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Forex Dictionary

Term Equivalent terms Definition
Par Of equal value, the word is often used in relation to pegged currencies. If one currency pegs itself to another at par, it means that the central bank has declared the currencies of equal value.
Partial Lot Many brokerages allow trading in partial lots, which are fractions of 100,000 units that normally make up a full lot.
Pegged A system whose currency is tied to that of another currency. For example, the Chinese yuan is tied to, or pegged to, the US dollar. Most pegs are allowed to deviate within a small band.
Petrodollars Refers to the revenue of oil producing nations (OPEC nations) for the sale of their oil.
Pips Acronym for ‘percentage in point,’ the term refers to the smallest incremental movement in currency price. In EUR/USD, a movement of 0.0001 is one pip (for example, from 1.3100 to 1.3101). In USD/JPY, a movement of 0.01 is one pip (for example, from 116.32 to 116.31 yen).
Point & Figure charts In Technical analysis, a chart that records changes in price activity of a currency without any consideration of time. Price is charted in the y-axis, but nothing is measured in the x-axis, and the chart is designed as a series of X (rising price) and O (falling price), the price change of which must exceed a certain amount before it is charted.
Political Risk Exposure to changes in governmental policy or other regulations which will have an adverse effect on an investor’s position. For example, if a new government enacts a new inflation target policy higher than its competition, the domestic currency will fall when easy money floods the economy.
Position A trade that is still open (See Open Position).
Premium The amount added to the spot price of a currency to get the forward or future price.
Price Transparency Describes quotes to which every market participant has equal access.
Principal Value The original amount invested.
Producer Price Index PPI An index tracking the monthly changes in the wholesale price of goods bought and sold by producers before they reach the retail market. A dramatic increase in wholesale prices may be seen as an early indicator of inflation.
Profit Taking Taking Profits Closing a position to cash in on gains. On a bullish move, profit taking after a significant rise in price can push prices down temporarily, even though the trend is generally intact.
Profit/Loss The actual "realised" gain or loss resulting from trading activities on closed Positions, plus the theoretical "unrealised" gain or loss on open Positions that have been Mark-to-Market.
Protective Stop Order type whereby an open position is automatically liquidated at a specific price in order to minimize loses. For example, if a trade is long EURUSD at 1.3150, they might wish to put in a stop loss order for 1.3100 (50 pips below entry), which would limit the loss to 50 pips. See Stop Loss Order.
Purchasing Power Parity PPP The notion that, in an efficient market, the ratio between domestic and foreign price levels should equal the foreign exchange rate. For instance, if one pound is worth two dollars, then one pound in England should buy the same good and services that two dollars can buy in the United States.
Put Writer A writer of a put option, also called the seller of a put. He picks up the option premium from the put holder, and hopes that the market does not fall too much below the strike price.
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