Foreign exchange terms

Automated Trading

It refers to a way of transaction, which does not need human operation or intervention, and realizes transaction operation through automatic transaction software with preset program technology and basic analysis, which can automatically execute transaction.

Automatic Execution

Automatic execution means that in the foreign exchange market, traders can trade at any time through the automatic foreign exchange trading system. Transaction orders can be executed automatically without the intervention and participation of brokers.

Automatic execution enables traders to execute trading orders based on certain technical indicators, which is realized by signals transmitted and received by foreign exchange signal providers.

Simply put, the execution of such transactions does not require the help of brokers. Because it is automated, such transactions are fast and real-time. In contrast, manual order execution is backward and slow, which can't make traders input transactions continuously. Limit orders and stop loss orders can also be automatically executed. When using automatic execution, foreign exchange traders need to pay attention to that even if the basic situation of the market has changed, the transaction will still be executed.

Base Currency

Base currency is also known as monetary base, strong currency or initial currency. In foreign exchange transactions, it refers to the first currency in a currency pair, which is also the valuation currency of your account. In order to facilitate bookkeeping, brokers generally use the base currency to calculate the profit and loss of the account. Major currencies such as euro and US dollar are generally the base currencies of currency pairs.

Take Canadian dollar / US dollar as an example, Canadian dollar is the base currency, and the dollar is the quotation currency. Foreign exchange quotation is usually expressed as the base currency of a unit, and the value of the quotation currency is equal to.

Bid Price / Sell Quote

The purchase price is generally shown on the left side of the offer. From the point of view of market maker, it refers to how much quotation currency the market maker is willing to use to purchase the basic currency you hold; From the point of view of the trader, it refers to how much basic currency the trader needs to sell to buy the quotation currency. For example, the quotation for euro / USD is 1.3200/ 03, which means you can sell 1 euro to get $1.3200.

Buy Quote / Offer Price

The selling price is generally displayed on the right side of the offer. From the point of view of market maker, it refers to how much basic currency the market maker is willing to sell in exchange for the quoted currency you hold; From the point of view of the trader, the price at which the trader buys the underlying currency. For example, the quotation of USD / CHF is 1.4527 / 32, which means you can buy 1 USD with Swiss Franc 1.4527.

Carry Trading

A way of foreign exchange trading, which refers to the use of interest rate differentials of different currencies to obtain income. Traders hold a high interest rate currency and sell a low interest rate currency to profit from the daily spread.

Counter Currency/Terms Currency

Relative currency is the second currency in a pair of currencies relative to the base currency. Also known as the quotation currency or settlement currency, it is separated from the base currency by a slash. For example, in the US dollar / euro currency pair, the euro is the relative currency. The base currency is used to represent the value of the relative currency in a pair of currencies.

Counterparty

Refers to the party involved in financial market transactions. Each transaction must include a counter party to ensure that the transaction takes place. Specifically, the buyer of the asset can find the seller of the asset to match it in the market.

Currency Pair

It refers to the quotation and price composition of currency in the foreign exchange market. The value of a currency is determined by its relative currency. Because foreign exchange transaction is the purchase of one currency accompanied by the sale of another currency, the currency pair itself can be regarded as a trading unit.

Currency Pair Terminology

EUR/USD = "Euro"

USD/JPY = "Dollar Yen"

GBP/USD = "Cable" or "Sterling"

USD/CHF = "Swissy"

USD/CAD = "Dollar Canada" (CAD or "Loonie")

AUD/USD = "Aussie Dollar"

NZD/USD = "Kiwi"

Day Trading

It is a kind of ultra short-term operation, which means that the position can be set up and settled within the same trading day. It can carry out several or hundreds of such transactions within a day, and the transaction can last for several minutes to several hours.

Dealing Desk

It refers to the foreign exchange platform with processing background, which provides foreign exchange market price, flow and transaction execution with fixed point spread. Because the foreign exchange market is open 24 hours a day, many institutions around the world have set up foreign exchange trading platforms in the form of market makers.

Discretionary Trading

It is also called artificial transaction and rational transaction. It refers to the foreign exchange trading based on the individual's thinking rather than the signals generated by the trading system.

Drawdown

It refers to the maximum decline of your net account value over a period of time, usually expressed as a percentage.

ECN Broker

Electronic Communications Network

ECN is the abbreviation of electronic trading network. Although it is a non counter trading mode, it enables customers to have direct contact with other foreign exchange market participants. Because the ECN platform combines the quotations of other market participants, it can usually provide customers with a smaller spread.

Electronic communication network trading platform provides a trading market that includes market makers, banks and traders. Traders' lists are directly and anonymously hung on this network. After the transaction is completed, your ECN dealer's name will be displayed, so your transaction is completely anonymous. Each list has the same status, and is matched fairly according to the optimization of price and time. So the price on ECN is the real market price, and the point difference is not fixed. The operators of ECN do not participate in the transaction and charge an appropriate proportion of transaction fees to the traders. So they will try their best to provide better service to customers. With the development of Internet technology, ECN dealers that serve individual investors, small banks, investment institutions and hedge funds begin to appear. The business operation mode of ECN is generally considered as a typical fully automated electronic stock exchange by American securities industry。

Example Trade

Suppose a broker requires 1% margin for each transaction in your trading account. Take EUR / USD (euro / US dollar) as an example. The market quotation is 1.225/28. If you want to open a market price at the price level of 1.3228 and build a position with 1 standard euro (100000 Euro), you need 132280 US dollars (100000 * 1.3228 US dollars). But brokers only need 1% of your margin, or $1322.8, to open a trading account. Then you set a profit order at the price of 1.3278, which is 50 points more than your market price (1.3278-1.3228 = 0.0050). You chose this deal because you predicted that the euro would be stronger than the dollar.

As you expected, the price reached the point of 1.3278, and you made a profit. Because each point is $10, you will make a total profit of $500 (50 * 10 = 500) in this transaction, and the yield is about 38% (500%) ÷ 1322.5≈0.3779)。

 Disclaimer: this example is for illustration only. Each transaction situation is different. The past market situation cannot represent the future market situation.

Exchange Rate

Exchange rate, also known as exchange rate, is based on the value of one currency to reflect the value of another currency. For example, the euro / dollar exchange rate is 1.3200, which means that 1 euro is worth 1.3200 US dollars.

The exchange rate is composed of base currency and quotation currency. In the case of direct quotation, foreign currency is the base currency and domestic currency is the quotation currency; In the case of indirect quotation, the domestic currency is used as the base currency while the foreign currency is used as the quotation currency. Many exchange rates are based on the US dollar, but there are some exceptions, such as the euro, the pound, the Australian dollar and the New Zealand dollar.

For most currency pairs, the exchange rate is usually displayed as four decimal digits, except for the exchange rate including yen quoted in two decimal places.

For example, 1 USD = $1.1050, where the base currency is US dollars and the relative currency is Canadian dollars. In Canada, the exchange rate will be quoted directly as Canadian dollars. This is easy to understand, because Canadian products and services are in Canadian dollars, so the price of the dollar is expressed in Canadian dollars, which is the direct quotation for Canadian residents.

1 Canadian dollar = 0.9050 US dollar = 90.5 US cents. Because the base currency is Canadian dollar and the relative currency is US dollar, the Canadian dollar is quoted indirectly in Canada.

If 1 dollar = 105 yen, 1 dollar = 1.1050 Canadian dollars, then 1.1050 Canadian dollars = 105 yen, or 1 Canadian dollar = 95.02 yen. As investors in Europe, the exchange rate of the Canadian dollar against the Japanese yen constitutes a cross exchange rate, because none of these currencies is their home currency.

FCM

Futures commission merchant. It refers to the person or institution audited by the CFTC who can buy and sell futures contracts and accept clients' entrustment to start trading accounts. Futures dealers collect margin from customers according to regulations, record customers' trading activities, manage customers' accounts and provide customers with futures market information.

Foreign Exchange

Forex or FX refers to the purchase of one currency while selling another currency. Foreign exchange transactions also mean that currencies are traded in the global market continuously. The currency conversion covered by foreign exchange transactions includes not only the foreign currency that tourists exchange for foreign travel, but also billions of dollars paid by the enterprises and the government for goods and services purchased overseas. The globalization process also leads to the large-scale increase of foreign exchange transactions in recent decades. The foreign exchange market is the largest financial market so far, with the daily average trading volume reaching several trillion dollars.

Foreign Exchange Market

The foreign exchange market is a huge, expanding and highly liquid financial market, which is open 24 hours a day. Because there is no central exchange, it is not a market in the traditional sense. Most transactions are carried out by telephone or electronic trading network platform. The main market of currency transaction is the inter-bank market, where banks, insurance companies, large companies and other large financial institutions need to deal with the risks brought by exchange rate fluctuations.

Fundamental Analysis

It refers to the research on the basic level that affects the value of financial instruments, so as to predict the market trend and decide what kind of transactions traders want to make. The basic level includes macro-economy, industry environment and the company's own financial management.

GTC Order

The abbreviation of "good till cancelled" refers to the order set by the foreign exchange trader to buy or sell a currency pair at a specific price, which is valid until it is executed by the broker and cancelled by the trader.

ISO Currency Codes

ISO currency code is set by the international organization for standardization, three letters for all kinds of currency code used around the world.

USD = US Dollar
EUR = Euro
JPY = Japanese Yen
GBP = British Pound
CHF = Swiss Franc
CAD = Canadian Dollar
AUD = Australian Dollar
NZD = New Zealand Dollar

Leverage

Leverage allows your account to trade more with a small amount of money. For example, if a trader has a $1000 margin in his account and opens a $100000 position, his leverage is 100 times the amount of his account, or 100:1. If he opens a $200000 position with $1000, his leverage is 200:1. The increase of leverage will bring profit or loss.

To calculate leverage, divide the amount of your position by the amount of margin in your account. For example, if you have $10000 deposit in your account and you open a standard dollar / yen (the base currency of $100000), then your leverage ratio is 10:1 (100000: 10000); The euro / dollar exchange rate is 1.5000. If you open a standard euro / dollar 150000, then your leverage ratio is 15:1 (150000 dollars: 10000 dollars).

Limit Entry Order

It means that orders can be set to pay below the market price or sell above the market price. Traders believe that the future price trend will rebound after reaching a certain price. The self set price limit order will be automatically closed when the market price reaches the self set price.

Limit Order

An order is bought or sold at a price set in advance. Different from the market price list, the price limit list belongs to the hanging list, that is, the transaction is based on the price that may appear in the future of the market. If the set price does not appear, the transaction will not be concluded; Once the set price appears, the order will be automatically converted to market price order.

Long Position

That is, with the price rise and profit position. When buying the base currency of a currency pair, the amount of money held is a long position. Traders are optimistic about the upward trend of the market, so they buy first and then sell to earn profits.

Lot

Unit of standard unit transaction amount in foreign exchange transaction. Generally speaking, a base currency of 100000 units is called a standard hand; 10000 units are called mini hands and 1000 units are called mini hands. Some brokers also offer trading units of any size, and others trade with 1 unit.

Manual Execution

A way of trading. Compared with automatic execution, manual execution means that the execution of orders needs the intervention of brokers, which is slow and has no time advantage. In addition, the handling charges of the two are also different.

Market Maker

A market maker makes an offer and provides liquidity for a specific currency pair, and is always ready to buy or sell the currency pair at an offer. Market makers maintain two-way trading in the market, provide customers with clearing and settlement services, and earn the difference between the bid price and the offer price as a commission.

Market Order

Refers to the purchase or sale of an order at the current market price. The market price list can make traders enter the market in time.

Micro Account

Refers to the use of micro hand transactions, usually 1000 units of base currency. Micro account is one of the three types of account commonly used by traders in foreign exchange market. Generally, foreign exchange entrants will choose this type of account.

Mini Account

Refers to transactions with mini hands, usually 10000 units of base currency. Mini account is one of the three types of account commonly used by traders in foreign exchange market transactions. Generally, foreign exchange entrants will choose this type of trading account.

NDD

No dealing desk is short for non platform trading, which refers to the foreign exchange trading platform without background processing. In particular, the trading scale of retail traders is very small, so NDD & nbsp& nbsp;& nbsp; The trading platform connects individual traders with the interbank foreign exchange market, so that individual traders also have the opportunity to participate in trading. Brokers charge commissions or increase spreads to make profits. There are two kinds of NDD trading platforms: STP (direct processing) and ECN (electronic communication network) + STP.

News Trading

It refers to the foreign exchange trading strategy which makes full use of important basic information and makes profit from the large fluctuation of market exchange price after the release of important basic information. The publication of some policy and economic data will often make the exchange rate rise or fall in a short time. If the trading strategy is appropriate, it will earn objective profits. Traders will generally seek short-term profit immediately after the news release.

OCO Order

The abbreviation of one cancel the other is a kind of one-out-of-two order, in which the trader reports the limit order and stop loss order at the same time. If one of the orders is closed, the other will be cancelled automatically. It consists of limit order and stop order. For example, the price of euro / dollar is 1.2776. When the limit order is set, you can buy it automatically when the price reaches a certain level, such as 1.2900; When a stop loss order is set, this is to ensure that another order, such as 1.2700, can be cancelled when the price drops to a certain level.

Pip

Refers to the minimum unit in foreign exchange transactions, the minimum price unit for profit and loss calculation, which is calculated in percentage, also known as points. For a standard hand, each point is equal to the quoted currency of one unit, usually four digits after the decimal point, but for the currency pair containing yen, it is the two digits after the decimal point. If you use US dollars as the settlement unit, then one dollar is equal to one. For example, the euro is 1 against the dollar = 0.0001, or the dollar is 0.01 against the yen.

Pip Value

That is, the value of a point, which represents the value of each point in a specific transaction. This value is converted to the currency of the trader's account. The determination of point value shows the impact of small price changes on the level of profit and loss. For a standard hand, the euro / dollar point is $10; One dollar for a mini hand; It's $0.10 for a micro hand.

Position Trading

It refers to the long-term foreign exchange trading mode, which can last for several weeks and months. Different from day trading or short-term trading.

Range Trading

It refers to the trading strategy of short and long lower limit in the range of the range formed by the price support position and resistance position. It is usually applicable in case of repeated market price fluctuation or channel formation.

Resistance

That is, a technical price level. When the price rises near a certain price, the price stops rising or even falls back. Resistance level plays a role in preventing prices from rising.

Rollover

The cash market is usually settled in two working days. According to the size of the position you hold and the size of the leverage you use, we can calculate whether to charge or pay you interest. Overnight transaction interest depends on the interest rate of the two currencies. If you buy a currency at a high interest rate, you earn interest; If you sell money at high interest rates, you need to pay interest. Most brokers will automatically deduct the overnight interest of your position to ensure that you can keep your position.

Scalping

It refers to the way of foreign exchange trading in which positions are quickly closed and positions are held for a short time after the establishment of positions, mainly to obtain small profits. The number of transactions is usually very frequent, but each transaction lasts only a few seconds or minutes.

Short Position

That is, the position that profits with the decrease of price. When selling the base currency of a currency pair, the amount of money held is a short position. Traders believe that the future trend of the market is down, they will sell their currency and wait for the opportunity to buy.

Slippage

It refers to the difference between the order price and the execution price, with points as the unit of calculation. Sliding points usually occur in extremely volatile and unstable market conditions, or in manual transactions.

Spot Market

A market in which money is bought and sold at the current market exchange rate. Also known as the spot foreign exchange market, it refers to the foreign exchange trading market that trades immediately and delivers within two trading days. If there is a holiday, it will be postponed for one business day.

Spread

The difference between the bid and the bid. For example, the quotation of euro / US dollar is 1.3200/03, and the point difference is 1.3200 to 1.3203, or three points.

Standard Account

That is, the use of standard hand trading accounts, usually 100000 units of base currency.

Stop Entry Order

Sell at a price lower than the current market price, or buy at a price higher than the current market price. Traders believe that the future price trend will continue to maintain the same direction after reaching a certain price.

Stop Loss Order

In a specific price setting, when the price is opposite to the market trend judged by the trader, it is used to limit the loss and avoid additional loss.

Support

That is, a technical price level, which means that when the price drops near a certain price, the price stops falling or even rebounds. Supporting prices plays a role in preventing prices from falling.

Swing Trading

A trading strategy to determine trading opportunities from short-term or medium-term exchange rate fluctuations. Generally speaking, band trading may last from hours to days, before intervening in day trading and long-term trading.

Technical Analysis

Through the analysis of market data, foreign exchange chart to determine the future price trend forecast strategy. Historical trend, average price and trading volume are all market data.

Trend trading

Also known as trend trading, it refers to the strategy of judging and following the main trend of the market to make profits. It can be combined with short-term, medium-term and long-term trading.

 

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