Forex Terminology & Dictionary
There are specific terms and expressions to be considered when involved in Forex trading, as otherwise one would not really understand whether a specific economic release or speech made by a central banker is beneficial for a currency pair or not. Central bankers are forced to use specific language and expressions due to the fact that the financial market is so globally interconnected that one reckless speech in the United States may actually make the global equity markets tumble. This is because trading algorithms govern high-frequency trading, and this is especially visible on the Forex market. These enormous spikes that happen in the blink of an eye on the Forex market are not the result of traders buying or selling at the same time, but of trading algorithms buying or selling at the same time.
Economic Terms to Consider
Inflation is on every central banker’s speech, as controlling inflation is part of the mandate of all central banks. In view of this, watching the president of the European Central Bank (ECB) or any other central bank head giving a speech, one will most likely note the word inflation appearing quite often. However, from a simple look at any economic calendar, one can see that the actual term “inflation” is not to be seen anywhere. The actual terminology is Consumer Price Index (CPI), as this is the economic indicator that reflects changes in prices at the consumer level.
Special Terminology Regarding Employment
When it comes to data on employment, there are other special expressions to watch for, depending on the country the data is referring to. In the United States, there are four different sets of data on employment released on a monthly or a weekly basis. The Private Payrolls release is called the ADP, and the Non-Farm Payrolls release reflects all the jobs created by the US economy excluding the agricultural ones. Moreover, on a weekly basis, Initial Jobless Claims, and Continuing Claims, still refer to the job market. The initial jobless claims figure reflects the number of people who are applying for the first time for unemployment benefits, while the continuing claims figure shows the number of people who failed to find a new job while they were unemployed, and are now applying for continued unemployment benefits.
In the United Kingdom, the jobs number is called the Claimant Count Change, and obviously reflects the same thing: a change in the overall employment figures in an economy during a specific period of time. Even though all those terms reflect the same thing, they are presented using different terminology, and in this way the trader can tell which economy they are referring to, and which currency will be affected when they are announced.
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Special Terminology Regarding Financial Markets
The following are special expressions or words both market participants and central bankers use when they refer to things that might affect the foreign exchange market, and financial markets in general.
Long and Short
When a trader buys a currency pair, it is said that he/she is taking a long position, as expectations are that the pair will move to the upside. If this does indeed happen, the trader makes a profit.
If a trader sells a currency pair, it is said that he/she is going short, as expectations are that the pair will move to the downside.
Bullish/Bearish and Hawkish/Dovish
A trader who takes a long position, or is thinking of taking a long position, has a bullish view of that currency pair; or in other words, he/she is bullish about that currency. For example, one can be bullish on the Euro, and in particular bullish on the EUR/USD pair.
The opposite of bullish is bearish, either on a currency or on a currency pair.
A central banker can be neither bullish nor bearish, as it is not possible for them to have a position on the market. Therefore, a central banker’s position/language/expression/statement can be either hawkish or dovish (this being the equivalent of bullish or bearish respectively for the regular trader).
Different Terms for Currency Pairs
Different currencies and currency pairs have informal names, or nicknames, the most important ones being the following:
- GBP/USD = Cable
- CAD = Loonie
- NZD = Kiwi
- AUD/USD = Aussie
- EUR/USD = Fiber
It is no surprise to hear traders referring to “cable being bullish” at a specific level, and in plain English this actually means that the GBP/USD is about to move to the upside, so buying the pair is recommended.
Other Terms Used
The above terms are the most important and commonest ones, but the financial jargon is constantly having new things added to it. After the 2008 financial crisis, new terms like the following became the norm for central bankers and economists discussing monetary policy:
- QE = Quantitative Easing. This generally refers to a central bank buying its own government’s bonds, and can take various forms. Bonds being basically debt, in some regions of the world central banks even bought the debt of private companies in various forms of quantitative easing programmes. The United States ran no less than four QE packages, while Japan, Europe, and the United Kingdom are still involved in one way or another in various QE programmes.
- LTROs and TLTROs = Long-Term Refinancing Operations, and Targeted Long-Term Refinancing Operations. These are special conditions offered by central banks to commercial banks under their jurisdictions in order to stimulate them to lend money to the economy.
- Easing = a central bank cutting interest rates.
- Tightening = a central bank hiking interest rates.
Needless to say, the list can go on and on, and what a trader needs to do is to understand that some new terms are going to be added on a constant basis – most of them acronyms – as central banks have to adapt to an ever-changing and challenging market environment.
Being constantly involved in trading financial markets will make it virtually impossible not to be familiar with these terms, and the many others that exist or are about to be created.
Other educational materials
- Profit from Forex Trading Using Different Trading Styles
- How to Set Up an Expert Advisor
- HFT (High-Frequency Trading) in Forex Markets
- Trading Sessions and Their Importance
- What is Forex Trading?
- What is a Currency Pair?
Recommended further readings
- Forex Analysis and Money Management Maciejczyk, K., 2012. (Doctoral dissertation, WORCESTER POLYTECHNIC INSTITUTE).
- FIBONACCI NUMBERS AS A TOOL FOR TECHNICAL ANALYSIS IN THE FOREX MARKET–THE ATTEMPT OF APPLICATION. GIRYN, C. and KOZUBSKI, A., 2012. Proceedings Polish Association for Knowledge Management, (61).