Forex Glossary

Margin call : broker’s request to add funds or guarantees to cover the exposition to a losing open position.

Switch :  asset purchase and sale of the same asset at the same time on another market to take advantage of the momentary rating discrepancy. We also called switch the asset purchase and the sale of another one strongly correlated to take advantage of a momentary discrepancy or a force difference between the two assets..

Ask :  price for which it is possible to buy.

Balance : value of an account without taking into account the latent capital gain or loss.

Bid : price for which it is possible to sell.

Breakeven : Exit position which takes place at break-even point that is to say without capital gain or loss.

Breakout : when the rating passes above the resistance level. The same way, we use « Breakdown » to talk about the break from the bottom of the support.

Broker : Company that acts as an intermediary between the stakeholders and which pays itself either with commissions or on the  spread bid/ask.

Cable : It is the cross GBP/USD, that is to say Pound Sterling against US Dollar. So called in reference to the transatlantic electric cable  which  enabled to do the transactions between both continents.

Exchange broker : Trader’s name on the exchange market.

Carry trade : Strategy which consists in looking for capital gain using the interest rates discrepancy of two cross currencies. You borrow with  a low rate in order to invest with an high rate.

ECN : Electronic Communication Network, there are electronic negotiation systems on markets that are usually negotiated over the counter like the Forex. Then the action mode is practically the same as the current electronic stock exchanges.

Leverage : Opportunity given to the trader to take positions for amounts higher than his capital. With a €1000 account and a 100 leverage, begin a position for €100 000 maximum.

Equity : Market value of an account that takes into consideration the latent capital loss or gain.

Long : Poistion direction when we think that a currency cross will increase. In fact, on the Forex, we can’t use the words « buy » and « sell » like for shares because we buy a currency ans we inevitably sell another one at the same time. For example, “Long EUR/USD” means that we buy Euros and that we sell dollar, so we expect the EUR/USD to increase.

Lot : Size of the minimum authorized transaction for the stock broker.  A standard lot represents 100 000 unities ($, €…), a mini-lot represents 10 000 unities and a micro-lot represents 1000 unities.

Market Maker : Kind of broker which is his clients’ counterparty and which covers himself on.

Majors : There are the seven more dealt currencies on the Forex: the US dollar  (USD),the Euro (EUR),the Yen (JPY), the Pound sterling (GBP), the Swiss franc  (CHF), the Canadian dollar  (CAD) and the Australian dollar (AUD).

Over the counter : (=OTC) There are markets like the Forex where negotiation is direct between stakeholders in contrast with centred market place like current stock exchanges.

Pip : English acronym for "price interest point", it is the smallest variation of a currency cross. On most of the crosses, a pip is a variation of the 4th decimal after the point. On the EUR/USD between 1.4000 and 1.4001 there is a pip. Pour the crosses that include the yen a variation if 2 decimal after the point, between 130.00 and 130.01, there is a pip on the EUR/JPY.

Range ou trading range : Horizontal evolution of an exchange rate, there are  trend less areas.  We also called range the difference between the higher  and lower points on a given period.

Resistance : Higher level that the exchange rates can hardly reach.

Roll-over : Process which consists in « rolling » a position from a due date to the following. On the Forex, it usually happens every evenings (except certain brokers). Then we are credited or debited of the differential of the cross interest rates. We often unfairly call the roll over “swap”.

Short : Sense of the position when we think that a currency cross will decrease. In fact,  on the Forex, we can’t use the words «  buy » and “sell” like for shares because we buy a currency and we always sell  another one at the same time. For example,  « Short EUR/USD means that we are selling Euro and buying dollar, so we hope that the EUR/USD will decrease.

Slippage : Difference between the exchange rate expected when the transaction was transmitted and the exchange change we effectively paid. In a fast market, slippage often happens.

Spread : Difference  between the bid and the ask. Very often, the more liquid the market is, the weaker the spread is.

Stop-loss : It is an order of position close, used to limit the losses.

Support : Lower level that exchanges rates  can hardly reach.

Trend : Directional evolution of the exchange rates (bullish or bearish) in opposition to a flat evolution so without trend.