Forex Glossary

Appreciation: A currency is said to be «appreciated» when its value increases as a function of market demand.

Arbitrage (Arbitrage): Operation consisting in buying or selling a security by immediately doing the inverse operation in another market, in order to benefit from the existing exchange difference between two places.

Around: Colloquial term used by operators to indicate when the term / discount premium is close to parity. For example, «two-two around» would be understood as 2 pips of difference between the current purchase and sale price of the market.

Ask Rate: The price at which an instrument is offered for sale (as well as the difference between the purchase and sale prices)

Asset Allocation: Investment practice that consists of the distribution of assets in different markets, to obtain diversification for the purposes of risk management and / or obtain the expected return based on the objectives of the investor.

Back Office: The departments and processes related to the settlement of financial operations.

Balance of Trade (Balance of Trade) – Value of a country’s exports minus the value of its imports.

Base Currency: In general terms, the currency in which the investor or issuer keeps his account book. In the Forex market, the US dollar is usually considered the «base» currency for the quotes; that is, the quotes are expressed as a unit of $ 1 USD for the other currency quoted in the pair. The main exceptions to this rule are the British pound sterling, the euro and the Australian dollar.

Bear Market (Bear market): A market characterized by low prices.

Bid / Ask Spread (Difference between purchase and sale price): Difference between purchase and sale prices; the most used way to measure the liquidity of the market.

Big Figure: Expression used by the stock broker (dealer or trader) that refers to the first digits of the exchange rate. These digits do not change frequently in the normal fluctuations of the market and, therefore, are eliminated from the agents’ quotes, especially during periods of high activity in the market. For example, the USD / Y exchange rate could be 107.30 / 107.35, but agents will not mention the first three digits, that is, they will say «30/35».

Book (Book): In a field of professional sales, the book summarizes the total positions of an operator or money table.

Broker (Broker): A person or company that acts as an intermediary between buyers and sellers and receives a fee or commission for the transaction. On the other hand, a «dealer» or «trader» (agent, trader) commits his capital and takes a position, hoping to obtain a difference (gain) by closing the position in a subsequent transaction with another party.

Bretton Woods Agreement of 1944 (Bretton Woods Agreement of 1944): Agreement that established fixed exchange rates for major currencies, stipulated the intervention of the central bank in the currency markets, and set the price of gold at US $ 35 per ounce. This agreement was in effect until 1971, when President Nixon left it without effect and established a floating exchange rate for the main currencies.

Bull Market (Bull Market): A market characterized by high prices.

Bundesbank: Central Bank of Germany.

Cable (Cable): Colloquial term used by the operators to refer to the exchange rate of the pound sterling and the dollar. It is so called because the exchange rate was originally transmitted by transatlantic cable from the middle of the 19th century.

Candlestick Chart (Chart of candles): Graph that indicates the range of operation of the day like the prices of opening and closing. If the opening price is higher than the closing price, the rectangle between the purchase and closing price appears shaded. If the closing price is higher than the opening price, that area does not appear shaded.

Central Bank (Central Bank): A governmental or quasi-governmental institution that manages the monetary policy of a country. For example, the central bank of the United States is the Federal Reserve and the German central bank is the Bundesbank.

Chartist: Person who studies the tables and graphs of historical data to discover trends and anticipate changes in trends. He is also known as a Technical Trader.

Clearing (Clearing): The process of liquidating an operation.

Contagion (Contagion) – The tendency of an economic crisis to spread from one market to another. In 1997, Indonesia’s political instability generated great volatility in its currency, the rupee. Then, the contagion affected other currencies of emerging Asian countries, and then came to Latin America, and is now known as «The Asian Contagion.»

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