Forex Trading Glossary

The Bank of England (BoE) is the central bank for the United Kingdom. It has a wide range of responsibilities, similar to those of most central banks around the world. It acts as the government's bank and the lender of last resort. It issues currency and, most importantly, it oversees monetary policy.

The British pound has one of the highest trading volumes in the world, trailing only the U.S. dollar, euro and Japanese yen in daily volume. The British pound accounts for about 13 percent of the daily trading volume in foreign exchange markets.

A central bank or monetary authority is a monopolized and often nationalized institution given privileged control over the production and distribution of money and credit. In modern economies, the central bank is usually responsible for the formulation of monetary policy and the regulation of member banks.

A cross currency transaction is one that consists of a pair of currencies traded in forex that does not include the U.S. dollar. One foreign currency is traded for another without having first to exchange the currencies into American dollars.

A currency exchange is a business or financial institution that has the legal right to exchange one currency for another currency to its customers. A currency exchange may be a stand-alone business or may be part of the services offered by a bank or other financial institution.

D-Mark (Deutsche Mark) was the official currency of the Federal Republic of Germany until 2002. First issued in 1948, it was the official currency of West Germany, and later, the unified German state until the final adoption of the euro (EUR) in 2002. The official currency code is DEM.

Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It can be measured in nominal or real terms, the latter of which is adjusted for inflation. Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes used.

The European Central Bank (ECB) is the central bank responsible for monetary policy of those European Union (EU) member countries which have adopted the euro currency. This region is known as the euro area or eurozone and currently comprises 19 members. The principal goal of the ECB is to maintain price stability in the euro area, thus helping preserve the purchasing power of the euro.

An exotic currency is a foreign exchange term for a thinly traded currency. Exotic currencies are illiquid, lack market depth and trade at low volumes. Trading an exotic currency can be expensive, as the bid-ask spread is usually large.

Fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material from which the money is made.

Forex brokers are firms that provide currency traders with access to a trading platform that allows them to buy and sell foreign currencies. A currency trading broker, also known as a retail forex broker, or forex broker, handles a very small portion of the volume of the overall foreign exchange market. Currency traders use these brokers to access the 24-hour currency market.

The forex market is the market in which participants can buy, sell, exchange, and speculate on currencies. The forex market is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors.

Forex options trading is a strategy for use in the foreign exchange (FX) marketplace which allows traders to trade without taking actual delivery of the asset. Forex options trade over-the-counter (OTC), and traders can choose prices and expiration dates which suit their hedging or profit strategy needs.

A forex signal system is a set of analyses that a forex trader uses to determine whether to buy or sell a currency pair at any given time. Forex signal systems could be based on technical analysis charting tools or news-based events. The day trader's currency trading system is usually made up of a multitude of signals that work together to create a buy or sell decision.

Fundamental analysis is a method of evaluating a security in an attempt to assess its intrinsic value, by examining related economic, financial, and other qualitative and quantitative factors. Fundamental analysts study anything that can affect the security's value, including macroeconomic factors and microeconomic factors.

Hedge funds are alternative investments using pooled funds that employ numerous different strategies to earn active return, or alpha, for their investors. Hedge funds may be aggressively managed or make use of derivatives and leverage in both domestic and international markets with the goal of generating high returns.

Forex traders use borrowed money to control a larger position than they'd otherwise by able to control with their own invested capital. The use of leverage in trading is often likened to a double-edged sword, since it magnifies both gains and losses.

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price. Market liquidity refers to the extent to which a market, such as a country's stock market or a city's real estate market, allows assets to be bought and sold at stable prices.

Monetary policy consists of the process of drafting, announcing and implementing the plan of actions taken by the central bank, currency board or other competent regulatory authority of a country that determines the scope and impact of the key drivers of the economic activity in that country.

No dealing desk is a way of forex trading that provides immediate access to the interbank market. The interbank market is where foreign currencies are traded. This is different than trading through the dealing desks that are found in many banks and financial institutions.

A put option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time frame.

A spot trade is the purchase or sale of a foreign currency, financial instrument or commodity for instant delivery. Most spot contracts include physical delivery of the currency, commodity or instrument; the difference in price of a future or forward contract versus a spot contract takes into account the time value of the payment, based on interest rates and time to maturity.

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. The technical analysts focus on patterns of price movements, trading signals and various other analytical charting tools to evaluate a security's strength or weakness.

The U.S. dollar has been the official currency of the United States since the passage of the National Currency Act of 1785. Before that, the United States used a patchwork system of unreliable continental currency, British pounds and various foreign currencies. The USD is the abbreviation for the U.S. dollar in the world of currency trading.