Forex Glossary (B)

Commonly used forex terms and their definitions.


Back Office - A financial institutions area that is responsible for settlement, administration and reporting.

Back Testing - Is a test of the performance of a trading strategy based on historical data prior to applying the strategy to live data.

Balance of Payments - A systematic record of the economic transactions during a given period for a country. (1) The term is often used to mean either: (i) balance of payments on "current account"; or (ii) the current account plus certain long term capital movements. (2) The combination of the trade balance, current balance, capital account and invisible balance, which together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital transfers, and or decline in currency values.

Band - Or Trading Band is the range in which a currency is permitted to move against another, according to restrictions imposed on the currency by the local Government.

Bank Line - Line of credit granted by a bank to a customer, also known as a "line" or "credit line".

Bank Rate - The rate at which a central bank is prepared to lend money to its domestic banking system.

Base Currency - For foreign exchange the base currency refers to the first currency in a currency pair. For example, in a EUR/USD currency pair, the EUR is the base currency. Also may be referred to as the primary currency.

Basis - The difference between the cash price and futures price.

Basis Point - The last decimal point shown for trading. In most currency pairs this is equivalent to 1/10,000. The most popular exception to the rule is USD/JPY where the basis point is 1/100.

Basis Trading - Taking opposite positions in the cash and futures market with the anticipation of profiting from favorable movements in the basis.

Basket - A group of currencies normally used to manage the exchange rate of a currency, usually each currency in the basket is weighted to form the exchange rate.

Bear - An investor who believes that prices are going to fall.

Bear Market - A prolonged period of generally falling prices.

Bid - The quoted price where a customer can sell a currency pair. Also known as the "bid price" or "bid rate."

Bid/Ask Spread - The difference in pips between the bid and the ask (offer) price.

Bollinger Bands - A technical indicator that allows users to compare volatility and relative price levels over a period of time. It consists of three bands designed to encompass the majority of a security's price action. Prices will often meet resistance at the upper band and support at the lower band.

Book - The summary of currency positions held by a dealer, desk, or room. A total of the assets and liabilities. If the average maturity of the book is less than that of the assets, the bank is said to be running a short and open book. Passing the Book refers normally to transferring the trading of the Banks positions to another office at the close of the day, e.g. from London to New York.

Bretton Woods - The site of the conference which in 1944 led to the establishment of the post war foreign exchange system that remained intact until 1971. The conference resulted in the formation of the IMF. The system fixed currencies in a fixed exchange rate system with 1% fluctuations of the currency to gold or the dollar.

Broker - Often referred to as an agent, brings buyers and sellers together for a commission paid by the initiator of the transaction. Brokers do not take market positions.

Bull - An investor who believes that prices are going to rise.

Bull Market - A prolonged period of generally rising prices.

Bundesbank - Refers to the Central Bank of Germany.

Buying Rate - The rate at which the market maker is willing to buy the currency. Sometimes called bid rate.

Buy Signal - A condition that indicates a good time to buy an instrument. The exact circumstances of the signal will be determined by the indicator that an analyst is using. For example, it's considered a buy signal when the MACD crosses above its signal line.


Follow worldbiztoday on Twitter

Currency News