FX Glossary

Fx Glossary
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Broker - a company which offers services connected to trading on financial markets to its clients. Its role is sending trade orders placed by clients into the market for execution.

Slippage - a slippage in order filling. It expresses the difference between the asked price at trader’s side and the price at which the order is executed in the market (in market execution, it is the best available price in the market at that time). Slippage can have positive as well as negative value.

Lot - the basic unit of traded volume. For currency pairs, it is 100,000 units of the base currency. Lot size varies between individual CFD-type instruments as it is based on the number of contracts set for each one.

CFD - contract for difference. It is a trading instrument; its value is derived from its underlying instrument, which can be for example a stock index or a future contract. Settlement of this instrument type is always performed financially, therefore the client speculates on future value difference of the underlying instrument while he/she does not become the owner of it.

Currency pair - a trading instrument which expresses the exchange rate between two currencies. The first currency of the pair is called the base currency, the second is called the quote currency. The exchange rate indicates how many quote currency units can a trader buy for one unit of the base currency.

Financial leverage - a mechanism which enables traders to trade larger amounts even with smaller volume of free capital which would otherwise be insufficient for the trade, e.g., when trading 1 lot of currency pair EURUSD with leverage of 1:100, the client has to have at least 1,000 EUR of free capital on his/her trading account. Should the leverage not be used in this scenario, the client would need to have 100,000 USD on his/her trading account to cover the entire traded volume.

Margin - margin requirement. It is the free capital which client has to have available on his/her trading account in order to be allowed to open a specific trading position. The volume of the required margin for currency pairs is related to the financial leverage. For CFD instruments the margin requirements are implemented directly and they are not related to the leverage. 

Margin-call - a notification informing the client that the Equity on his/her trading account has decreased to a value of the required margin. Afterwards, the client is not allowed to open any additional trading positions which would increase his/her trade exposition. It is then necessary to close some of the open trading positions or add funds to the trading account in order to increase the free margin and free the funds.

Stop-out - a protective order activated when client’s Equity on his/her trading account decreases to half of the required margin. Trading positions are then automatically closed starting from the one with the biggest loss until there is enough free funds to keep the account’s Equity over 50% of the required margin.

MARKET BUY/SELL - a type of trading order which is executed at the best price available at the moment of its submission. A slippage can occur during execution of this order type.

BUY/SELL STOP - a pending order which enables buy/sell orders to be executed once the price is higher/lower than actual available market price. After activation, it is executed as a MARKET type order.

BUY/SELL LIMIT - a waiting order which enables buy/sell orders to be executed once the price is higher/lower than actual available market price. After activation, it is executed as a MARKET type order.

Stop-loss, SL - a protective order which enables closing a losing position on a predefined level. After activation it is executed as a MARKET type order.

Take-profit, TP - an order which enables closing a profitable position on a predefined level. After activation it is executed as a MARKET type order. 

EA - Expert Advisor, an automated trading system.

AML policy - Anti Money Laundering policy.

Hedging - a trading technique which consists of opening positions on the same instrument in opposite directions in order to lower or annulate required margin (“position netting” occurs) and to ensure present market exposition. For example, if a trading position of 1 lot BUY is open on EURUSD, then after opening a 1 lot SELL on EURUSD an annulation of required margin occurs and profit from these open positions will be fluctuating only in terms of  spread changes on EURUSD.

ASK - the offering price on the market for which the buying positions are executed and selling positions are closed. It is higher than BID price.

BID - bidding price on the market for which the selling positions are executed and buying positions are closed. It is lower than ASK price and the chart displayed in MT4 is based on this price.

Spread - price difference between ASK and BID prices.

Tick - term for the smallest possible price movement.

Point - the price expression of currency pairs based on the last decimal of the quoted price. If the price of EURUSD currency pair changes from 1.17455 to 1.17456 then the price changes for one point. The same way, if the USDJPY price changes from 110.124 to 110.123 a change of one point occurs.

Pip - the price expression of currency pairs based on the one-before-last decimal of the quoted price. If the price of EURUSD currency pair changes from 1.17455 to 1.17465 then the price changes by one pip. The same way, if the USDJPY price changes from 110.124 to 110.114 a change by one pip occurs.

CapitalGuard - protection feature that limits the risk of the investment Strategies provided by Purple Trading at a specific value, which, at the same time, sets the maximum percentage loss for clients’ accounts connected to the Strategy.

Resistance -  border of “resistance” visible in the chart. It forms in the space where bid (supply) is higher than ask (demand) while the price doesn’t jump over this level and keeps bouncing back down off of it.

Support - border of “support” visible in the chart. It forms in the spaces where ask (demand) is higher than bid (supply) while the price doesn’t fall beneath this level and keeps bouncing back up off of it.

Swap - a fee charged for holding a trading position overnight. It is expressed in points or percents and it is directly proportional to the volume of the trading position held. Please note the Swap is being charged 3x on Wednesday night, which includes also the weekend swaps.

Scalping - a trading strategy type which uses minimal market moves with higher frequency of trades made in order to make a profit.

Execution time - time between order submitting on the trader’s side and its filling in the market. It is expressed in milliseconds.

Liquidity - broker’s ability to fill client’s order in the market at the desired value and in the desired volume.

Liquidity provider - financial institution which provides liquidity to the brokerage company.

Gap - a difference between the closing price of the previous and the opening price of the current candlestick.

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