In this article, we continue exploring the vastness that is the FX trading glossary with the letters E through to M.
FX Trading Glossary (E To M)
Economic Indicator – There are a whole cache of economic indicators that influence the FX markets. Economic fundamentals such as GDP, unemployment numbers, manufacturing, trade deficits and many other indicators will have a strong impact on the strength of a currency against its peers.
Exotics – Relates to a niche asset class or type with very low liquidity, and for which trading is sparse.
Federal Reserve – The United States Central Bank which is mandated to help control the domestic economy, and set the country base interest rate. The Federal Reserve can to some extent determine how strong or weak the dollar is, by deploying fiscal strategy and tools.
Flat – Refers to a neutral position where an investment position is closed out at the same value at which it was opened.
Foreign Exchange (FX) – The place where currency can be bought or sold against other currencies.
Fundamental Analysis – The use of economic indicators such as GDP, unemployment figures, trade deficits and manufacturing figures to gauge the likely price direction of a currency pair.
Futures – The purchase of a specific investment type at a particular, pre-agreed price at some point in the future.
Good Till Cancelled – A type of FX order that will remain in place in the brokers system until the order is opened, or cancelled by the trader.
Gross Domestic Product (GDP) – A measure of economic output mustered by a country. GDP news typically has a significant effect upon the FX market for the related currency.
Hedging – An opposite FX position that is opened in order to mitigate or neutralise the risk associated with another position. Businesses often use hedging techniques when trading internationally to help reduce currency risks and losses.
Interbank Rates – The FX rates that large investment banks trade with other large investment banks.
Intervention – The act of a government Central Bank “intervening” to manipulate the strength of its currency.
Indicators – FX indicators normally refer to technical analysis indicators that are used to predict price trends, volatility, momentum and volume. Indicators are crucial tools in helping FX traders analyse the markets accurately.
Leverage – A trading concept allowing FX traders to control currency trades that are worth many multiples of their equity stake.
Limit (Order) – A type of order which attaches a maximum or minimum value to the order. A maximum price is applied when the trader is buying, and a minimum when the trader is selling.
Liquidity – The ease and fluency with which an FX currency or any investment type may be traded.
Long – Refers to buying an FX currency pair, or other security, in the anticipation of a price rise.
Lot – Relates to position sizing.
Market Maker – Typically an investment bank or financial institution which offers bid/ask prices to make a market for a security.
Mark To Market – The process of remarking open positions to reflect the current market value. Investment banks will undergo mark to market procedures on a daily basis for many of their assets.