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Forex Trading Glossary

Investopedia.com was founded in 1999 and was launched as a comprehensive investing and finance dictionary, it also includes articles, multi-part tutorials/guides and FAQs in order to provide more in-depth education. The following Forex Glossary is provided by Investopedia

  • Binary Option

    A binary option is a derivative financial product with a fixed (or maximum) payout if the option expires in the money, or the trader losses the amount they invested in the option if the option expires out of the money.

  • Call Option

    Call options are an agreement that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other instrument at a specified price within a specific time period. The stock, bond, or commodity is called the underlying asset.

  • Contract For Differences - CFD

    A contract for differences (CFD) is an arrangement made in a futures contract whereby differences in settlement are made through cash payments, rather than by the delivery of physical goods or securities.

  • End Of Day

    The time when the trading day closes.

  • Entry rate

    The market price for an underlying asset in the moment when the option is traded.

  • Equity

    Ownership of a person, company or account.

  • European option

    A type of option that can be exercised only when it reaches its expiry time and not before that.

  • Expiry level

    The value of the underlying asset at the designated expiry time, which determines the outcome of the trade to be either in or out of the money. The same as Expiry rate and Expiry price.

  • Expiry price

    The value of the underlying asset at the designated expiry time, which determines the outcome of the trade to be either in or out of the money. The same as Expiry rate and Expiry level.

  • Fixed Return Options (FRO)

    Another name for binary options because of the fact that both outcomes either the profit or the loss are fixed and known by the investor prior to purchasing the option.

  • Forex

    Also known as Foreign Exchange or FX. The market in which currencies are traded is called Forex. It is an over-the-counter market which is considered one of the largest and most liquid markets in the world. It includes the currencies of all countries in the world. Traders who are interested in Forex markets should carefully consider the country’s economic and political situations.

  • Forex Broker

    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.

  • Forex Futures

    A forex future is an exchange-traded contract to buy or sell a specified amount of a given currency at a predetermined price on a set date in the future. All forex futures are written with a specific termination date, at which point delivery of the currency must occur unless an offsetting trade is made on the initial position.

  • Forex 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.

  • Fundamental Analysis

    Fundamental analysis strategy concentrates on the macroeconomic factors which cause asset’s price movements. These could be economic, political, environmental and other relevant factors, which affect the asset supply and demand.

  • Future

    Also known as Forwards. An agreement to conduct a trade at some specific time in the future, but the price is agreed at the time of the agreement.

  • High

    A trade in which the traders presumes that the underlying asset will expire at a price higher than the strike price.

  • Historic Volatility

    Measure of actual stock price changes over a specific period of time.

  • Holder

    Everyone who has made a purchase transaction on the options market.

  • In /Out

    Type of Binary options trade where a lower and an upper boundary are defined and the target price of the asset can lie inside or outside this boundary over a specific time frame.

  • In-The-Money

    A binary options trade that ends with a profit for the trader.

  • Indices

    A group of several stock prices put together into a single number – index. They represent a a portfolio of stocks or commodities.

  • Instrument

    Another word for asset.

  • Investment Amount

    The amount of money invested in an option, stake amount.

  • IPE

    International Petroleum Exchange, London.

  • ISE

    International Securities Exchange

  • Leverage

    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.

  • Liquid Market

    A trading environment which has high volumes of trade, slight difference between the bid and ask prices and the ability larger sized orders to be traded without a significant price changes.

  • Liquidity

    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.

  • Low

    A trade in which the traders presumes that the underlying asset will expire at a price lower than the strike price.

  • No Touch

    Types of Binary options contracts which give the trader the possibility to profit if the assets price doesn’t touch a preliminary set price level by the expiration of the contract.

  • One Touch Option

    Types of Binary options contracts which give the trader the possibility to profit if the assets price touches a preliminary set price level by the expiration of the contract.

  • Out-Of-the-Money

    A binary options trade that ends with a loss for the trader. In binary options this generally results in a loss of 75% to 100% of the initial investment.

  • Over-The-Counter

    OTC is a market where assets are traded directly between two parties without a broker’s or any other third parties mediation. Binary options are available in a limited number of exchanges but are sold as over-the-counter online products as they are not available at any market place, but via a computer terminal only.

  • Payout

    The profit realised when a purchased option expires in-the-money.

  • Put Option

    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.

  • Put Option

    A type of option contract where a profit is realised if the price at expiry time is lower than the entry price.

  • Range Option

    Another name for In/Out or Boundary option. Type of Binary options trade where a lower and an upper boundary are defined and the target price of the asset can lie inside or outside this boundary over a specific time frame.

  • Rate

    The price of an asset.

  • Refund

    The amount that the traders get back if a trade expires out-of-the-money. The percentage is different by the different Binary options brokers.

  • Return

    The profit realised when a purchased option has expired in-the-money.

  • Stake

    The amount of money placed on the outcome of an option.

  • Stock

    A share of a company that is traded on any stock exchange or a binary options market.

  • Strike Price

    The price at which the contract option for an asset can be exercised. In Binary options trading, this term refers to the price at sale, which is used to determine whether the contract expires in or out of the money, by comparing the price of the underlying security at the time of expiration with the strike price.

  • Target price

    Another word for strike price.

  • Technical Analysis

    The technical analysis strategy is based on analyzing the past price movements of an asset in order to predict the future movements or in other words the usage of historical data, charts and graphs in order to determine the future trends in an asset price.

  • Touch Option

    Types of Binary options contracts where the trader determines if the asset price will touch the strike price by the expiration of the contract.

  • Trading Hours

    The time frame in which an asset is open for trading. Each asset has different trading hours, for example currencies are open for trading twenty four hours a day, while the rest of the assets are available just a few hours a day.

  • Underlying Asset

    This is the security which is traded.

  • Vanilla Option

    A vanilla option is a financial instrument that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a given timeframe. A vanilla option is a call or put option that has no special or unusual features.