A List of Forex Terms – Part One

Like many other specialized disciplines, forex trading has a language of its own, with plenty of technical terms and jargon. While this is familiar to experienced traders, it can be confusing to those who are just starting out on their forex trading career. Here, in the first part of a two-part series, we look at some of the most common terms and what they mean.

Accommodative monetary policy

This term is used by central banks – and those who report to them – to describe an easing monetary policy often designed to stimulate the economy. This can include low interest rates and injecting money into the economy – often referred to as quantitative easing.

Asset Purchase Program (APP)

Although making asset purchases is a widespread practice used by central banks to stimulate the economy – witness ongoing quantitative easing in the US – APP specifically refers to an initiative that the Bank of Japan introduced in 2010, where it buys government-issued bonds as well as corporate debt, stock funds and real estate funds.

Bank for International Settlements (BIS)

This is an international organization that essentially acts as a bank for central banks. It often participates directly in the forex market, making trades on behalf of said central banks so that they do not have to reveal their identity – this minimizes adverse market reaction to central banks intervening in the forex market.

BOx

There are a number of acronyms of this form that refer to central banks, including BOC for the Bank of Canada, BOE for Bank of England, and BOJ for Bank of Japan. However, it’s worthwhile noting that the German central bank is not the BOG – this is called the Bundesbank, and is often referred to by the nickname of Buba.

Cable

Back in the days before modern telecommunications, currency transactions between the United States and Great Britain were often carried out using transatlantic cables. This has led to cable being used as a nickname for the GBP/USD currency pair.

Candlestick

This is a way of displaying price information on a currency chart. The candlestick consists of a main body rectangle, with the upper and lower bounds corresponding to the open and close for the trading interval. Lines extend above and below the main body, representing the highs and lows for the trading interval.

Eurodollar

Some people think that this simply means euros – but it doesn’t. Instead, it refers to US dollars that are deposited in banks outside of the US. Referring to euros as eurodollars will mark novice traders as rank amateurs.

Forward guidance

This is when a central bank indicates what it may do with its monetary policy in future, depending on economic conditions. Examples of this include whether the bank is likely to raise interest rates in the future – for instance, when unemployment drops to a particular level – or whether it is likely to continue quantitative easing.

Hawkish and dovish

If a central bank makes a hawkish monetary policy statement, this indicates that they are planning to tighten monetary policy. On the other hand, a dovish statement indicates that they plan to loosen or ease their monetary policy.

IMM

IMM stands for International Monetary Market, and is part of the Chicago Mercantile Exchange. This is a central exchange where currency futures are traded – unlike the forex spot market, which is a geographically-distributed OTC market that does not have a centralized exchange.