Glossary of Currency Trading Terms

Everyone likes to think that they know a thing or two about currency trading. Fact is, we rarely know the difference between a “pip” and a “selling price”. To avoid any confusion on your part, the following are some explanations of the more common terms you're likely to hear in your currency trading activities:

* Aggregate risk: is the total exposure that a trader has to a customer based on both spot and forward contracts.

* Ask [price]: is the price a currency is offered for sale.

* At or better: (as the name implies) an order to buy at that rate, or better.

* Authorized dealer: someone authorized to trade.

* Base currency: normally the US dollar, this is the currency that all other currencies are converted into at the close of a trade.

* Bear market: a market going down.

* Bid [price/rate] (also known as the buying rate): the offer price for a currency.

* Broker: the person who introduces the buyer to the seller.

* Bull market: a market going up.

* Central bank: country's regulatory bank - the Federal Reserve.

* Commission: fee the broker takes.

* Convertible currency: a currency that is freely tradable for another.

* Cross deal: a trade involving two currencies, neither of which is the base currency. A cross rate is the same as a cross deal but involves the exchange rates between the two currencies.

* Day trader: trader who closes his position at the end of each day.

* Devaluation: downward adjustment of a currency against others.

* Exchange control: rules used to protect a currency.

* Exotic [currency]: usually a third world currency.

* Going long: long-term investment.

* Going short: selling something not yet owned by the seller.

* Hard currency: a major currency - for example: the dollar.

* Mid-rate: the rate which is the medium of the buy rate and sell rate.

* Overvalued: something trading above its value.

* Pip: the difference between the bid price and the ask price.

* [take a] Position: invest in a currency.

* Range: the difference between the highest and lowest prices being offered.

* Selling rate: the sale price.

* Spread: difference between the bid and ask prices.

* Trade date: the day the trade happens.

* Two-way quote: obtain both the buying and selling rate.

* Undervalued: something trading below its value.

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