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Forex Glossary

A - H I - M N - R S - Z


I

Initial margin The initial deposit of collateral required to enter into a position as a guarantee on future performance.
Interest Rate Differential In FX trading, interest rate charges are determined by the difference between the interest rate on the base currency less the interest rate on quote currency. Interest rates are only paid on positions held over night.
Intervention Action by a central bank to effect the value of a particular currency by entering the market.


L

Leverage

Ratio of the transaction to the required security deposit. Refers to margin trading or gearing. The use of credit or borrowed funds to increase ones buying power.

Limit Order An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 102.00/05, then a limit order to buy USD would be at a price below 102. (ie 101.50)
Liquidity Refers to the ability to buy and sell with little or no impact on price stability. The number of players in a market/security has a direct impact on this ability. The FX market is the most liquid market in the world.
Long position

A position to purchase more of an instrument than is sold, hence, an appreciation in value if market prices increase.

Lot A unit to measure the amount of the deal. The value of the deal always corresponds to a decimal fraction of the lot.


M

Margin The required equity that an investor is required to keep on deposit to cover potential losses. If the margin requirement is 10% and a speculator wishes to buy $1 million EURO/USD, that speculator must have $100 thousand EUROS in value in his/her account.
Margin Level Indicator, which displays the status of the account. Equity / Margin * 100%.

 

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