ARBITRAGE

Profiting from differences in the price of a single currency pair that is traded on more than one market.

ASK

The quoted offer at which someone can buy; also called the offer price.

ASSET

An item that has value.
AUD/USD The abbreviation for the Australian dollar and U.S. dollar (AUD/USD) currency pair or cross. The value of this pair refers to how many U.S. dollars is required to buy 1 Aussie Dollar (the quote currency).

BASE CURRENCY

The base currency is the first currency in a currency pair, and the currency that remains constant when determining a currency pair's price. The United States Dollar (USD) and the European Union Euro(EUR) are the dominant base currencies in terms of daily traded volume in the foreign exchange market. The British Pound (GBP), also called sterling, is the third ranking base currency. The USD based pairs are USD/JPY, USD/CHF and USD/CAD; the Euro based pairs are EUR/USD, EUR/JPY, EUR/GBP, and EUR/CHF. The GBP is the base for GBP/USD and GBP/JPY. The Australian Dollar (AUD) is its own base against the USD (AUD/USD).

BASIS

The difference between the spot price and the futures price.

BASIS POINT

One hundredth of a percentage point.

BID /ASK SPREAD

The difference between the bid and offer (ask) prices; also known as a two-way price.

CABLE

The slang or callname for the British Pound Sterling.

CANDLESTICK CHART

A chart that displays the daily trading price range (open, high, low and close). A form of Japanese charting that has become popular in the West. A narrow line (shadow) shows the day's price range. A wider body marks the area between the open and the close. If the close is above the open, the body is white (not filled); if the close is below the open, the body is black (filled).

CENTRAL BANK

The principal monetary authority of a nation, controlled by the national government. It is responsible for issuing currency, setting monetary policy, interest rates, exchange rate policy, and the regulation and supervision of the private banking sector. The Federal Reserve is the central bank of the United States. Others include the European Central Bank, Bank of England, and the Bank of Japan.

CONVERSION

The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.

CROSS RATES

An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example,in the U.S., a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded.

CURRENCY

A country's unit of exchange issued by their government or central bank whose value is the basis for trade.

CURRENCY (EXCHANGE RATE) RISK

The risk of incurring losses resulting from an adverse change in exchange rates.

DEFICIT

In economics, when the balance of trades or payments are negative.

DEFLATION

A deep and long-lasting decrease in the price of goods and services within an economy. It is the opposite of inflation which is an escalation in prices. An extended period of deflation can lead to a deflationary spiral - this is a decrease in prices resulting from reduced demand for goods and services which leads to lower employment. With fewer people earning wages, demand falls even more and further perpetuates the cycle.

DEPRECIATION

When the value of a particular currency falls substantially.

DEPTH OF MARKET

The volume of buy and sell orders waiting to be transacted for a particular currency pair at a particular point in time.

DEVALUATION

Lowering of the value of a country's currency relative to the currencies of other nations. When a nation devalues its currency, the goods it imports become more expensive, while its exports become less expensive abroad and thus more competitive.

DEUTSCHMARK

The former currency of Germany, replaced by the Euro when Germany joined the European Union.

DRAWDOWN

The magnitude of a decline in account value, either in percentage or dollar terms, as measured from peak to subsequent trough. For example, if a trader's account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5,000 (incurred when the account declined from $20,000 to $15,000) even though that trader's account was never in a loss position from inception.

ECB

European Central Bank.

ECN BROKER

Forex ECNs broker provide access to an electronic trading network, supplied with streaming quotes from the top tier banks in the world. By trading through an ECN broker, a currency trader generally benefits from greater price transparency, faster processing, increased liquidity and more availability in the marketplace.

ECONOMIC INDICATOR

A statistic that is used to gauge current economic conditions. E.g. Consumer Price Index and Durable Goods Order

ELLIOT WAVE PRINCIPLE

An attempt to explain market activity by ascribing a pattern of eight waves to any complete cycle.

EMS

European Monetary System

ENTRY ORDERS

An order used to enter a trade once a currency pair hits a pre-determined price level.

ENTRY LIMIT ORDERS

An order used to enter a trade once a currency pair hits a pre-determined price level.

• Buy Entry Limit: An order to buy at a price Below the current market.
• Sell Entry Limit: An order to sell at a price Above the current market.

ENTRY STOP ORDERS

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