Forex Brokers Glossary - FX Leaders
What is forex broker?

forex brokers
glossary

Account manager

Your personal contact at the brokerage. The person in charge of monitoring your Forex account, contacting you with suggestions, promotions, insights etc. Usually a financial analyst.

Account verification

The process by which a Forex broker verifies your identity and ascertains your ownership of your payment method.

Algorithm trading

A type of trading wherein you entrust funds to be invested by an algorithmical software developed based on historical price movements. Also known as algo-trading, trading bots, or automated trading.

AML

Anti-Money Laundering measures, required of the broker by certain regulators to prevent illegal money laundering through their services.

Asset

The underlying physical product in an investment. For example, the assets exchanged in a EUR/USD trade are Euros and US dollars.

Asset class

The type of asset traded, eg. stocks, currencies, commodities, etc.

Candle charts

Charts that represent price movements over set time increments as candles. In a green candle (indicating a rise in the price over the time increment) the bottom wick represents the min price, the bottom of the candle body - the opening price, the top of the candle body – the closing price, and the top wick – the max price. In a red candle the opening and closed price’s positions are inverted.

Central Bank

The central financial institution of a country or an international financial body (eg. the European Union), governing the entity’s financial policies, such as setting interest rates and issuing federal bonds.

CFD

Contract For Difference, wherein both parties agree to settle differences in cash according to the price of the underlying asset, without any of the parties owning the asset directly.

Chart indicators

Graphic representations of data points produced by applying various formulae to the price chart. Also known as chart studies.

Commodities

Limited resources and agricultural products such as precious metals, oil, corn, wheat, soy, etc.

Copy trading

A mode of trading whereby you allocate funds to copy someone else’s trades automatically.

Counterparty

The person or institution that provides the asset or funds to conclude a trade contract with you. For example, if you wish to buy EUR/USD, that is to buy Euros in exchange for US dollars, you must find a counterparty to sell you Euros in exchange for US dollars.

Currency pair

Currencies are listed in pairs since you pay in currency to buy a currency. So a listing of EUR/USD means the price of Euros in US Dollars.

Day trader

A trader who makes short term investments, usually opening and closing all trades within the same day.

Dealing room

The term for the department in the brokerage room in charge of managing trades, managing the broker’s inventory, and passing the trades onto the interbank market.

Demo platform

A trading platform that enables you to practice trading with virtual money, often with live market rates.

Dynamic spreads

Spreads that change according to market supply and demand for the instrument in question. Trading with dynamic spreads means that you can’t know when you open the trade what the spread will be when you close the trade.

ECN

Electronic Communications Network. A broker that connects traders directly with counterparties in the interbank market, without managing their own inventory.

E-wallet

An electronic online payment method, such as PayPal or Neteller.

Exotic currency pairs

Most brokers carry currency pairs made up of combinations of the 8 major world currencies: USD, EUR, GBP, JPY, CHF, CAD, AUD, NZD. Any currency pairs that include other currencies (such as the Russian Ruble, or the Chinese Yuan, or the South African Rand for example), are considered exotic.

Fibonacci

Fibonacci retracement is a commonly used chart study which indicates levels of support and resistance based on the key Fibonacci ratios.

Financial model

A formula, or set of formulae, developed based on historical price movements with the goal of indicating future price behavior.

Fixed spreads

Spreads that do not change regardless of shifting supply and demand forces from the time you open the trade to the time you close the trade, meaning that you know the exact spread you will pay before you open the trade.

Foreign Exchange

The global exchange of currencies.

Forex account

An account with a Forex broker that enables you to trade currencies and any other instrument the broker has on offer.

Forex calendar

A calendar outlining the events that will possibly affect currency price movements, usually including economic data releases and economic policy announcements.

Fundamental analysis

Analysis of price movements as related to macro-economic trends and events such as economic policy announcements, data releases, trade relations etc.

Futures contract

A contract by which the two parties agree to buy or sell a particular financial instrument at a pre-determined price in the future.

Hedging

The act of opening positions in different directions on the same instrument, eg. buying and selling GBP/USD at the same time.

Market Maker

A broker that manages their own inventory and quotes their own prices, without taking clients’ trades into the interbank market.

Market sessions

Forex is a decentralized market that is traded around the clock in four major market sessions: London – 7AM-3PM (GMT); New York – 12PM-8PM (GMT); Sydney – 10PM-6AM (GMT); Tokyo – 11PM-7AM (GMT)

MT4 platform

The Meta Trader 4 platform is the currently the most popular online Forex trading platform, and is considered by many to be the best professional platform for experienced traders.

Pip

Point in Percentage, the smallest change that a price rate can make. When it comes to currencies, this is reflected in the last number after the decimal point. E.g. 1.0001 ->1.1002 is a rate change of 1 pip.

Portfolio

The ensemble of your investments, including cash or un-invested balance.

Re-quote

What happens when a broker can’t complete a trade at a previously quoted price. The broker offers a new price, usually to the client’s disadvantage, that the client can then accept or reject.

Resistance

In price chart, an area where due to a rise in the price rate investors start to sell off the asset, creating a plateau, or a turning point for the trend.

Rollover

A fee that brokers charge to make up for the difference in interest rates between the two currencies that a client holds overnight. Rollover can be negative – you are charged, or positive - you receive money, depending on whether the difference in interest rates is positive or negative.

RSI

Relative Strength Index, a commonly used technical chart study. It is a trend momentum indicator that compares recent gains to recent losses for a given asset in order to determine whether the asset is overbought or oversold, precipitating a trend reversal.

Historical prices

Records of past price movements on a certain instruments.

Indices

A stock index is an imaginary portfolio of stocks representing a particular market or exchange. The value of an index is calculated in points based on deviation from an original and arbitrary base value, therefore it is the percentage of change that matters.

Interbank market

The system of currency exchange among large financial institutions, including banks, brokers and investment firms.

Interest rate

A percentage of the principal sum charged from a borrower by a lender in exchange for the loss of use of the commodity or capital.

Investment capital

The amount of funds an investor engages in a trade contract. In a leveraged trade, this is the sum the investor puts in before it is leveraged. E.g. in a trade of 10,000 units of EUR/USD with 1x50 leverage, the investment capital will be $200.

Leverage

A loan the Forex broker gives a trader to give him the ability to invest in larger amounts of currency, usually expressed as 1xLeverage or 1:Leverage, which expresses the ratio between the investment capital and the broker loan.

Line charts

Charts that express the change in an asset’s price as a line between price points at set increments of time.

Liquidity

The amount of an asset that is available for trading at a certain price. High liquidity means that counterparties for trades are easily found. Low liquidity means it is hard to find counterparties for a trade.

Lot

The batch of goods or currencies that makes up a unit for a trade. For example, in currency trading a lot equals 100,000 units, while a mini-lot equals 10,000 units.

MACD

Moving Average Convergence Difference is a commonly used chart study that is used to indicate trend momentum by comparing exponential moving averages over two different time frames

Market analyst

A financial expert who analyzes price movements, market conditions and financial events to produce predictions for future price movements.

Market Capitalization

Market Cap for short, the total market value of all of a company's issued shares, used by investors to determine the company’s size.

Scalper

A trader that opens very short term trades, usually with high leverage, to profit from minute price changes, sometimes of just a few pips over the spread.

Share capital

Similar to market capitalization, funds raised by a company by selling company shares.

Slippage

A difference between the quoted price and the price that your trade is actually opened at, whether to advantage or disadvantage. Slippage occurs when there is a lag in the execution of the trade, or when market volatility is such that the price changes very rapidly.

Social trading

A mode of trading whereby the Broker’s clients are all connected in a social network, often with the possibility to share trading activity and view others’ trading activity on a public feed.

Spread

The difference between the Buy and Sell prices for any investment instrument. See also Fixed spreads and Dynamic spreads.

Stop Loss and Take Profit

Orders set by the trader to close a specific trade when the price reaches a certain rate, or when the trade reaches a certain percentage/amount of profit/loss.

STP

Straight Through Processing broker, a hybrid between a Market Maker and ECN, this type of Forex broker settles trades out of inventory for smaller investments while parsing larger investments out to the interbank market.

Suitability

A test the broker is sometimes required to administer according to regulation, in order to make sure that client is suitable for Forex trading activity taking in account the risk and possible losses involved.

Support

Customer support services Forex brokers offer to clients, ranging from simple help with account processes (verification, deposits, withdrawals, etc.), to more involved portfolio management services.

Interest rate swap

An exchange wherein one stream of future interest payments is exchanged for another based on a specified amount of goods or currency.

Technical analysis

Market analysis that focuses on charts with the purpose of analyzing past price movements to determine future price movements.

Time frame

The specific time period for which data is show on a price chart.

Trade order

A future request to open a trade with preset parameters once the price of the instrument in question reaches a certain rate.

Trading tools

Any feature, software, service, etc. used in the course of trading activity.

Trend

A marked chart movement wherein the price seems to be heading in a certain direction. A rising trend would indicate upward momentum for the price, while a falling trend would indicate downward momentum for the price.

Variable spreads

See Dynamic spreads.