Trading Glossary – List of Common Trading Definitions

In our Glossary section you’ll find definitions for terms related to the most common phrases used by the trading communities.
Please also check our Frequently Asked Questions About Forex Trading

Automated Trading: Trading, which uses an expert system that automatically executes transactions based on a prespecified strategy.

Automatic closing of positions (Stop out): Automatic closing of positions (Stop out) is made by the broker when your guaranteed sum is not enough to maintain the margin requirement.

Base Currency: The base currency – also called the transaction currency – is the first currency appearing in a currency pair quotation, followed by the second part of the quotation, called the quote currency or the counter currency.

No Dealing Desk (NDD): Working mode of the broker where trades are executed automatically without dealer`s intervention.

Currency pair:A currency pair is the quotation and pricing structure of the currencies traded in the forex market; the value of a currency is a rate and is determined by its comparison to another currency. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.

Volatility: A measurement of the price change of a financial instrument over a given period of time. It is most often calculated as the standard deviation of the percentage change in the price or by averaging the price ranges. The high volatility incorporates a large market dynamics. In other words, volatility refers to the amount of uncertainty or risk about the size of changes in a security’s value. A higher volatility means that a security’s value can potentially be spread out over a larger range of values

Contract For Difference (CFD): A Contract For difference (CFD) is financial instrument which reflects the price movement of different types of assets, providing the ability of taking advantage of upward or downward movement, without the need to actually holding the financial asset on which the CFD is based. In other words CFD is a tradable contract between a client and a broker, who are exchanging the difference in the current value of a stock, currency, commodity or index and its value at the contract’s end. CFDs can be traded on margin or short sold even if the underlying assets is not allowed.

Long position: A long (or long position) is the buying of a security such as a stock, commodity or currency with the expectation the asset will rise in value.

Expert system (Expert Advisor): Expert system or Expert Advisor (EA) is a program which trades independantly on behalf of the trader with previously set logical conditions and parameters. These parameters compose a trading strategy.

Economic Calendar: This is a calendar of the upcoming and planned major events and publication of economic data associated with the leading economies.

Indirect quotation: An indirect quote is also known as a “quantity quotation,” since it expresses the quantity of foreign currency required to buy units of the domestic currency. In other words, the domestic currency is the base currency in an indirect quote, while the foreign currency is the counter currency This type of listing is used for example in GBP / USD.

Quote currency: A quote currency is the second currency quoted in a currency pair in forex. In a direct quote, the quote currency is the foreign currency. In an indirect quote, the quote currency is the domestic currency. For example, in USD / BGN the quoted currency is the lev, while the base currency is the dollar as the quote is given in levs per one dollar.

Short Position: A short, or short position, is a directional trading or investment strategy where the investor sells a financial instrument. The expectation of the investor is that the price of the stock, currency, commodity etc. will decrease over time, at which point the he will purchase the financial instrument in the open market.

Leverage: Leverage is the use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. If you are offered a leverage of 1: 500 it means that you can trade with 500 time greater volume than the size of your account. The difference between the amount you have and the value of the position is usually obtained as a loan by the broker.

Lot: A measure of the amount with which you want to trade. In FOREX359 one lot is equal to 100,000 currency units or one futures contract of the relevant stock index or commodity.

Margin: To margin, also called buying on margin, refers to the practice of buying an asset where the buyer pays only a percentage of the asset’s value and borrows the rest from the bank or broker. The broker acts as a lender, and he uses the funds in the securities account as collateral on the loan’s balance. The margin is the amount the investor puts down on the account and is typically expressed as a percentage.

Margin Call: An investor receives a margin call from a broker if one or more of the securities he had bought with borrowed money decreases in value past a certain point. The investor must either deposit more money in the account or sell off some of his assets.

Minimum Spread: A minimum spread is the smallest possible difference between the bid and the ask price of a security or asset.

Pip: A pip is the smallest price move that a given exchange rate makes based on market convention. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point; for most pairs, this is the equivalent of 1/100 of 1%, or one basis point. For example, the smallest move the USD/CAD currency pair usually makes is $0.0001, or one basis point.

Support: A support level is a level where the price tends to find support as it falls. This means the price is more likely to “bounce” off this level rather than break through it. However, once the price has breached this level, by an amount exceeding some noise, it is likely to continue falling until meeting another support level

Live Account: This is an account of a trader for trading witn real money in an online platform.

Requote: Occurs when an investor initiates a trade at a certain price, but the broker returns the request with a different quote. This occurs more frequently in fast-moving markets, when the markets are especially volatile, or when the trade is especially large (requiring confirmation from the trader). This is normally because of rapid price fluctuations, which means the broker cannot give you the same price you saw when you clicked buy or sell.

Scalping: Scalping is a trading strategy that attempts to make many profits on small price changes. Traders who implement this strategy place anywhere from 10 to a couple hundred trades in a single day in the belief that small moves in stock price are easier to catch than large ones; traders who implement this strategy are known as scalpers. Many small profits can easily compound into large gains if a strict exit strategy is used to prevent large losses.

Slippage: Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed. Slippage often occurs during periods of higher volatility when market orders are used, and also when large orders are executed when there may not be enough interest at the desired price level to maintain the expected price of trade.

Spread: All currency rates include two prices – the buyng (bid) and selling price (ask). Selling price (ask) is always higher than the buying (bid). A spread is the difference between the bid and the ask price of a security or asset. Bid is the price at which you sell a particular currency or asset. Ask is the price at which you buy.

FX swap: FX swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates. When trading intraday, you do not pay interest. If you hold your position opened for more than one day, then you receive interest on the currency you bought and pay interest on the currency you sell. The result of transferring position to the next day may be positive or negative to your account balance and depends on overnight interest rates.

Resistance: A resistance level is the opposite of a support level. It is where the price tends to find resistance as it rises. This means the price is more likely to “bounce” off this level rather than break through it. However, once the price has breached this level, by an amount exceeding some noise, it is likely to continue rising until meeting another resistance level.

Technical Analysis: Technical analysis is one tool that investors use to forecast changes in price of a currency. It is based on reading the charts with the belief that the market moves follow a certain logic and there are recurring patterns, not taking into account recent fundamental data. Analysts generally monitor for specific figures on the charts.

Technical indicators: Indicators are used in technical analysis and are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum. Indicators are used as a secondary measure to the actual price movements and add additional information to the analysis of securities. Indicators are used in two main ways: to confirm price movement and the quality of chart patterns, and to form buy and sell signals.

Forex market: The International currency exchange market briefly called FOREX or FX (from English FOReign EXchange) is a global decentralized exchange system for trading different currencies. With a daily turnover of over $ 3 trillion, this is the largest financial market in the world.

Futures: Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash

Hedge: This is a strategy that is used to reduce the risk of loss. A common mistake is opening positions in opposite directions to be considered as hedging

Target spread: Target spread or also typical spread is the difference between bid and ask of a currency pair that broker tries to keep for most of the time.

Basic Forex Trading Concepts

Related orders are characterized with their use in more complex trading strategies. There are several types of these orders, the most popular ones being “If Done” orders and “One Cancels the Other” (O.C.O.) orders. If done order is a pair of orders. The first order is usually a limit but it might be a stop order, and is activated once the desired price is reached. The second order is dormant, and only activated once the first order has been executed. This second order can be a stop or a limit. “Once Cancels the Other” (O.C.O.) order is a pair of orders stipulating that if one order is executed, then the other order is automatically canceled. Such orders are left in anticipation of price fluctuations, but without having to monitor the market 24-hours a day to get the desired price.

In most currency trades, delivery is two days after the transaction date. Tomorrow-next trades (Tom / Next) arise because most currency traders are speculators and have no intention of taking delivery of the currency. If a trader buys and closes out his or her currency position the same business day, there isn’t a problem with delivery. But traders who wish to hold their position over the current business day and have no intention of accepting delivery of the currency would use tomorrow-next procedures: the position is closed out that business day at a closing rate, and then the position is re-established the following day. This allows the trader to hold the position for that day without worrying about delivery.

Expert Advisor is an automated trading system written in Meta Quotes Language (MQL 4) that is embedded in FOREX359. This language allows you to create your own expert advisors, indicators and scripts that can successfully automate your trading, to manage your current positions, to optimize the risk management of your portfolio and to seek new trade opportunities, without the need to constantly being at your computer. Through automated trading system, you can always be in the market, eliminating subjective factors that affect your actual assessment and strategy – emotions and lack of experience and knowledge.

Yes, in FOREX359 you can use library with expert advisors to test strategies or to apply them in automated trading.