FX Terminology: The Major Terms Professional Traders Use

It is easy for a beginner to be overwhelmed by all the different terms used by professional traders. We have therefore created the following list of key terms that every trader should be aware of, along with a short description. 

Ask Price

The price at which the market is prepared to sell a currency pair. For example, if you receive a quote of 1.1200/05 for EURUSD from a bank, they are ready to sell Euros for Dollars at a rate of 1.1205 (i.e. you are buying at 1.1205).

Aussie Dollar

Nickname for the Australian Dollar

Barrier Option

An option where the payoff depends on whether a certain predetermined level has been reached or exceeded. The most popular contracts are Knock In and Knock Out options - with the Knock In being in-the-money if it reaches a certain level and the Knock Out being in-the-money if the price of the underlying asset does NOT reach a certain level within the specified timeframe.

Bid Price

The price at which the market is prepared to buy a currency pair. For example, if you receive a quote of 1.2650/55 for GBPUSD from a bank, they are ready to buy British Pound for US Dollars at a rate of 1.2650 (i.e. you are selling at 1.2650).

Big Figure

The first three digits of a currency quote, for example 1.12 in EUR/USD. Dealers sometimes do not mention the big figures at all, assuming the client knows them. For example, EUR/USD might be quoted as 50/55 instead of 1.1250/55.

BIS

The Bank of International Settlements.

Black Box

A term used for systematic traders.

BoC

The Bank of Canada - Canada´s central bank.

BoE

The Bank of England.

BoJ

The Bank of Japan - Japan´s central bank.

Cable

Nickname for GBP/USD

Carry Trade

A strategy where traders are long a currency that pays a relatively high interest rate and short a currency with a low interest rate. Popular currency pairs include AUD/JPY, NZD/JPY and ZAR/JPY.

Commodity currencies

Currencies from countries whose exports mostly consist of natural resources. Examples: Australian Dollar, Russian Ruble.

Corporates

Corporations mostly trade FX to hedge their currency risk, and are not considered active speculators.

Cross pairs

Currency pairs not involving the US Dollar.

CTAs

Commodity Trading Advisors - a term for US-based Managed Futures Accounts. They mostly utilize short-term, trend-following strategies and operate in a variety of markets.

Dealers

The term is mostly used for market makers at the major banks. They earn a profit from the spread, but may also do proprietary trading.

Dovish

A central bank that is dovish is generally cautious and may signal that a rate cut could follow in the near-term.

ECB

The European Central Bank

EBS

A wholesale electronic trading platform mostly used by banks and large financial institutions

Exotic currencies

Currency pairs that are not as commonly traded as the G20 currencies and where the liquidity is generally lower. Examples: Mexican Peso, Thai Baht, Turkish Lira.

Greenback

A term used for the US Dollar.

Hawkish

Central banks are hawkish when they have an optimistic outlook on the economy and may consider a rate hike in the near-term.

Interbank Market

The "core" of the foreign exchange market, where the top banks trade with each other using platforms such as EBS, Reuters Dealing or Bloomberg.

Kiwi

Nickname for the New Zealand Dollar

Left-Hand Side (LHS)

The left side of a currency quote, referring to the Bid.

Loonie

Nickname for the Canadian Dollar

PBOC

The central bank of China.

RBA

Reserve Bank of Australia - Australia´s central bank.

RBNZ

Reserve Bank of New Zealand - New Zealand´s central bank.

Real Money (RM)

A term used for institutional investors that do not actively speculate in the market, such as large asset managers and pension funds.

Right-Hand Side (RHS)

The right side of a currency quote, referring to the Offer.

Slippage

The difference between the price that was requested and the price that was eventually obtained once the trade has been executed. Slippage is more likely to occur during times of high volatility (e.g. news release or central bank announcement).

SNB

Swiss National Bank - Switzerland´s central bank.

Sovereign Wealth Fund (SWFs)

State-owned investment funds, which can at times be very active in the currency market.

Swissie

Nickname for USD/CHF

Yard

A term used for "billion". For example, if someone bought a yard of EUR/USD - he would have bought 1 billion worth of EUR/USD.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.