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Forex Terms - Glossary

The foreign exchange market is a decentralized market where national currencies are traded for one another. The buying and selling of currencies on the forex market establishes the values of those currencies, which impacts the exchange rate offered for those currencies by traditional retail outlets like banks and moneychangers. The forex market is one of the world’s largest and most liquid markets, boasting a daily trading volume of over $6 trillion dollars.

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Accumulation
In trading, an investor is said to be accumulating wealth as he or she continues to expand their portfolio. The reinvestment of profits over the course of the period of investment makes a vast difference to the pace of wealth accumulation through the benefits of compounding. 

Accumulative Average
An average price measurement which continually adds emerging price changes to its overall sum. This ‘smoothing out’ of data peaks and troughs makes it less responsive than other calculations. 

Actionary Wave
The opposite of reactionary waves, these waves are characterised by a trend which moves in the same direction as a larger overall trend wave of which it is a part. Actionary waves are labelled with odd numbers and letters, as outlined in the Elliott Wave Theory.

Adjusted Current Account
Takes account of the difference between exported and imported goods, services and interest payments during a particular month.  The goods portion of the equation is the same as the monthly Trade Balance figure. A higher than expected reading should be taken as positive/bullish for a nation’s currency, while a lower-than-expected reading should be taken as negative/bearish.

ADP
Stands for Automatic Data Processing, Inc. This monthly survey of private non-farm employment in the United States tends to give an early indication of the official government data ahead of its release.

ADP Nonfarm Employment Change
Measures the change in number of employed people during the previous month, excluding the farming industry. ADP, a leading provider of employment solutions for businesses, releases this indicator two days before the official Bureau of Labor Statistics (BLS) employment report. While the indicator has only been in existence since early 2007, it's shown some predictive value in regard to the BLS report.

Advance GDP Annualized
The total value of all goods and services produced by the economy of a specific nation. GDP is the broadest measure of the economy and is forecast by an official body in its ‘advance’ form.

Advance-Decline Line
In trading, this is generally known as the market breadth indicator and is used to spot divergences from indices such as the S&P 500 or Dow Jones Industrial average. It is calculated by subtracting each day's number of declining issues from the number of advancing issues during a given period. The net difference, often a negative number, is added to a cumulative total of the daily net advancing issues.

Adverse Excursion
The floating (potential) loss attributable to price movement against the position in any one trade. A Maximum Adverse Excursion is a metric developed by John Sweeney to measure the negative price performance of a series of trades before the trades closed with profit. For example, a trade closed with 50 pips in profit but during the time it was open, at one point, it was losing 100 pips- that was the Maximum Adverse Excursion for that trade. This metric is used to determine reasonable stop-loss levels based on backtested results

AIG Services Index
The Australian Industry Group (AIG) Services Index rates the relative level of business conditions among service-based companies. Similarly to the manufacturing index, a reading above 50 indicates industry expansion, while below 50 indicates contraction. The same bullish/bearish caveats go with this index also.

AIG Manufacturing Index
The Australian Industry Group (AIG) Manufacturing index uses data from around 200 manufacturers to rate business conditions in the sector. A reading above 50 indicates expansion in the sector while a reading below 50 signals contraction. Traders watch these surveys closely as purchasing managers usually have early access to data about their company’s performance, which can be a leading indicator of overall economic performance. If the reading comes out higher-than-expected, this should be taken as a positive/bullish prospect for the AUD, while the converse is true of a lower-than-expected reading.

AIG Construction Index
Again, similar to the aforementioned AIG indicators, the AIG Construction Index rates the relative level of business conditions among construction companies.

All Industries Activity Index
Tracks the change in spending on goods and services – similar to the Tertiary Industry Activity Index, this also includes data from the primary sector including fishing, farming, forestry, mining, and manufacturing.

ANZ Commodity Price Index
Released by one of New Zealand’s leading banking and financial service firms on a monthly basis, this measure of inflation tracks the nation’s seventeen main commodity exports in order to identify price change.

Asset Allocation
A method of investment practice which shares funds between a number of different markets in order to either minimise risk or achieve a level of return which is consistent with an investor's objectives.

Aussie
Nickname attributed to the Australian dollar.Automated Trading

Average Cash Earnings
The monthly variation in wages paid out to employees.

Average Earnings Index
Often abbreviated to AEI, this indicator measures the average wage, including bonuses, paid to employees. The reading itself represents the change in the current quarter when compared to the same quarter year-on-year.

Average Hourly Earnings
The rate of inflation which occurs in the wages paid to non-farm jobholders, viewed by traders as a leading indicator of consumer inflation. A rising trend tends to have a positive effect on the nation’s currency through increased consumer spending power.

Average Weekly Hours
Measures the average number of working hours (average workweek) worked by employees on non-farm payrolls in the US. A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.

Balance of Trade
The value of a country's exports minus its imports.

Bar Chart
The graphical display of a specific security’s price which shows the high, low and closing price for each time interval. Some bar charts also contain data on the opening price, with a given time interval represented by one bar – but this bar could represent one minute, one week or one month.

Base Currency
This is the currency in which an investor or issuer manages its accounts. Generally speaking, the USD is the base currency of choice for most nations. This is usually why quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The exceptions to this rule are the British Pound, the Euro and the Australian Dollar.

Base Price
In trading, the price level where volatility is zero (interest rates, stock indices, and commodities have a base price).

Basic Line
Feature of a basic forex chart which represents the line of resistance in a descending channel, and the support line in an ascending channel.

Basis Point
Equivalent to 0.01 percent or 0.0001 in decimal form, this tiny measurement is used to express movements in interest rates and bond yields. Traders will often encounter this measurement in news articles detailing the rise in bond yields from, say, 4.50 percent to 4.75 percent; in which case, the bond would have risen 0.25 percent. This is often expressed in its shortened form as bps.

Bear
A term used to describe a trader who is expects that a particular asset – be it a commodity, currency or product – to fall in value. The opposite of a ‘bull’.

The idea is that bears attack by getting up on their hind legs and striking their opponents down with their paws, symbolising the fact that they are sellers driving prices down.

Bear Market
A market characterized by declining prices.

Bid price
The price at which a market maker is willing to buy a currency pair for over-the counter instruments such as spot forex. In simple terms, it's the quoted price where a trader can sell a currency pair.

As the opposite of ‘ask price’, the bid will always be lower than the ‘ask’.

For example, in the quote EUR/USD 1.2541/39, the ask price is 1.2541; meaning a trader can sell one Euro for 1.2541 US dollars.

Billion
A number equivalent to one thousand million items or units. In the short scale (US and modern Britain) represented as a 1 followed by nine zeros: 1 000 000 000.

In the long scale (obsolete British & Australian) it's a number represented by 1 followed by twelve zeros: 1 000 000 000 000.

Black Swan
A so-called "black swan" event is one that is highly improbable (and unforeseen) that nonetheless occurs and has a significant impact.

Breadth
The amount of participation in the movement of the stock market as measured by a number of indicators known as ‘breadth’ or ‘internal market indicators’. These indicators may include basic measures such as new highs vs. new lows, up volume vs. down volume, but can also include more complex indicators such as the advance/decline line, the advance/decline ratio, the absolute breadth index or the Hughes breadth oscillator.

Broker
Firms with the ability to match up buyers and sellers in the currency market. Payment is taken in the shape of ‘brokerage fees’, calculated on a commission basis or by charging for the provision of bid/ask spreads.

BSI Large Manufacturing Conditions
Measures the number of new residential building permits issued. A rising trend has a positive effect on the nation's currency because obtaining a permit is one of the first steps in the home construction process. Permits therefore act as a leading indicator for the housing market. A high level of housing activity signals that the construction industry is healthy and that consumers have the capital to make large investments. More importantly, new housing activity creates an economic ripple effect as home owners buy goods such as appliances and furniture for their homes, and builders buy raw materials and hire more workers to meet demand.

Budget Deficit
The total amount by which a body’s total spend exceeds its income over a given period of time. Otherwise known as deficit or deficit spending, and the opposite of what is known as a budget surplus.

Bull
A term used to describe a trader who is expects that a particular asset – be it a commodity, currency or product – to rise in value. The opposite of a ‘bear’.

The idea is that bulls attack by bending their heads and poking their opponents upwards with their horns, symbolising the fact that they are buyers, driving prices up.

Bearish
Beliefs held by the aforementioned ‘bears’ of the trading world, are described as bearish. Characterised by a generally pessimistic outlook on the state of a given asset, a bearish outlook would suggest that a fall in value is imminent. Opposite of bullish.

Benchmark
Refers more generally to certain standards or averages against which stocks are pitted and their performance judged. These could include stock bonds, mutual funds, commodities or a number of other securities. Traders can use these so-called benchmarks to evaluate the performance of the security they are holding and make a decision as to whether it may be more profitable to invest in the benchmark itself.

Best Efforts
A legally binding agreement arranged between an underwriter and an issuer which often involves the offer of a new security. The underwriter agrees to sell the issuer’s securities, but refuses to guarantee the amount raised. If the underwriter fails to sell all securities, it is not responsible for any unsold inventory.

Bias
Generally understood as the idea that, in the world of trading, some individuals or organisations may have a preference for particular security to move in a certain direction. This may be the result of a financial interest in the trading outcome, or the result of certain belief systems or notions. If a trader becomes biased, this is usually a reference to the fact that they have not observed the markets objectively.

In statistics, bias represents an inaccuracy in data which has occurred during some stage of its generation or presentation. In many cases, this will have been the deliberate intention of the data creator and will serve some financial, political or publicity-conscious purpose.

Bull Trap
Sign which can be identified in price action trading which appears indicates that bullish trend may be about to change direction and begin rising. In reality, the price continues to decline hence the term ‘trap’.

Bullish
Beliefs held by the aforementioned ‘bulls’ of the trading world, are described as bullish. Characterised by a generally optimistic outlook on the state of a given asset, a bullish outlook would suggest that a rise in value is imminent. Opposite of bearish.

Bundesbank
The central bank of Germany and perhaps one of the most influential member of the European Spread of Central Banks (ESCB) given the size of Germany’s economy.

Buy On Close
The name attributed to the buying action taken at the end of a trading session; purchasing within the closing range of the asset.

Buyline
A term affiliated with the practice of technical analysis which refers to a value below which an indicator must fall before any upturn becomes noteworthy.

Bull Market
A market characterized by rising prices.

CFD - Contract for Difference
A Contract designed to make a profit or avoid a loss by reference to movements in the price of an underlying item. The underlying item is not bought or sold itself. Similar to spread betting. Increasingly popular as an alternative to actual share trading as it allows margin deposit trading and legally avoids stamp duties or similar taxes. Typically, a Quoted CFD price will track the underlying share price quite closely.

Chart
A graphical representation of exchange rates which enable readers to interpret numerical quickly and easily.

Chartist
A term sometimes used to describe a technical analyst; a person who uses charts and the past performance of assets to identify patterns which may be used to predict future activity.

Chooser Option
The foreign exchange market offers investors this specific type of forex trading option; imbuing them with the right, but not the obligation, to buy or sell a specified amount of one currency for another at a specified price on – or in some cases before – a specified date.

Options do not have to be taken up by the purchaser and they are not required to provide any additional funds on non-completion, the holder will however lose any money spent to buy the option in the first place.

Clearing
Process by which an organisation acts as an intermediary between the buyer and seller in a given transaction.

Close Price
The last quoted price at the end of a specified time period – this could constitute on minute, one hour, one day, week, month or year.

Commitment Of Traders Report
This report is published every Friday by the Commodity Futures Trading Commission (CFTC), an organisation which seeks to provide investors with information on investor positions and the like. Traders use these reports to help determine the likelihood of a trend continuing or change.

Commodity
In basic terms, a commodity refers to any good exchanged during commerce – including on exchange markets. Goods such as oil, gold and grain are considered to be interchangeable with other products of the same type and are considered to be traditional commodity goods which are used for producing another good or service. But recently the definition has expanded to include financial products such as foreign currencies.

When traded on an exchange, commodities must meet specified minimum standards, also known as a basis grade.

Commodity Channel Index (CCI)
Used to measure the deviations of a given security’s price from its moving average. This technical tool was first developed by Donald Lambert in 1980 and is used to help determine when an investment vehicle has been overbought and oversold, giving a slightly different picture than other oscillators. The CCI is not bounded, that is, it can rise above 100 and below -100.

Commodity Currencies
Those currencies which belong to economies based on the production of a commodity, such as gold in Australia and oil in Canada. Often closely affiliated with the economic success or failure of interrelated economies.

Commodity Futures Trading Commission (CFTC)
An independent federal agency that oversees and regulates commodity futures and option markets in the United States.

Commonality
The commonality is the central thesis of a business cycle and is one of the five cycle principles. It is seen when the peaks and troughs of cyclic rhythms and the relative magnitudes are similar when over-laid in graphic form.

Compound
Also known as "compound interest" is the ability of an asset to generate earnings, which are then reinvested in order to generate more earnings. The growth curve of such an investment is exponential. An example: two trades increase a trader's portfolio by 10% each one. At the end of the second trade, how big is the portfolio? If you said 120%, you missed the effect of compounding. The right answer is: 110% * 110% = 121%.

Core CPI
The Core Consumer Price Index (CPI) measures the changes in the price of goods and services, excluding food and energy. The CPI measures price change from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation.

A higher than expected reading should be taken as positive/bullish for the GBP, while a lower than expected reading should be taken as negative/bearish for the GBP.

Devaluation
The deliberate downward adjustment of a currency's price, normally by official announcement.

Direct Quote
A foreign exchange rate quoted as the domestic currency per unit of the foreign currency. In other words, it involves quoting in fixed units of foreign currency against variable amounts of the domestic currency.

Dividend
The dividend is part of the total return one gets from holding stocks (the other part being the capital gain), and dividends historically represent the dominant part of the average return on stocks. They provide an incentive to own stock in stable companies even if they are not experiencing much growth.The reliable return attributable to dividends, not the less predictable portion arising from capital gains, is the main reason why stocks have on average been such good investments historically. Dividends are a distribution of a corporation’s earnings to its stockholders. The company pays the dividend from the profit it generates throughout its financial year.

They are not an expense of the corporation and, therefore, dividends do not reduce the corporation’s net income or its taxable income. When a dividend of 300,000 is declared and paid, the corporation’s cash is reduced by 300,000 and its retained earnings (part of stockholders’ equity) is reduced by 300,000.In order to receive a dividend, the stockholder must have bought the stock before the ex-dividend date which is set by each individual company. Dividends on common stock are not legally required. Therefore, if the the company fails to make a profit there is no liability for the omitted dividends. The dividend is normally paid in two parts, an interim and a final dividend, almost always in the form of cash.

Dual Exchange Rate
A situation in which there is a fixed official exchange rate and an illegal market-determined parallel exchange rate. The different exchange rates are used in different situations, either in exchanges or evaluations, as mandated by the government.

ECN
Acronym for Electronic Communication Network, an electronic trading system connecting buyers and sellers for the purpose of direct electronic trading. The system eliminates the need for any third party by circulating information about orders and allowing execution to take place through internal matching of interested parties.

Besides avoiding market makers (and their spreads) an ECN also protects a trader’s anonymity (often important for large transactions).

Economic Indicator
A variety of statistical data which provides interested parties with information about a nation’s economy, allowing judgements about current growth, stability and overall health to be drawn.

Economic indicators fall into three categories: leading, lagging and coincident. An example of an economic indicator might include: unemployment, inflation numbers, consumer sentiment or GDP. Some of these figures are calculated or gathered by government officials, others are harvested by independent organisations.

Economy Watchers Current Index
Measures the current mood of businesses that directly service consumers, such as barbers, taxi drivers, and waiters. A reading above 50 signals an improvement in sentiment. These businesses, dubbed "Economy Watchers" because they directly observe the economy during their everyday business, are thought to hold important insights from the microeconomic level.

Elliott Wave Principle
First developed by professional accountant Ralph Nelson Elliott in the 1920s, this tool was designed to make sense of an otherwise chaotic market. Elliott Wave Principle (or Theory) dictates that the market will fluctuate in a recurring pattern of five upward movements and three downward waves.

Emerging Market Economy
Refers to the economies of a number of Asian and Latin American countries that share a relatively short and unreliable history of open market relations and investment into the nation. These nations display a continued progression towards taking on free-market status, having previously had centrally planned economies.

Higher market efficiency and strict standards in accounting as well in the existence of some form of market exchange and regulatory body are common characteristics of these emerging market nations. Investors are inevitably drawn to these economies, as they can be marked by faster growth and, therefore, high returns. But they can also be hindered by socio-political instability and domestic infrastructure problems.

Engulfing Pattern
A bullish engulfing pattern has a black candle followed by a white candle, indicating a wide range with with a higher close. The body of the second candle totally encompasses the body of the first candle. The bearish pattern is the inverse.

Engulfing patterns are considered exceptionally strong signals of price change.

Equilibrium
In technical analysis terms, it's a price area representing a balanced supply and demand equation.

Equities
Common stocks (ordinary shares) traded in a securities market. The US equities market, for example, comprises of the New York Stock Exchange (NYSE), with its large trading floor and system of specialists, the NASDAQ National Market,a computerized system of brokers/dealers with no physical trading space, and the American Stock Exchange (AMEX). The European equities market, on the other hand, comprises the Euronext, which is currently the second-largest stock market in Europe and the OMX, which is composed of Scandinavian and Baltic stock exchanges.

Equity Curve
It's the equity value of an account graphed over a specific period of time. An equity curve displays the trading's performance revealing equity Drawdowns and the gain periods. Flat or non-trading periods are also visible in a detailed graph.

This graphic tool may be used to build well balanced trading portfolios by combining trading systems and offsetting their periods of losses and gains.

Euro-Bund
This is a benchmark for European the bond market. The Euro-Bobl future, along with the Euro-Bund and Euro-Schatz futures, are the most heavily traded fixed-income securities in the world. Traded on the CBOT and EUREX.

European Financial Stability Facility
The EFSF a special purpose vehicle created by the 27 member states of the European Union on 9 May 2010, to offer funding to financially distressed eurozone members. As part of its function, the EFSF can issue debt instruments on the market to raise the funds needed to provide loans to eurozone countries in financial troubles, recapitalize banks or buy sovereign debt.

The Facility is headquartered in Luxembourg City and the European Investment Bank provides treasury management services and administrative support to it through a service level contract. It is rated AAA by the three major rating agencies, Moody's, Standard & Poor's and Fitch.

Eurosclerosis
Eurosclerosis is a term coined in the 1970s and the early 1980s to describe both a period of economic growth in Europe when countries experienced high rates of unemployment and lagging job creation in contrast to fast-moving markets, e.g. their North American counterparts.

Euroyen
Euroyen refers to Yen deposits held in banks outside Japan.

Event Trading
Also called "news trading" consists of capitalizing of price movements caused by the release of economic indicators. It can be also seen as a short term use of contrary opinion.

Exchange Rate
It is a ratio or spread at which one nation's currency can be converted into that of another.

An freely floating exchange rate is subject to economical conditions, supply and demand, and also influenced by market psychology.

Conversely, a fixed or pegged exchange rate is independent of those market forces and is controlled by the corresponding monetary authority, with the aim of procuring more stable international trade.

Exchange Traded Fund
Similar to an index mutual fund, an ETF consists of a portfolio of stocks, bonds, currencies or in some cases other investments that trade on a stock exchange. They can be bought and sold at any time during the day (unlike most mutual funds).

Some ETF track an index while others are more actively managed. ETFs are more tax-efficient than normal mutual funds.

Exchange Traded Notes
An Exchange Traded Note is a contractual obligation made by an issuer to pay the holder a return which is often used to track exotica like future contracts, volatility indices, currencies the performance of one or more shares, an index, or a commodity. ETNs are related to ETFs in that they track an underlying index and are traded on the stock exchange, and offer returns based on the performance of a market index upon maturity, minus applicable fees, no period coupon payments are distributed and no principal protections exists. ETNs are often said to be unsecured debt, although many of them are backed by collateral (without collateral you’re 100% exposed to counter-party risk).

Exhaustion Gap
An exhaustion gap usually occurs at the end of a rapid, extensive advance or decline. Initially, it is similar to a runaway gap, but it is more likely to be closed quickly. They are usually associated with a point in the market when fear or greed has reached a climax.

Exotic Pair
Refers to a currency pair that is traded less frequently as opposed to the majors, like emerging market currencies. Also a term used to describe unusual or complicated financial instruments, opposite of plain vanilla.

Eurodollars
US dollars deposited in a bank (US or non US) located outside the USA.

Face value
The value of money expressed in the base currency held. If a trader wishes to buy 200, 000 GBPUSD, they would actually be purchasing 拢200,000. If your account is in dollars, then the amount required for this position is 拢200,000 in U.S. dollars converted at the time you open the position.

Fair Value
In financial markets, the estimate of the price of an asset that is due to be exchanged between two willing speculators. Those who would place stock in the efficient market hypothesis would assert that prices are generally close or equal to the fair value, with traders acting efficiently on new information which may discount future prices.

In reality, future prices often diverge from fair value for reasons of bias amongst buyers and sellers. Behavioural finance recognises such a phenomenon, explaining that anomalies often cause such divergence from fair value in an unpredictable and chaotic fashion.

Fast Market
Indicates market conditions where there are high volumes of trading and high volatility.

Fat Tail
Also referred to as heavy-tailed distribution. Indicates price movement in one direction for a longer period than would be experienced with normal distribution. These fat tails are often considered undesirable because of the additional risk they imply.

Favorable Excursion
The potential win attributable to price movement in favour of the position on any trade. Traders also refer to the Maximum Favorable Excursion, a tool which measures the positive price performance of a series of trades before they closed with a loss.

Fed
Acronym given to the Federal Reserve System, the major monetary authority in the US.

Federal Open Market Committee
A policy committee made up of the 12 members of the Federal Reserve. The members meet eight times per year to make decisions on economic policy and to set short-term objectives in open market operations

Fibonacci Extensions
In technical analysis, used to represent static support and resistance (where traders will look to take profits). The most popular potential price objectives are calculated by taking the distance from the low to the high of the trend and drawing the 138.2%, 161.8% and 261.8% levels beyond the standard 100%.

Fibonacci Retracements
In technical analysis, used to mark potential turning points in a trend by identifying static support and resistance. The most popular potential reversal points are calculated by taking the distance from the low to the high of the trend and measuring 38.2%, 50%, and 61.8% from the top of the up trend (the bottom in case of a down trend).

Financial Crisis Inquiry Commission
The Financial Crisis Inquiry Commission (FCIC) is a ten-member commission appointed by the United States government with the goal of investigating the causes of the financial crisis of 2007–2010.

The purpose of the Commission is to examine the causes (domestic and global) of the current financial and economic crisis in the United States, like the examining the causes of the collapse of major financial institutions, among many other statutory mandates.

Financial Instrument
Examples of financial instruments include: currencies, equities, futures, options, warrants, mutual funds, etc.

Fisher Equation
The Fisher equation is primarily used in redemption yield (YTM) calculations of bonds or rate of return calculations of investments. In economics, this equation is used to predict nominal and real interest rate behavior.

The fisher equation is simply: nominal interest rate = real interest rate inflation

If inflation is positive, which it generally is, then the real interest rate is lower than the nominal interest rate. If we have deflation and the inflation rate is negative, then the real interest rate will be larger.

Fixed exchange rate
Set rate of exchange between the currencies of countries. At the Bretton Woods international monetary conference in 1944, a system of fixed exchange rates was set up, which existed until the early 1970s, when a floating exchange rate system was adopted.

Flat Position
Trader jargon used to describe a position that has been completely reversed, also called "square". For example, a trader sells $100,000 then buys $100,000, thereby creating a neutral (flat) position.

Flat Yield Curve
A flat yield curve is where short term yield are almost the same as long term yields. This can suggest a slowing of the economy or that short term rates have been raising.

Floating currency exchange rate
Movement of a foreign currency exchange rate in response to changes in the market forces of supply and demand.

Floating Point Number
Numbers that may contain a decimal point.

Floating Position
Term referring to unrealized Profit/Loss. It's the potential gain or loss on open positions valued at current market rates. A floating position is constantly changing in value as market prices change and once closed it becomes an actual win or loss.

On online broker platforms, floating positions are reflected in the account's equity but are not yet reflected in the account's balance.

Floor Trader
A person who trades on the floor of a commodities exchange. There are pit brokers who tend to trade for a brokerage company or a large firm, and locals who tend to trade their own accounts.

FOMC
The Federal Open Market Committee (FOMC) meet eight times a year to determine near term monetary policy. The committee consists of 12 members.

Footsie
A jargon term for the FTSE 100 Index.

Forex Dealer Member
The term “Forex Dealer Member” is created by the NFA. In general, Forex Dealer Members are NFA Members if registered with the CFTC as retail foreign exchange dealers (RFEDs) or if they are the counterparty or offer to be the counterparty to Forex transactions. The term “Forex Dealer Member” is not defined in the Commodities Exchange Act (CEA) and is not a specific CFTC registration category.

Forward Contract
A cash market transaction that specifies the price and quantity of an asset to be delivered in the future. Unlike futures, forward contracts are not standardized and are not traded on organized exchanges. They are privately negotiated over the counter and not easily transferred or canceled. Thus, they are not liquid. Another difference to a futures contract is that a futures contract has fixed terms, such as delivery date and quantity.

Forward markets are most prevalent in currency trade (forward exchange transactions) as dealers attempt to hedge against future exchange rate movements.

Although the delivery is made in the future, the price is determined on the initial trade date. This may be the current price or exchange rate, or an agreed forward price/rate, which would be at a discount or premium to the spot rate. If the value of the underlying spot rate changes, the value of the forward contract becomes positive or negative, depending on the position held.

Further, the two parties must bear each other's credit risk, which is not the case with a futures contract.

Like in the case of a futures contract, the first step in pricing a forward is to add the spot price to the carrying charges. The price may also include a premium for counterparty credit since the two parties must bear each other's credit risk (otherwise the forward price would equal the futures price).

FPI
The Food Price Index (FPI) measures the rate of inflation for food and food services. FPI can give traders a peek into the upcoming quarterly CPI release since it is the only component of CPI that is reported on a monthly basis.

Fundamental Analysis
A method of evaluating the intrinsic macroeconomic factors (so called Fundamentals) by focusing on inflation, growth, trade balance, government deficit, and interest rates that influence currency and financial markets.

Fundamental analysis stands in stark contrast to technical analysis although both are used to anticipate future price movement. Both fundamental analysis and technical analysis have their adherents who consider the opposing approach useless, but most market pros, however, recognize that both fundamental analysis and technical analysis can be successfully combined.

Fundamentals
Those factors that are considered important in determining the relative value of a currency, such as inflation, growth, trade balance, government deficit, and interest rates.

The use of fundamentals as an investment strategy is called Fundamental Analysis.

Fungibility
The property of financial instruments which are identical in specifications and interchangeable. that is, when it is assumed that everyone values all goods of that class as the same.

For example, options and futures contracts are highly fungible, since they are highly standardized arrangements which simplifies the exchange/trade process. The same happens to stocks which can be bought (or sold) on one market or exchange, and then sold (or bought) on another market or exchange. Some commodities (e.g. gold, silver, corn, etc.) and currencies are also fungible.

On the other hand, forwards and swaps are not considered fungible, since they are customized arrangements.

Instruments that are highly fungible tend to be very liquid, and so transaction costs tend to be low. Fungible financial instruments are often used in arbitrage trades.

Futures Contract
Exchange-traded contracts that give the holder the obligation to buy or receive a certain amount of a product at a specific prices on a specific date. Futures are used by business as a hedge against unfavorable price changes and by speculators who hope to profit from such changes.

Futures market
An organized exchange where futures contracts and options on futures contracts are traded. Exchanges may trade commodities, financial derivatives, or a combination of the two, as well as futures and options on indices and equity products.

Gambler’s Fallacy
The falsely held belief that a series of consecutive trade results should not occur, and when they do, the expectation flips towards the opposite result. For example, if a trader loses six consecutive trades, the gambler’s fallacy says that the trader will then believe that he/she is due a win, statistically speaking.

Gap
A break between prices on a chart that occurs when the price makes a sharp move up or down with no trading occurring in between. Gaps are created by a big imbalance in the buying or selling pressure, for example at a breakout of a significant level, or during a news release.

To carry interest for the chart technician or trader, a gap must be wider that the normal price vacuums that occur under normal circumstances. Less liquid market sessions and trading vehicles, or a faster moving rate, can result in small gaps being formed between candles or bars in a chart.

GDP
Commonly used acronym for Gross Domestic Product. This economic indicator represents the total market value of all goods and services produced in a country in a given period of time, and is equal to all forms of spending and exports minus the value of imports. Traders look out for GDP as a strong indicator of the economic health of a country or region.

Gearing
In trading, describes the financial leverage offered to traders. There is a direct correlation between the size of your position and your margin deposit in forex trading, a highly geared position usually poses a significant risk to your account but offers the potential for large gains.

Gnomes Of Zürich
A disparaging term used to describe Swiss bankers. First coined by British Labour politicians during the sterling crisis of 1964, the ‘Gnomes’ refer to bankers who were associated with extremely secretive policies that were successful in pushing the sterling down through speculation.

Golden Cross
A crossover which involves a short-term moving average (usually a 50 period simple moving average) breaking above a long-term moving average (such a 200 period simple moving average). The same applies when an indicator crosses almost vertically its median line. Opposite of Dead Cross.

Greenback
Nickname for the US dollar. It derives from the popular name the US paper currency received from the original note that was printed in black and green on the back side. However, in the mid of the 19th century, "greenback" was a negative term. They were created to finance war expenditures, but the greenbacks did not have a secure financial backing.

Hedge fund
Fund which allows (usually wealthy) holders to employ aggressive buying strategies that tend to be unavailable to mutual fund holders. The hedge fund allows for the taking up of both long and short positions, the use of derivatives as well as the ability to invest in a number of markets; they often take large risks on highly speculative strategies.

Hedging
In trading, a defensive strategy which allows trader to offset or reduce any adverse price fluctuations.
A type of protective strategy designed to reduce or offset adverse price fluctuations. In spot Forex, hedging refers to a combination of positions that reduces the risk of a primary position, for example a buy of one lot
EUR/USD and a sell of the same quantity of the same pair. Note that not all Forex brokers have hedging facilities.
In other financial markets, creating a hedge can be done with call options, put options, by short-selling, or using futures contracts.
The strategy always aims to reduce risk: by buying or selling the market, an investor bets that the price of the purchased security will move in a certain direction. In order to offset the risk of losing money if the price moves in the opposite direction, an investor hedges against this risk employing a strategy that minimizes this risk of loss.
A hedge can also be used to lock in profits or prices, for example, when an importer of sugar or manufacturer of that commodity sells futures contracts to offset losses if prices fall.

High Price
The highest price quoted for a currency within a given time period, pertaining to a specific currency pair. This time period could be anything from one minute to one year.

High-Frequency Trading
A form of trading which involves using computers to take up almost instantaneous positions on trades in incredibly high volumes. The mechanism uses the rules of previous market conditions to make rapid decisions on whether to buy or sell any given asset.
The method has been criticised as limiting the potential for regular retail traders. While proponents of the strategy insist that it helps to increase liquidity and narrows spreads, thus improving overall market access.

Horizontal Line
In trading, a support or resistance line that is plotted at a given price level on a chart. There are occasions where horizontal lines will be plotted on technical indicators below the price chart.

Income Tax
Annual deduction from an individual or corporation’s net profit or income levied by the government. Generally speaking, we see income tax increase in times of economic strife and decrease when a nation is enjoying prosperity.

Indicative Quote
In forex trading, a currency quote that is provided by a market maker to a trading party but that is not firm. In other words, when a market maker provides an indicative quote to a trader, the market maker is not obligated to trade the given currency pair at the price or the quantity stated in the quote. Contrast this to a firm quote, in which a market maker guarantees a specified bid or ask price to a trader up to the maximum quantity specified in the quote.

Indirect Currency
In the forex markets, currency prices are quoted in terms of their relative value to one another. In most cases direct quotes are used – meaning that a currency is always quoted against one unit of the US dollar.

Indirect quotes therefore, tell a speculator how many US dollars are needed to purchase one unit of the alternate currency in the pair. Currencies quoted in this way are Euro, British Pounds, Australian Dollars and New Zealand Dollars.

Inflation
The rise in the general price level of goods and services in an economy over a given period of time. So as inflation rises, the purchasing power of the currency declines. Opposite to deflation.

Inflation Target Rates
This performance measure is used by central banks to examine the extent to which targets for the annual inflation rate have been met. The benchmark for measuring the price level is judged on a basket of consumer goods. If the annual inflation rate drifts from the targeted level by a significant amount, monetary authorities may be liable to step in and cut lending rates or add liquidity to the economy.

January Effect
Term referring to a specific quirk of seasonality in the financial markets where equity prices increase in January; this chimes with the end of tax-related selling before the year is out.

Investors who are income tax-sensitive and who hold small stocks, will generally choose to sell some of their stock just before the end of the year in order to claim a capital loss for tax purposes and quickly reinvest their money after the first day of the new year.   

JOC-ECRI Industrial Price Index
Often considered a leading indicator of inflation, this commodity index of industrial prices compares the price levels of a range of basic industrial materials at regular intervals.

Unlike other commodities indexes, the JOC-ECRI has close relationship with inflation rates and excludes items such food, grains, and precious metals in favour of a focus on raw industrial materials. These include: cotton, burlap, steel, copper, aluminium, zinc, lead, tin, nickel, hides, rubber, tallow, plywood, red oak, benzene, crude oil, ethylene and natural gas.

Kagi Chart
Finding its origins in 19th century Japan, the Kagi chart does not feature time on the horizontal x axis. Instead, the chart uses vertical lines that depend solely on price action, filtering out random noise and concentrating on the important moves that act as drivers of an asset's trend.

Keltner Channel
Technical analysis indicator which comprises a central moving average line with two channel lines above and below. Named after Chester W. Keltner, the central line is a simple 10-day moving average of typical price (taking into account the average of high, low and close price for that day).

Most often used in conjunction with volatile markets, the Keltner Channel identifies an overbuy when prices rise above its top band. While an oversell is indicated by a price fall to beneath the lower band.

Key Reversal Bar
Otherwise known as an outside reversal bar, this is a weaker form of an island reversal and can take the form of a bullish or bearish reversal. A bearish key reversal forms when one bar hits a new high in an upward trend, ultimately reversing and hitting a new low that is lower than the previous low and closing below the previous close.

A bullish key reversal performs the opposite movements, forming when a downtrend may be due to reverse and form into a new uptrend.

Such movement may also be dubbed ‘pipe formation’.

Kilroy Bottom
In trading, a term used to describe the easily-recognisable inverted Head and Shoulders formation. The pattern itself is made by three consecutive price lows, with the lowest occurring in the middle of the pattern.

As the pattern hits the bottom each time, the implications are for some form of reversal trend to take place.

Kiwi
Slang term for the New Zealand dollar (NZD), the term is derived from the picture of a kiwi bird which appears on the side of the 1 NZD coin. It is important to note that this has nothing to do with the small fuzzy fruit.

Kneejerk Reaction
Term used to describe the phenomenon whereby traders act hastily in the face of a new development within the markets. This may, for example, be the result of anticipation leading up to a big news event and the consequent thrust in price as traders take profits from the news.

Kondratieff Wave
Otherwise known as supercycles, great surges, long waves or K-waves, this theory states that modern western economies are subject to alternating periods of rapid growth and relatively slow progress over periods of 50+ years. Founded by Soviet era economist Nikolai D. Kondratieff, this theory is not currently accepted by mainstream economics.

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