = Situation in which the value of a foreign currency is set by the market forces which also dictate the demand and supply.

Forward Contract = Used also as forward deal or future. This expression is used to describe the arrangement between a bank and the customer related to a future contract.

Front Office = Term used to express the activities performed by the dealer/broker.

Fundamentals = The factors at macroeconomic level which influence the relative value of a national currency such as trade balance, inflation, interest rates, government deficit and others.

Letter G

G5 = Abbreviation for the five leading countries at industrial level – US, Japan, France, Germany and UK.

GDP = Gross Domestic Product = The total amount of a country’s output, expenditures and income produced within the country’s borders and territory.

Letter H

Hedge = Term used to describe the purchasing process or sale process of either options or futures with the purpose of temporary substitute for a future transaction.

Hedging = A type of transaction which aims to ensure protection for an asset or liability in case of fluctuations in the national currency price and rate.

Letter I

Implied Rate = The level of the interest rate as a difference between the spot and forward rate.

Inflation = A continuous rise in the level of the price related to a decrease in the money purchasing power.

Interest Rate Risk = The potential risk expressed in money as a loss which might arise from the changes in the interest rate.

In The Money = A call option in the case of a higher price than the exercise/strike price. A call option in the case of a lower price than the exercise/strike price.

Letter L

Liability = In the case of foreign exchange, liability means the obligation to provide to the counterparty the agreed amount of national currency at a future date with regards of the balance sheet.

Liquidity = The ability of a trade market to accept many large transactions without any impact on interest rates.

Letter M

M1 = Abbreviation used to express the cash existent in circulation plus de demand deposits of the commercial banks.

M2 = Abbreviation used to express the cash in circulation, demand deposits, money market mutual funds and time deposits. The large certificate deposits are not included.

M3 = The M1 plus the private and public sector sight and time deposits.

M4 = In the USA, used to express the M2 plus the negotiable certificate deposits.

Maturity = The date at which a financial instruments will enter into the contract.

Letter O

Offer = The rate for which the dealer/broker is willing to accept the sale of the currency.

Option = A contract which offers its holder the right to purchase a call, or sell a put at a specified price and moment of time.

Out Of The Money = A call option is in this situation in case of a higher exercise price than the market price. A put option is this situation in case of a lower exercise price than the market price.
Over The Counter = OTC = A type of market conducted directly between the principles and dealers via computer, telephone or internet connection. There are higher risks in such markets and are not so popular.

Letter P

Parity = Situation when the investor’s price equals to the correct market price.

Pip = 1% of 1%, or the 100th part of 1%, 0.0001 of a unit.
Put Option = The put option provided its holder the right to purchase or sell the currencies, futures or instruments at a specific price and date, by exercising its right. There is no obligation in the case of a buyer, only as a seller.

Letter S

Straddle = A combination of transactions, simultaneously purchasing or selling of calls and puts within the same exercise, share and expiry date.
Strike Price = Same as exercise price. More specifically, the price for which a holder is able to purchase or sell a financial instrument.

Letter T

T-Bill = Abbreviation used for Treasury Bill.
Transaction = The purchase or selling of securities as a result of an order execution. The transaction date is the one at which the transaction takes place, while the transaction exposure refers to the potential gain or loss achieved.

Letter V

Velocity of Money = Expression used to describe the money speed and their turnover.
Volatility = A measure used to determine how an asset’s price is expected to evolve/fluctuate during a specific period of time. It is determined based on the standard deviation of price changes on an annually basis.

Letter Z

Zero Coupon Bond = A type of bond that pays no interest rate, but it is initially offered at a discount rate until its maturity date.