Visit our Forex Introduction  Stock Trading and Options Trading pages to get a better idea of how the money markets and online trading work.

Many trades, professions and interest groups have a sub-language, slang or jargon that evolves over time. Terminology, definitions, abbreviations, acronyms, technical words and expressions are usually made up or taken from similarly related disciplines.

Day Trading
Daytraders try to make money by buying and selling stocks or currency pairs which have significant price changes during the day. The forex market is mainly day trading too, although positions can be held overnight. No Delivery of currency actually takes place. See Forex Income Engine below.

Dealer
While a broker is technically an intermediary representing both buyer and seller, a dealer risks capital to take one side of a position in order to make a profit (spread) by 'closing out' that position in a subsequent trade with another party. There are different types of broker and not all are suitable for beginner traders. Retail Market Makers are probably the best type to deal with.

Delivery - A forex trade where each side either makes or receives actual delivery of the currencies traded.

Depreciation
A weakening or reduction of a currency, caused by lower market demand. See Appreciation.

Derivative
A contract that changes its value in relation to price movements of a related security, future or other financial instrument. Options are the most common form of derivative.

Devaluation is an intentional downward adjustment of a currency's value against others, normally announced by a government spokesman or the head of the country's central bank.

Drawdown is the amount of the decline in value of a forex trading account, expressed either in dollars or as a percentage, between its highest and lowest points. If, for example, the account was opened with $10,000 which first built up $20,000, then dropped to $15,000, then increased again to $25,000, the maximum drawdown was $5,000 (when it fell from $20,000 to $15,000) even though the account was never actually below its starting value.

ECB
The European Central Bank is the managing body for the 'euro area' which now includes 15 countries. The twelve original member states who began using the Euro as currency in 2002 are Austria, Belgium, Finland, France, Greece, Ireland, Italy, Luxembourg, Germany, the Netherlands (Holland), Portugal and Spain. More recently Cyprus, Malta and Slovenia have joined, but so far not the United Kingdom which retains its Pound (GBP).

The ECB's primary objective is to maintain currency stability, aiming at inflation rates of around or less than 2% over the medium term. The 'Euro area' in terms of population is actually greater than the United States which is the world's largest economy. Europe is next, then Japan. Based in Frankfurt, Germany the ECB controls European interest rates and monetary policy. Jean-Claude Trichet a former Banque de France governor has headed the ECB since 2003. The first was Wim Duisenberg, previously head of the Dutch Central Bank.

ECN stands for Electronic Communications Network, often used for creating electronic stock or futures and more recently, forex markets. Using an ECN a trader can have buy and sell orders matched automatically at specified prices, instead of going through a broker or market-maker. Advantages can be lower or even no price spread, without broker manipulation or interference in quoted prices, which come direct from the interbank market.

Economic Indicators
Regularly issued government-issued statistics indicating current economic growth and stability. Common indicators include Gross Domestic Product (GDP), employment rates, inflation, retail sales, etc. If they are not in accordance with expectations, they can have a sudden effect on market prices for shares, currencies and commodities and many traders rely on these.

ETF Profit Driver is a step-by-step exchange-traded funds training course released in April 2008 by Bill Poulos (Profits Run Inc.) and now sold out. Essential education for buy and sell traders or ETF-IRA fund builders.

Exchange Rate Risk
The exposure/potential loss a company faces from a movement in exchange rates.

Exchange-Traded Funds or ETFs
An ETF (Exchange-Traded Fund) is a fund which tracks a selection or 'basket' of related securities within a stock market index such as the S&P 500, NASDAQ or FTSE and which can be traded on an exchange like a stock or share. Learn how to trade ETFs profitably. ETFs can be used to boost an IRA too.

Exotics
Apart from the 'Majors' (the most traded currency pairs), there other currency pairs like the Danish Krone, Mexican Peso and Russian Rouble which are known as 'exotic' currencies. As these pairs are traded in lower volumes by fewer buyers and sellers, they usually have a wider Pip Spread than the Majors.

Federal Deposit Insurance Corporation (FDIC) is the regulatory agency responsible for the administration of bank depository insurance in the United States.

Federal Reserve
Commonly referred to as 'the Fed', this is the Central Bank which controls the USA's monetary policy. Formerly headed by Alan Greenspan, Ben Bernanke has been Chairman of the Board of Governors of the US Federal Reserve since February 2006.

FOMC
The Federal Open Market Committee. The monetary policy making and tactical arm of the Federal Reserve. This is the committee which sets US interest rates.

Footsie - see FTSE

Forex
A contraction or abbreviation of 'foreign exchange' – foreign currency trading.

Forex Affiliates are people (including market traders) who earn extra income and/or reduce their trading losses by affiliating or partnering with forex and stock market product publishers to sell on commission with virtually no outlay or risk of loss. Learn more here.

Forex Income Engine is a new forex day trading course from Bill Poulos released in December 2008. FIE appeals especially to the $500 account trader looking for a single-strategy, streamlined way to profiting from forex. A completely revised and updated Version 2.0 of the FIE is being released in June 2009. It contains three methods of trading.

Forex Profit Accelerator
A comprehensive forex training course from Greg and Bill Poulos of Profits Run Inc., Forex Profit Accelerator was released in September 2007. All 950 copies were sold within days as were another 500 in December. Testimonials, video proof and review for the FPA, its components and tools. Released again in 2008, ForexProfitAccelerator will continue to be available.

Forex Robots, Autotraders, Autopilots
These are programs that work on a trading platform such as MetaTrader 4 to place trades automatically when certain criteria are met. Robots cost from under $100 to several thousand.

Forex Robot World Cup – see FRWC below.

Forward
The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved. Forwards are considered Over-The-Counter (OTC) contracts which include any contract NOT traded on an exchange.

Forward Points
The pips added to or subtracted from the current exchange rate to calculate the forward price. Different countries have differing interest rates. When buying one currency against another for delivery at a future date, the bank or broker will adjust the spot (immediate delivery) price to take this variation into account. The sale of a low yielding currency (in a low interest-rate economy) and the purchase of a high yielding one will be reflected in a higher net price than the spot rate. This is described as 'points on' for the forward adjustment and 'points off' for a reversal.

FRWC – the Forex Robot World Cup, a competition to find the world's best automated forex trading Expert Advisors between December 2009 and January 2010. Best-performing EAs went on sale as the FRWC's Royal Trader collection on February 16. Click on the chart for more detail or visit the FRWC website.

FTSE or Footsie
A British company (not part of a stock exchange) owned by the Financial Times newspaper and the London Stock Exchange that specialises in a constantly updated index calculation e.g. the FTSE 100, created in 1984 with a base of 1,000 and containing the 100 largest UK companies by market capitalisation.

Fundamental Analysis
Analysis or forecasting of currencies, stocks or economies based on economic and political factors and events.

Futures Contract Trading
A standardised, transferable, exchange-traded contract that requires delivery of a commodity, bond, currency lot or stock index, at a specified price, at a specified future date. Learn more about futures day trading.

Gann Trading  W.D. Gann is considered by some to be the greatest trader of all time. There's little doubt his analysis of market cycles and price behaviour is without equal. Gann is believed to have profited by over 50 million dollars trading all the markets. Free video on Gann's methods for the Crude Oil market.

GOmega Xray and GOmega Trader FX are fully-automated forex trading robots released by Quantum Research (also Forex Profit Pro AutoTrader). There are numerous other forex robots on the market, the latest of which can be reviewed here.

Good Till Cancelled Order (GTC) is an order to buy or sell at a specified price. The order remains open until filled or until the client cancels.

Hedging and Forward Contracts
A hedging transaction is one that protects an asset or liability against fluctuation in the foreign exchange rates. For commercial forex deals the most popular hedging tool is a Forward Contract. A forward contract allows a company to lock in a rate of exchange based on today's spot price (with an adjustment for the 'forward points') for a future date when they need to buy or sell a foreign currency.

Index, Indices
Collection(s) of stocks whose value is a benchmark for the overall movement of a particular type of stock or other financial instrument. Although 'indexes' is also used today, the plural of index is indices, pronounced 'inda-sees', and examples are S&P (International), Dow Jones (New York), FTSE (London), Hang Seng (Hong Kong), Nikkei (Tokyo) and CAC 40 (Paris).

Inflation is a national economic condition in which prices for consumer goods rise, making currency have less purchasing power than previously.

Initial margin is the initial deposit of collateral required to enter into a trade position as a guarantee on future performance.

Inter-Bank Rates
The rates banks and brokers quote other banks and brokers for trades between banks (interbank). In reality the true market price. The prices quoted for transactions in excess of GBP500,000 or equivalent.

ISO is the short name (not acronym) for the International Organization for Standardization.

K or kilo is from the Greek khilioi meaning thousand. M or mega from megos (great) is now used to describe a million. Apart from currencies, K, M, G and T are also used for 'bytes' of computer data or hard drive capacity; G (giga) is from the Latin gigas (huge) and now means a thousand million. T stands for tera (Greek teras 'monster') and is one million million (1,000,000,000,000) in case you're getting confused!

Learn To Trade Markets is an 800 page best-selling ebook that is almost essential to have in your forex trading 'library'. $97 includes two months free subscription to the Technical Trader Hot Sheet which is published twice a month.

'Let Your Profits Run' is a saying often quoted. Traders and investors often tend to sell their winning positions too early. They cash in, fearing the market will change direction and they will lose what they have already gained. Conversely they also tend to hold on to losing positions for too long, in the hope that they will turn around. The key is to not panic in times when volatility increases. Stick to your plan and maintain your convictions about why you entered into that trade. However, cutting losses before they become substantial is a key part of implementing this strategy. Successful investors can lose over half the time as long as losses are not allowed to compound. Giving profitable trades room to continue their upward climb takes a tremendous amount of courage but will likely pay off in the future. Learn about this and much more here.

Leverage
The amount by which the amount to be traded exceeds the margin required to trade. It can be expressed as a ratio or a multiple. For example, if the notional amount traded (also referred to as 'lot size' or 'contract value') is US$100,000 and the required margin is $2,000, the trader can trade with 50 times leverage ($100,000/$2,000) or 50:1. See Margin, Overleverage.

LIBOR - The London Inter-Bank Offered Rate. British banks use LIBOR when borrowing from other banks.

Limit Order
An order to buy or sell one currency against another when a predetermined price is reached. It is lodged with a broker and floats 24 hours a day until either cancelled or reached. It is used to try and achieve a very favourable price at the very top or bottom of a range. It is free of charge to use and provides an excellent vehicle for companies to attempt to buy or sell their currencies at the best point in a range (without having to constantly monitor the prices and keep calling the broker for prices).

Liquidity
A function of volume and activity in a market. It is the efficiency and cost effectiveness with which positions can be traded and orders executed. A more liquid market will provide more frequent price quotes at a smaller bid/ask spread.

Long position - a trade position that appreciates in value if the market price increases.

Lot Size
Currencies are traded in 'lots'. A standard lot is 100,000 units of the base currency. e.g. with USD as the base (first-named) currency, a lot is worth $100,000. For the GBP/USD pair a lot is £100,000 (currently about $150,000). 'Mini' account trade lots are typically one tenth of standard: 10,000 units. Even smaller trades can now be placed with some brokers at a tiny fraction of the standard lot size.  Using leverage a trader can enter positions with a relatively small amount of capital. A minimum of $5,000 is usually recommended for opening a standard forex trading account. A 'Mini' or 'Micro' account can be opened with as little as $50, but $500 will give a lot more flexibility. Trading values are obviously much lower, as will be profits or losses – a good way for forex beginners to begin live trading!

Majors
These are the most popular currency pairs available for trading and include EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD and AUD/USD. Less traded pairs are known as 'Exotics'.

Margin
The minimum amount of funds required in a trader's brokerage account in order to open a position (enter a trade) or to maintain an open position. See Leverage.

Margin Call
A warning by the broker of the impending (or automatic) closing of a position if the margin falls below the required minimum during a trade. More funds will need to be transferred to your trading account to keep a position open or being able to enter further trades.

MarketClub is a highly successful stock picking and forex advisory service, with many resources including phone and email support. You can learn more here.

Market Maker is a dealer who regularly quotes both bid and ask prices, and is willing to make a two-sided market for any financial instrument.

Market Order
An order to a broker to buy a currency lot or stock at the current Ask price.

Market Risk is exposure to changes in market prices.

Mark-to-Market is the process of re-evaluating all open positions with the current market prices. The new values determine revised margin requirements.

Maturity - The date for settlement or expiry of a financial instrument.

Mobile Forex Trading
At last it's possible to trade forex from your mobile phone, wherever you can connect to the internet. Open a free account with Finexo, then use their web-based PC or mobile trading platforms (no download required). You can trade live with a $25 credit card deposit.

Monetary Policy
Generally associated with the setting of interest rate levels in an economy to try and stimulate or stifle borrowing and thus control consumer demand/spending. Conventional wisdom states that if interest rates move in an upward direction in one nation (under normal economic circumstances) then the currency in that nation should move up in value against foreign currencies. The rational is that the rate of return on interest bearing deposits become more attractive and the foreign demand for that currency should increase.

MPC
The Monetary Policy Committee of the Bank of England (the UK's Central Bank) is responsible for setting interest rates in the United Kingdom.
 

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