FOREX BASIC TERMINOLOGY


To get a better understanding of how the forex market works it is essential to know some FX terminologies. Have fun learning with our forex glossary.
Federal Deposit Insurance Corporation (FDIC)
The regulatory agency responsible for administering bank depository insurance in the US.
Federal Reserve System
The central bank of the United States, with responsibility for implementing the country's monetary policy and regulating member banks of the System. The Fed was created in 1913 and is composed of 12 regional Federal Reserve Banks and a national Board of Governors
Fixed Exchange Rate
Official rate set by monetary authorities for one or more currencies
Floating Exchange Rates
Floating exchange rates refer to the value of a currency as decided by supply and demand
Flat/square
Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.
Foreign Exchange
(Forex, FX) is the simultaneous buying of one currency while selling for another. This market of exchange has more buyers and sellers and daily volume than any other in the world. Taking place in the major financial institutions across the globe, the forex market is open 24-hours a day.
Forward
The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.
Forward Contract
A forward contract fixes the exchange rate for future delivery at a date to be agreed by both participants. A deposit (or a minimum margin) is usually required in forward transactions. For example, if I want to lock in today's rate to buy $10,000 USD at 1.5820 Canadian for the next 4 months, I will have the ability to purchase up to $10,000 USD at this rate.
Forward Rates (Swaps)
A Forward Rate refers to a cash price of 2 currencies interest difference for a fixed term. Forward rates can be calculated easily given the fixed term interest rates of each currency and the current spot rate
Forward Trading
Forward trading is making the opposite trade of a spot trade in a given period of time. Often investors will swap their trades forward for anywhere from a week or two up to several months depending on the time frame of the investment. Even though a forward trade is on a future date, the position can be closed out at any time. The closing part of the position is then swapped forward to the same future value date
Forward points
The pips added to or subtracted from the current exchange rate to calculate a forward price.
Fundamental Analysis
Focuses on the economic forces of supply and demand that causes price movement. The Fundamentalist studies the causes of market movement, whereas the Technician studies the effects.
Futures Contract
An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contacts - ETC), versus forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.

PACKED WITH THE KNOWLEDGE OF THE BASIC TERMS, YOU ARE ONE STEP AHEAD IN MAKING YOUR TRADING JOURNEY A PROSPEROUS ONE.