New To Forex? Learn How to Trade at Magic Compass Academy
Don’t panic in being a Forex beginner and start something new, yes you might feel often overwhelmed with all that trading vocabulary, but live it on us…Our aim is to simplify trading concepts for you, so that you could make best use of market information and easily make smart trading decision. Experience real trading conditions on our Demo Platform and build the right knowledge foundation for effective Forex trading.
The first step in becoming a successful CFDs trader is to familiarize yourself with the most commonly used and searched for trading terms. To make it easier for you to get acquainted with CFDs trading terminology and to understand what each term means, we have compiled this glossary to list all the fundamental terms you should know, all in one place. And it is easy to navigate too, with the A to Z index.
AAggregate RiskRefers to the total exposure of a single individual or institution both spot and forward forex contracts.AppreciationRefers to a strengthening or increase in value/price in response to market demand, rather than due to official action.ArbitrageRefers to the simultaneous sale and purchase of a financial instrument in different markets to profit from price differentials.Ask PriceRefers to the rate at which the market is willing to sell a product. It is also known as the Offer Price. Trading on this price you go long on the underlying instrument.At BestRefers to an instruction to trade (both buy & sell orders) when a specific price is reached.At or BetterRefers to an order to trade when a specific price is reached or crossed.AussieNickname for the Australian dollar.AUDSymbol for the Australian Dollar. The AUD/USD (Australian Dollar / US Dollar) pair is one of the seven most popularly traded currency pairs in the forex market.
BBalance of PaymentsRefers to the record of a country’s claims of transactions with the rest of the world within a specific period of time. This includes transactions related to services, merchandise and capital flow.Base CurrencyRefers to the currency in which an investor or issue maintains their book of accounts. It is also the first currency in a currency pair, against which the value of the second currency is quoted. The most common base currency in forex trade is the US dollar, where currency quotes are in terms of the value of the second currency against the USD. For instance, US$1 = €0.837.Basis PointRefers to a smallest unit of change in price, usually one-hundredth of a percent.Bear MarketRefers to a market witnessing an extended period of price declines, along with widespread pessimism.Bid/Ask SpreadRefers to the difference between the bid price and the ask price.Bid PriceRefers to the price at which a trader, investor or market is willing to buy a product. In forex, it refers to the price at which a trader is willing to pay for a base currency. Trading on this price you go short on the underlying instrument.Bollinger BandsRefers to a technical analysis tool that uses standard deviations to indicate support and resistance levels.Bretton Woods AccordRefers to an agreement, signed in 1944, establishing fixed rates of foreign exchange for major currencies. The agreement ended in 1971.Bull MarketRefers to a market that has been witnessing a rise in prices over an extended period of time, and is characterized by high confidence and market rallies.
CCableRefers to the British Pound Sterling, or more specifically, jargon referring to the exchange rate of GBP/USD. The term is traced back to the 1800s, when the rate was transmitted to the US through a transatlantic cable.CADSymbol for the Canadian Dollar. The USD/CAD (US Dollar / Canadian Dollar) pair is one of the seven most popularly traded currency pairs in the forex market.Call OptionRefers to currency trade that capitalizes on the interest rate difference between two countries, by selling one currency of a low interest rate and buying another of a high interest rate. The trader benefits from the difference in the two interest rates while the trade is open.Candlestick ChartRefers to a type of bar chart, used mainly to illustrate price movements over a period of time, including the opening and closing price.Capital MarketsRefers to markets meant for medium- to long-term investment, most commonly more than one year.Carry TradeRefers to a trading strategy where an investor attempts to profit from the difference in interest rates by borrowing at a low interest rate to buy higher interest rate assets, or to long a currency that pays a high interest rate while shorting another with a lower interest rate.CHFSymbol for the Swiss Franc. The USD/CHF (US Dollar / Swiss Franc) pair is one of the four major currency pairs in the forex market.Closing PriceRefers to the price at which a financial instrument ended trade on a particular day, until trading commences on the following trading day.ContractRefers to a buy or sell agreement and is a standard unit of trading in forex.Currency PairRefers to the two currencies which make up a specific foreign exchange rate, such as the USD/EUR.
DDaily ChartRefers to any graphical representations of intraday currency price movements.Day TradingRefers to the opening and closing of a specific position on the same day or within the same trading session.DepositRefers to the money put into an account to fund it.DepreciationRefers to a decline in the value of a currency due to market movements.DerivativeRefers to a contract between two or more parties that changes in value as the price of the underlying asset moves.DevaluationRefers to the deliberate downward adjustment of the value of a specific currency, against the value of another, usually done via an official announcement.
EEconomic IndicatorRefers to a statistic that indicates economic growth and stability of a nation, issued by government of non-government institutions. Some common economic indicators are Gross Domestic Product (GDP), employment rate, industrial production, trade deficit, etc.End Of DayRefers to the process of valuing a trader’s account at the end of each trading day, using either an accrual system or mark-to-market. The former only shows the profit or loss realized on that day, while the latter uses closing market rates or revaluation rates to evaluation the net position the trader will start on the next trading day.EURSymbol for the Euro. The EUR/USD (Euro / US Dollar) pair is one of the four major currency pairs in the forex market.Exit PointRefers to the price at which a trader closes an open position. This is usually a predetermined point, based on a specific trading strategy and used to minimize risk.ExposureRefers to the invested amount that is vulnerable to market risk.
FFillRefers to the completion of the execution of an order.Fixed Exchange RateRefers to the official exchange rate, determined by monetary authorities, for one or more currencies. A fixed exchange rate can, however, fluctuate between defined upper and lower bands.Floating Exchange RateRefers to situations where the exchange rate is not fixed, but determined by market forces, such as supply and demand. Floating rates are also subject to intervention by monetary authorities.ForwardA forex deal that is set to commence on a future date, agreed upon by both parties involved in the contract.Fundamental AnalysisRefers to the analysis of subjective information, both quantifiable and non-quantifiable, such as political or economic events, to determine future price movements of a currency.Futures ContractRefers to a standardized contract, entered into by two parties, with the intension of buying or selling a particular asset of a specified quantity or quality at a future date, although at a predetermined price.
GG7Refers to a group of seven nations, including Canada, France, Germany, Italy, Japan, United Kingdom and United States.G8Refers to the G7 countries plus Russia.GapA rapid market move where prices skip multiple levels without the occurrence of any trade. Gaps commonly follow news events or the release of economic data.GBPSymbol for the British Pound. The GBP/USD (British Pound / US Dollar) pair is one of the four major currency pairs in the forex market.GDPGross Domestic Product refers to the total value of a nation’s output, income or expenditure occurring within the physical borders of the country.GNPGross National Product refers to the GDP plus income earned through work or investments abroad.Going LongRefers to investment or speculation in an asset over the long term with expectations of price increase in the asset.Going ShortRefers to the selling of an asset not owned by the seller, with the expectation that the price of the asset will decrease in the near future.GopherAnother name for the USD/JPY (US Dollar / Japanese Yen) currency pair.GTCGood-Till-Cancelled refers to refers to an order that is given to a dealer to either buy or sell an asset when a specific price is reached. The order will remain in place till it is executed or cancelled.
HHawkishRefers to a situation where a nation’s monetary policymakers believe that a higher interest rate is required, most often to either mitigate inflation and/or to restrain rapid economic growth.HedgeRefers to an investment position or a combination of positions that is adopted to reduce the risk of one’s primary position or the volatility of one’s portfolio.High/LowRefers to the highest and the lowest traded price of a specific financial instruments within a given trading day or period.
IInflationRefers to an economic situation where there is continued rise in prices of consumer goods, often leading to an erosion in purchasing power.Initial MarginRefers to the initial amount required to initiate a position or the buying and selling of a certain amount of currency.Interbank RateRefers to the interest rates charged by international banks for short term loans to other international banks.IRSInterest Rate Swaps refer to an agreement to swap or exchange one’s interest rate exposure from fixed to floating or vice versa. The transaction involves the exchange of two parallel loans.
JJPYSymbol for the Japanese Yen (Japan’s currency). The USD/JPY (US Dollar/Japanese Yen) pair is one of the four major currency pairs in the forex market.
KKiwiAnother name for the New Zealand dollar.
LLeading IndicatorsRefer to economic variables that are expected to predict future economic activity, such as the Consumer Price Index, unemployment rate, Retail Sales, Producer Price Index, Prime Rate, Federal Funds Rate, etc.LeverageAlso known as margin, leverage refers to the ratio of a transaction amount to the total capital available with the trader/investor.Limit OrderRefers to an order to buy or sell at a predetermined price or a better one.LiquidityRefers to the ability of a market accept large transactions, without any significant impact on price stability.LoonieNickname for the Canadian dollar.LotRefers to a unit that is used to measure the amount of a specific deal. The value of a deals always corresponds to the number of lots.
MMarginRefers to the ratio between an investor’s/trader’s available funds to his exposure. It is the collateral used to cover potential losses in forex trade.Margin CallRefers to a request from the broker/dealer for the investor to deposit additional funds or alternative collateral to guarantee performance on a position that has moved against the trader.Mark-to-MarketRefers to the daily valuation of a trader’s books, using closing market rates or revaluation rates, to reflect the profits and/or losses accrued and to calculate the net position with which the trader will start the next trading session.Market OrderRefers to an order to execute a trade at the best possible/current price.
NNet PositionRefers to the amount of currency, bought or sold, that has not yet been offset by opposite transactions.NZDSymbol for the New Zealand Dollar. The NZD/USD (New Zealand Dollar / US Dollar) pair is one of the seven most popularly traded currency pairs in the forex market.
OOpen PositionAn active trade, subject to profits or losses, which has not been offset by an equal and opposite position.OptionsRefers to a derivative financial instrument that gives the right, although not the obligation, to buy (Call) or sell (Put) a product/currency pair, at a specific price before a predetermined date.Overnight PositionRefers to a trade that remains open until the next trading day.
PPipRefers to the smallest unit of increment in exchange rate, usually equivalent to one basis point.Profit TakingRefers to the closing of a position to realize profits.
QQuoteRefers to an indicative market price.
RRallyRefers to recovery in price after a period of decline.RangeRefers to the difference between the highest and lowest price of an asset during a specific trading session.ResistanceA term used in technical analysis that refers to a specific price level that might act as a ceiling or a level that a currency is unlikely to cross.
SSpot PriceRefers to the current market price.SpreadRefers to the difference between the bid and ask price of a currency, used to measure market liquidity, where narrower spread reflect higher liquidity.Stop Loss OrderRefers to an order to buy or sell when a specific price is reached, in order to minimize losses.Support LevelsRefers to a specific ceiling or floor price, at which a particular exchange rate will automatically correct itself.SwissieNickname for the Swiss franc (CHF).
TTechnical AnalysisRefers to the process of analyzing market data, including price charts, trends and volume, to forecast the direction of future price movements.TickRefers to the minimum movement in price, up or down.TrendRefers to price movement that leads to a net change in value of an asset.
UUptickRefers to a new price quote for a currency that is higher than the preceding quote.US Prime RateRefers to the interest at which US banks lend to their prime corporate clients.USDSymbol for the US Dollar. Also known as the greenback, it is considered the world’s most liquid currency. All the four major currency pairs include the USD.
VVolatilityRefers to fluctuations in the price of an asset.
WWhipsawNickname for a highly volatile market, characterized by sharp price movements, followed by sharp reversals.
XXAU/USDSymbol of Gold Instrument.XAG/USDSymbol of Silver Instrument.
YYieldRefers to the return on an investment. Yield is usually mentioned as a percentage.YuanThe base unit of currency in China.
ZZero SumRefers to a profit on one side with a simultaneous loss on the other side, of the same amount, leading to the net change in wealth being zero.
*Please note that the Glossary is for educational purposes and cannot be used in the interpretation of our Terms and Conditions