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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