Every industry tends to create its own unique terms, and the foreign exchange market is no exception. As a new trader, you must thoroughly understand certain terms before trading for the first time.
Foreign exchange terms-currency pairs
Every foreign exchange transaction involves buying one currency while selling another currency. These two currencies are often referred to as currency pairs in the transaction. Major currencies and minor currencies
The seven most commonly traded currencies (US dollar, Euro, Japanese yen, British pound, Swiss franc, Canadian dollar, and Australian dollar) are called major currencies. All other currencies are called secondary currencies. The most frequently traded secondary currencies are the New Zealand dollar (NZD), South African rand (ZAR) and Singapore dollar (SGD). In addition, the trading frequency of other currencies is difficult to determine, because the volume of trading contracts in the international market is constantly changing.
Foreign exchange terms-cross currency pairs
Cross currency pairs are all currency pairs that do not involve the US dollar. This currency pair may exhibit volatile price fluctuations because the trader actually used two USD transactions. For example, to make a long EUR/GBP trade (buy) is equivalent to buying a EUR/USD currency pair and selling a GBP/USD currency pair. The transaction fees for cross currency pair transactions are usually higher. The three most commonly traded cross currencies are the euro/yen, the pound/euro and the pound/yen.
Foreign exchange terms-basic currency
The base currency is the first currency in a currency pair. It represents the price of the base currency expressed in another currency in the currency pair. For example, if the price of USD/Swiss francs is 1.6215, then one US dollar is equal to 1.6215 Swiss francs. In the foreign exchange market, the U.S. dollar is generally used as the basic currency for quotation, that is, the U.S. dollar is quoted based on how many other currencies in the currency pair are equal to one unit. The special cases of this rule are the British pound, the euro and the Australian dollar.
Foreign exchange terms-quote currency
The quote currency is the second currency in the currency pair. It is often referred to as spread currency, and any unrealized profits and losses are measured with it.
Spread is the smallest unit of all foreign exchange prices. Almost all currency pairs have the most important five digits, and most currency pairs have a decimal point after the first digit. For example, Euro/U.S. dollar is equal to 1.2812. In this example, a spread is equal to the minimum change value of four decimal places, which is 0.0001. Therefore, if the quote currency of the currency pair is USD, a spread is usually 1% of a cent.
A noteworthy special case is the USD/JPY currency pair, with a spread of 0.01 USD (one USD is approximately equal to 107.19 Japanese yen). Spreads are sometimes called points.
Foreign exchange terms-margin
When investors open a new margin account, they must deposit at least a certain amount of money with the broker. This minimum amount varies from broker to broker, and can be as low as US$100.00 or as high as US$100,000.
Every time a trader performs a new transaction, a certain percentage of the margin account balance will be recorded as the margin at the beginning of the new transaction. This ratio is based on the currency pair being traded, the price at the time and the number of trading units (n1 as “hand”). The size of a lot is often calculated in the base currency. The usual size of an even lot is 100,000 units, but most brokers allow investors to trade in odd lots (that is, a function of 100,000 units).
Foreign exchange terms-leverage
Leverage is the ratio of the actual transaction amount to the required safe deposit (ie margin). It represents the ability to control valuable securities with relatively small amounts of capital. In different brokers, the leverage is very different, from 10:1 to 100:1. The lever is often called a transmission device. The formula for calculating leverage is:
Foreign exchange terms-buying price
The buying price is the price at which someone is willing to buy a particular currency pair in the foreign exchange market. Traders can sell the base currency at this price, which is on the left side of the quotation. For example, the US dollar/Swiss franc quote is 1.4527/32, and its purchase price is 1.4527; that is, you can sell 1 US dollar for 1.4527 Swiss francs.
Foreign exchange term-selling price
The selling price is the price at which a particular currency pair is willing to sell in the foreign exchange market. Traders can buy the base currency at this price, which is on the right side of the quotation. For example, the US dollar/Swiss franc quote is 1.4527/32, and its selling price is 1.4532; that is, you can buy 1 US dollar at 1.4532 Swiss francs. The foreign exchange selling price is also called the selling exchange rate.
Foreign exchange terms-the difference between the buying price and the selling price
The spread is the difference between the buying price and the selling price. “Large number quotes” are the jargon of the broker, referring to the first few digits of the exchange rate. Brokers will not quote these figures. For example, the US dollar/yen quotation may be 117.30/117.35, and the first three figures will be omitted when verbal quotations are quoted as “30/35”. Quotation method The exchange rate in the foreign exchange market is expressed in the following format: basic currency/quotation currency buying price/selling price can be seen in the example in Table 4.1: Euro, USD 1.2604/07 GBP/USD 1.5089/ 94 Swiss francs/yen 84.40/45 Under normal circumstances, only the last two numbers are displayed. If the selling price exceeds the buying price by 100 points, then there will be three numbers to the right of the slash (for example, EUR/CZK 32.5420/780). This happens only when the quote currency is very weak. Transaction cost The difference between the buying price and the selling price is the difference between the buying price and the selling price. “Large number quotes” are the jargon of the broker, referring to the first few digits of the exchange rate. Brokers will not quote these figures. For example, the US dollar/yen quotation may be 117.30/117.35, and the first three figures will be omitted when verbal quotations are quoted as “30/35”.
Foreign exchange terms-quotation method
The exchange rate in the foreign exchange market is expressed in the following format:
Basic currency/quotation currency Bid price/Sell price
Such as: Euro, US dollar 1.2604/07 British pound/US dollar 1.5089/94 Swiss franc/Japanese yen 84.40/45
Normally, only the last two numbers are displayed. If the selling price exceeds the buying price by 100 points, then there will be three numbers to the right of the slash (for example, EUR/CZK 32.5420/780). This happens only when the quote currency is very weak.
Foreign exchange terms-transaction costs
The difference between the buying price and the selling price is also the cost of a trading round. A transaction round refers to a buyer (or sell) transaction of the same amount and the same currency pair and a sell (or buy) transaction to offset. In the EUR/USD example in Table 4.1, the transaction cost is three points. The formula for calculating transaction costs is:
Transaction cost = selling price-buying price
Foreign exchange terms-rollover delivery
Rollover delivery is the process of extending the original delivery date of a transaction to another date. The cost of this process is determined by the difference in interest rates between the two currencies.
Using margin for foreign exchange transactions can increase your purchasing power. If you have US$2,000 in your margin account and the allowable leverage is 100:1, you can buy foreign exchange up to US$2,000,000, because you only need to pay 1% of the purchase price as collateral . In other words, you have a purchasing power of $2,000,000.
With more purchasing power, you can increase the total investment income with less cash expenditure. To be precise, trading on margin magnifies your profits and losses.
Forex terminology-a trader’s nightmare
All traders are afraid of margin call notifications. When a trader’s margin falls to the minimum required due to a loss on an open position, the broker will issue a margin call.
Trading on margin is a profitable investment strategy, but traders should fully understand the operation and risks of margin accounts. Be sure to read the margin agreement signed by you and the clearing house carefully. If you have any questions, you can consult a customer representative.
If the existing margin in your account drops below the predetermined limit, the positions in your account may be partially or fully liquidated. You may not receive a margin call until your position is closed.
In order to effectively avoid receiving margin call notifications, you can check your account balance regularly, and use a stop loss order (discussed later) for each open position to reduce risk. For ease of use, most online trading platforms will automatically calculate the profit and loss of traders’ open positions.
A quick overview of commonly used terms in foreign exchange terms
(1) Trading position and position (POSITION): It is a market agreement that promises to buy and sell the initial position of a foreign exchange contract. Those who buy foreign exchange contracts are long positions; when foreign exchange contracts are sold, they are short positions, and they are in a position that is expected to fall.
(2) Short, short, short (SHORT): The transaction expects that the price of the foreign exchange market will fall in the future, that is, a certain amount of currency or option contracts are sold at the current market price, and then the price falls before making up to close it.
(3) Long, buy, long (LONG): The trader expects that the foreign exchange market price will rise in the future, buy a certain amount of currency at the current price, and after a period of exchange rate rises, hedging the contract positions held at a higher price , So as to make a profit. This method is a trading method of buying first and selling later; short positions are just the opposite.
(4) Liquidation: Liquidation: Closing the previously bought (sell) currency position by selling (buying) the same currency.
(5) Margin (MARGIN): to guarantee the performance of the contract and guarantee in case of transaction losses, equivalent to 0.5% (200 times) to 5% (20 times) of the transaction amount, which will be refunded after the client performs the contract. The deposit is deducted accordingly.
(6) A kind of: buy (from Cantonese).
(7) Sell: Sell (from Cantonese).
(8) Range: The range of currency fluctuations over a period of time.
(9) Upshift and downshift: price target (the top of the price is called the resistance level, and the bottom of the price is called the support).
(10) Bottom: An important support level for the downside.
(11) Long term: more than one month to six months (above 200 points).
(12) Mid-term: one week-one month (100 o’clock ~ 200 o’clock).
(13) Short-term: one day-one week (30-50 o’clock).
(14) Bear market: Long-term one-way market downward.
(15) Bull market: Long-term one-way market upward.
(16) Interval fluctuations: currencies fluctuate back and forth, up and down within an interval.
(17) Cowhide market: market volatility is narrow.
(18) Light trading: small trading volume and small volatility.
(19) Active trading: The trading volume is large and the volatility is large.
(20) Rise and fall: The value of the currency has obvious directional development due to news or other factors.
(21) Stalemate: Unknown market momentum, narrow range.
(22) Consolidation: After a period of rise (fall), it will consolidate and fluctuate within the range.
(23) Retracement and rebound: In the general trend of price fluctuations, the reverse market appears in the middle.
(24) Bottom-making and bottom-building: When the price drops to a certain place, there is little fluctuation for a period of time, and the range is reduced (such as box sorting).
(25) Break: Break through the support or resistance level (generally need to break above 20-30 points).
(26) False breakthrough: Suddenly break through the support or resistance level, but immediately turn back.
(27) For closing: closing.
(28) Exploring up and down: test the price.
(29) Profit settlement: liquidate a position to make a profit.
(30) Panic selling: sell and close a position after hearing certain news, regardless of the price.
(31) Stop loss and stop loss: the direction is wrong, and the position is immediately closed at a certain price.
(32) Short covering: Originally it was a long market, and the market was sold (selled) due to news or data (sell to sell or sell to close).
(33) Long covering: The market is a short market, and then change to a long market (entering the market or closing the position)
(34) One-day turn: originally went to the market, but went to the market in the afternoon, and exceeded the opening price
(35) Selling pressure: selling orders on rallies.
(36) Buying gas: Pay at the reserve price.
(37) Stop-loss buy order: After the short position is sold out in the foreign exchange market, the exchange rate does not fall but rises, forcing the short position to force a buy back.
(38) Lock order: It is one of the methods of margin operation, which is to buy (buy) sell (sell) the same lot size, but not close the position.
(39) Floating order: It means not closing the position on the day (city) after placing the order.
Analysis of professional vocabulary of foreign exchange terms
(40) Accumulation: During each transaction period, the premium or discount allocated by the forward foreign exchange exchange is directly related to the interest arbitrage transaction.
(41) Value-added: When prices rise in response to market demand, a currency is called value-added, and the value of assets increases.
(42) Arbitrage: Using hedging prices in different markets, buying or selling credit instruments, and buying positions of the same amount but in the opposite direction in the corresponding market at the same time, in order to profit from the slight price difference.
(43) Selling price: The selling price of a designated currency in a foreign exchange transaction contract or a cross currency transaction contract.
(44) Bear market: Because of the strong pessimistic atmosphere, market prices fell sharply (as opposed to the bull market).
(45) Purchase price: The price at which the buyer intends to purchase: the suggested price of a certain currency.
(46) The Bretton Woods Agreement of 1944: This agreement established a fixed exchange rate for the world’s major currencies, allowing the central bank to intervene in the currency market and set the price of gold at $35 per ounce. This agreement was annulled until 1971.
(47) Bull market: A market with rising prices.
(48) Broker: an agent who handles orders for investors to buy and sell currency.
(49) Pound: The VI language version of the exchange rate of the British pound against the US dollar.
(50) Call rate: Interbank overnight interest rate.
(51) Spot market: A market for buying and selling specific currencies.
(52) Convertible currency: It can be freely converted into other currencies or gold currency without the special authorization of the relevant central bank.
(53) Counterparty: The counterparty customer or bank who makes a foreign exchange transaction. This term is also used in the interest and currency swap markets to refer to the people involved in swap transactions.
(54) Cross rate: The exchange rate between two currencies is usually composed of the respective exchange rates of the two currencies against the US dollar.
(55) Currency risk: The risk of loss due to unfavorable exchange rates.
(56) Currency swap: The parties have entered into a contract to agree to exchange a series of interest payments in different currencies within a period of time, and exchange the principal part at maturity at an exchange rate agreed in advance.
(57) Currency options: within a certain period of time, the right to buy and sell option contracts in two currencies at a certain exchange rate.
(58) Currency swap option: an in-store market option to finalize a currency swap contract.
(59) Currency warrants: store market options: long-term (more than one year) currency options.
(60) Same-day write-off: The same 13 transaction of buying and selling the same financial product.
(61) U.S. dollar rate: exchange one U.S. dollar for unequal amounts of foreign currencies, regardless of the location of the dealer or the currency for which the quotation is requested. The only exception is the exchange rate of British pound to U.S. dollar (pound sterling). One pound can be exchanged for varying amounts of dollars.
(62) European Monetary System (EMS): short for European Monetary System, EU countries have agreed to maintain the harmonization of exchange rates of their currencies.
(63) The Federal Reserve (Fed): The central bank of the United States.
(64) Fixed exchange rate: the official rate agreed by the financial authorities for one or more currencies. In actual situations, even a fixed exchange rate can allow fluctuations between certain high and low zones, giving the relevant authorities the opportunity to intervene.
(65) Parity/Flat: Neither long nor short, which is called parity or flat. If the investor has no positions or all positions cancel each other out, it is called flat.
(66) Floating interest rate: Contrary to fixed interest rate, this transaction interest rate will fluctuate with market interest rate or benchmark interest rate. One example of a variable interest rate is a standard mortgage.
(67) Foreign exchange transaction: refers to the actual exchange of two currencies (only the principal part) at the agreed price of the contract on a specific date, or exchange at the agreed price of the contract on a certain day in the future.
(68) Forward: The transaction will be held at a certain time in the future agreed by the parties. Foreign exchange forward transactions are usually expressed at a higher (premium) or lower (discounted) spot rate. To obtain the actual forward foreign exchange price, it is necessary to add a certain margin to the spot rate. The fee rate will reflect the price of foreign exchange on the forward date, so if you trade funds at this fee rate, the profit and loss will be equalized (also called neutral transaction). The rate is calculated from the relevant margin rate of the two trading currencies and the foreign exchange spot rate. Unlike the futures market, forward transactions can be set according to the needs of both parties, so they are more flexible. There is also no centrally managed exchange.
(69) Fundamental analysis: A detailed analysis of the economic and political situation of a financial market to determine future trends.
(70) Long-term order (GTC): The order is reserved by the trader to buy or sell at a fixed price. The order is valid until cancelled by the customer.
(71) Hedging: using one transaction to protect another transaction from loss, such as offsetting the previous purchase with short selling, or offsetting the previous short selling with overbuying. Although hedging techniques can reduce potential losses, they can also reduce potential profits.
(72) Highest price/lowest price: The highest transaction price and lowest transaction price of the transaction note on the trading day.
(73) Original margin: When investors want to engage in position trading, they must deposit some collateral to ensure future performance.
(74) Interbank exchange rate: The exchange rate quoted by a large international bank against other large international banks.
(75) Limit order: buy at or below the limit price, or sell at or above the limit price.
(76) Long position: The customer buys a currency that he did not originally hold.
(77) Margin: The client must deposit funds as collateral to compensate potential losses when the price trend is unfavorable.
(78) Margin call: an instruction to pay additional funds. A clearing house requires bill members (or brokers require clients) to make up the minimum amount of margin to make up for losses when market prices fall.
(79) Market creators: provide buying and selling prices in the market. And those who can make a deal at their quotation.
(80) Quotation: The price at which the seller is scheduled to sell.
(81) Two-choice order: refers to the two prices or two different trading methods set on the order, one of which is executed and the other is automatically cancelled.
(82) Open position: Any transaction that has not been paid in real money or settled by an equivalent or opposite transaction.
(83) Storefront market: A collective term for transactions held outside the exchange.
(84) Overnight transactions: transactions conducted from 9 pm to 8 am the next day.
(85) Point: The smallest gradual unit representing the exchange rate in the currency market. According to different circumstances, a reference point is usually 0.0001 in the Euro/U.S. dollar, British pound/U.S. dollar, and U.S. dollar/Swiss franc, and 0.01 in the U.S. yen.
(86) Political risk: As a government may make unfavorable actions against investors, the future of investment returns is unclear.
(87) Quotation: An indicative market price that shows the effective price at which a security can be bought or sold at the highest price at any given time.
(88) Resistance line: The price at which selling is expected.
(89) Venture capital: The limit of the amount that an individual can afford to invest. If the amount is lost, it will not affect the original life style.
(90) Renewal: According to the exchange rate difference between the two currencies, the settlement of one transaction is extended to another value13.
(91) Settlement: The actual exchange between two currencies.
(92) Short position: Refers to the expectation that the price will fall, so sell a bill that you do not actually own and hold a short position so that you can buy it back at a lower price in the future and make a profit.
(93) Spot: A transaction is completed immediately, but the funds are usually completed within two days after the transaction.
(94) Spread: The difference between the buying price and the selling price, used to measure market liquidity. The smaller the spread, the higher the liquidity. .
(95) Stop Loss Order: An order to buy or sell when the market price is higher or lower than the price specified by the principal.
(96) Special holding price: the price at which the purchase can be expected.