Forex Glossary Terms
American-style option a type of option contract that can be exercised at any time before it expires.
Ask the quoted price at which a customer can buy a currency pair. Also known as the 'ask price', 'offer', or 'ask rate'.
Base Currency in foreign exchange trading, the first currency in a currency pair, also known as the primary currency.
Bid the quoted price at which a customer can sell a currency pair. Also referred to as the 'bid price' or 'bid rate'.
Bid/Ask the difference between the bid and ask (offer) price.
Call gives the option buyer the right to purchase a particular currency pair at a stated exchange rate.
Counterparty the person on the other side of an OTC (over-the-counter) trade.
Cross-rate exchange rate between two currencies where neither of the currencies are the US dollar.
Currency pair the two currencies that make up a foreign exchange rate.
Dealer a firm in the business of acting as a counterparty to foreign currency transactions.
Euro common currency used by 11 European countries, including Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.
European-style an option contract that can be exercised only on or near its expiration date.
Expiration the last day on which an option may either be exercised or offset.
Forward transaction A type of currency trade where delivery and full payment are expected to occur at a future date. It can also refer to transactions that are expected to be offset in the future but are governed by the Commodity Exchange Act.
Interbank market A network of currency trades negotiated between financial institutions and large companies.
Leverage The ability to control a large amount of a commodity with a small amount of capital. Also known as "gearing."
Margin The amount of money required to open or maintain a position, also known as a "security deposit."
Offer The quoted price at which a customer can buy a currency pair, also known as the "ask."
Open position A trade that has not been closed by a corresponding opposite trade.
Pip The smallest unit of trading in a foreign currency price.
Premium The price an option buyer pays for the option, excluding commissions.
Put A type of option that gives the buyer the right to sell a specific currency pair at a stated exchange rate.
Quote currency The second currency in a currency pair, also known as the "secondary currency" or "counter currency."
Rollover The process of extending the settlement date on an open position by rolling it over to the next settlement date.
Retail customer A forex trader who is not defined as an eligible contract participant under the Commodity Exchange Act, including individuals with assets less than $10 million and most small businesses.
Security deposit The amount of money required to open or maintain a position, also known as "margin."
Settlement The actual delivery of currencies on the maturity date of a trade.
Spot market A market for immediate delivery and payment for a product, in this case, currency.
Spot transaction A type of currency trade where prompt delivery and full payment are required. In the interbank market, spot transactions are usually settled within two business days.
Spread The difference in points or pips between the ask and bid price of a currency pair.
Sterling Another term for the British currency, the pound.
Strike price The exchange rate at which the buyer of a call option has the right to purchase a specific currency pair or the buyer of a put option has the right to sell a specific currency pair, also known as the "exercise price."
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