Forex Dictionary - Glossary of Terms & Definitions

"Cable" is a term used in foreign exchange markets to refer to the currency pair of the British Pound (GBP) and the US Dollar (USD). The name originates from the telegraph cables that were used in the 19th century to transmit exchange rates between London and New York. Traders closely monitor this pair due to its liquidity and volatility, influenced by factors such as economic data, political events, and central bank policies in the UK and the US.

A candlestick chart is a popular financial charting tool used to visualize price movements of an asset over time, showcasing open, high, low, and close prices for a specific time period. Each candlestick represents a set time interval (e.g., minutes, hours, days) and is composed of a body (the range between the opening and closing prices) and wicks or shadows (representing the highest and lowest prices during that period). The color of the body typically indicates price movement: a filled or colored body signifies a closing price lower than the opening price (bearish), while an unfilled or lighter body represents a closing price higher than the opening price (bullish). Candlestick patterns can signal potential market reversals or continuations, making them useful for traders in technical analysis.

A carry trade is a foreign exchange strategy in which an investor borrows money in a currency with a low-interest rate and invests it in a currency with a higher interest rate, profiting from the difference in rates. The strategy relies on the assumption that the higher-yielding currency will maintain its value or appreciate against the funding currency, allowing the trader to benefit from both the interest rate differential and potential currency appreciation. However, carry trades can be risky, as exchange rate fluctuations and geopolitical events can lead to significant losses.

The Commodity Channel Index (CCI) is a momentum-based oscillator that measures the deviation of a commodity's price from its historical average. Developed by Donald Lambert, the CCI is primarily used to identify potential overbought or oversold conditions in a market, with values above +100 indicating overbought conditions and values below -100 suggesting oversold conditions. Traders often use CCI in conjunction with other technical indicators to confirm trends and improve trading decisions. It can be applied across various time frames and asset classes, including stocks, commodities, and currencies.

CFD stands for Contract for Difference, a financial derivative that allows traders to speculate on the price movements of various assets, such as stocks, commodities, or indices, without actually owning the underlying asset. By entering a CFD agreement, traders can profit from both rising and falling markets by essentially betting on the price difference from the time the contract is opened to when it is closed. However, CFDs carry significant risks, including leverage-related losses, making them suitable primarily for experienced traders.

Chart patterns are formations created by the price movements of an asset on a chart, used in technical analysis to predict future price behavior. Common patterns include head and shoulders, double tops and bottoms, triangles, and flags. Traders analyze these patterns to identify potential buy or sell signals, helping to inform their trading strategies based on historical price action and market psychology. Each pattern has its own implications for bullish or bearish trends, making them valuable tools for traders seeking to gain insights into market dynamics.

A commodity is a basic good used in commerce that is interchangeable with other goods of the same type, often serving as a raw material in the production of other goods or services. Common examples include agricultural products like wheat and corn, minerals like gold and silver, and energy resources like crude oil and natural gas. Commodities are typically traded on exchanges and are characterized by their uniform quality and standardization, which allows them to be traded in bulk and ensures price uniformity across markets.

The Commitments of Traders (COT) report is a weekly publication by the Commodity Futures Trading Commission (CFTC) that provides data on the positions held by different types of traders in the futures markets. The report typically categorizes participants into three main groups: commercial traders, non-commercial traders, and small traders. It helps market participants gauge market sentiment, trends, and potential price movements by revealing the long and short positions of various traders. The COT report is widely used by analysts and traders for market analysis and forecasting.

A cross currency pair is a currency pair that does not involve the US dollar as one of its components. These pairs often include major currencies such as the euro (EUR), the British pound (GBP), or the Japanese yen (JPY) paired with each other. Trading in cross currency pairs allows investors to speculate on the relative strength of one currency against another without the US dollar's influence. Common examples include EUR/GBP, AUD/NZD, and GBP/JPY.

A currency pair consists of two different currencies that are traded in the foreign exchange market. The first currency listed is known as the base currency, while the second is the quote currency. The exchange rate represents how much of the quote currency is needed to purchase one unit of the base currency. Common examples include EUR/USD (Euro to US Dollar) and GBP/JPY (British Pound to Japanese Yen). Currency pairs can be classified into major, minor, and exotic pairs, depending on their liquidity and the economies involved.