Forex Trading Income - Fx Trading for Profit! - FOREX Glossary P

Pegging
When a country fixes the exchange rate to another country's currency, usually to achieve price stability. Most countries that peg their currencies do so against the US dollar or the Euro.

Pip (Points)
The smallest amount an exchange rate can move, typically .0001.

Political Business Cycle
A theory that explains changes in the economy as a result of political tactics before and after elections. To gain voter support politicians will often expand the economy prior to elections and implement reforms just after the elections to avoid punishment by the polity.

Political Risk
Risk that changes in government policies will negatively impact an investor. Political Risk is especially prevalent in third world countries.

Position
The amount of currency or security owned or owed by an investor.

Premium
The amount added to the spot price of a currency to get the forward or future price.

Price Transparency
Refers to the degree of access to information regarding bids and offers and respective prices. Ideally, every investor/trader would have equal access to all information.

Quote
The offer price of a security.

Rate
The price of one currency in terms of another (exchange rate).

Realized and Unrealized Profit
Unrealized profit is a gain from an increase in the price of an asset that has not been cashed in. Realized profits are made from the cashing in of the unrealized gain.

Repurchase (REPO)
Repos are short-term money market instruments. The trader sells a security (government security) and buys it back only after a short period of time, typically only overnight. Repos are primarily used to raise short-term capital.

Resistance
A price level at which most investors expect prices to decline further. A price at which there is sufficient supply to turn a previously uptrend downward. With regards to the forex market, it is the level at which a currency cannot rise above.

Revaluation
An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation

Revaluation Rates
The market rates that are used by traders in the evaluation of the gains and losses in their accounts each day.

Risks
Uncertainty in the possible outcomes of an action, i.e. possible returns on an investment. Risk is most commonly measured from the variance of possible outcomes. Higher risks are associated with higher rates of returns, typically in order to induce investment in riskier ventures.

Risk Capital
The capital that an investor does not need to maintain his/her living standard.

Risk Management
Term to describe when a trader will use analysis and other trading techniques to avoid substantial risks to his portfolio.

Rollover
Refers to a process of reinvesting in which, at the expiry, the settlement is postponed until a later date. The cost of the process is measured by the interest rate differential between the two currencies.

Settlement
The actual finalization of a contract in which the goods, securities or currencies are paid for or delivered and the transaction is entered in the books.

Short
The selling of a borrowed security, commodity or currency. Traders sell when prices are expected to fall.

Short Position
A contract to sell securities, commodities or currencies at a future date and at a prearranged price. At the expiry date, if the spot price is below the contract price, the holder of the contract will make a profit and if the spot price is above the contract price, then there is the potential to make a huge loss.

Spot Market
A market in which commodities, securities or currencies are immediately delivered.

Spot Price
The current market price.

Spread
The difference between the bid and offer price that is offered by a market maker.

Sterling
Refers to the currency, the Pound.

Stop Order (Stop-Loss Order)
An order used to hedge against excessive loss in which a position is liquidated at a specific, prearranged price.

Support
A price level at which there is sufficient demand to turn a downtrend up.

Swap
When a trader exchanges one currency for another, holding it for only a short period. Swaps are typically used to speculate on interest rate movements. It is calculated using the interest differentials between the two currencies.

Swap Spread
The difference between the negotiated and fixed price of the swap. The size of the spread depends on market supply and participating parties' credit.

Technical Analysis
A technique used to try and predict future movements of a security, commodity or currency, based solely on past price movements and volume levels. It examines charts and historical performance.

Tick
A minimum price movement.

Ticker
Depicts current or recent history of a currency, usually in the form of a graph or chart.

Tomorrow Next (Tom/Next)
When a trade buys and sells a currency today for delivery tomorrow.

Trade Price Response
This term advises that price reaction to a certain level is critical. If this level breaks then the recommendation would be to run with the market direction (i.e. Buy a break above resistance level; sell a break below a support level). However, if a price stalls at this level and is rejected then the recommendation is to go with this also (i.e. Sell at a resistance level that is tested and holds, buy at a support level).

Transaction Costs
The costs that are incurred by a trader when buying or selling currencies, commodities, or currencies. These costs include broker commissions or spreads.

Transaction Date
The date a trade occurs.

Turnover
The number or volume of shares traded over a specific time period. The larger the turnover, the more commissions a broker will be making.

Two Way Price
A price that includes both the bid and offer price. The NASD requires that market makers have both bid and ask prices for any security, currency or commodity in which they make a market. This is called a two-sided market.

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