Forex and regulation glossary
49 terms you'll meet when checking a broker's licence or reading its client agreement.
A
- AFSL
- Australian Financial Services Licence — the licence ASIC issues to firms providing financial services, including CFD issuers, in Australia.
- Ask price
- The price at which a broker will sell a currency pair to you; you buy at the ask.
B
- Base currency
- The first currency in a pair. In EUR/USD, the euro is the base currency.
- Bid price
- The price at which a broker will buy a currency pair from you; you sell at the bid.
- Bonus ban
- Rules in the UK, EU and Australia prohibiting brokers from offering deposit bonuses and trading incentives to retail clients.
C
- CASS
- The FCA's Client Assets Sourcebook: UK rules on how firms protect client money and assets, including segregation and reconciliation.
- CFD
- Contract for difference — a derivative that pays the difference in price of an underlying asset between opening and closing, without owning the asset.
- CIF
- Cyprus Investment Firm — a company licensed by CySEC under MiFID II.
- Clone firm
- A fraudulent entity that impersonates a genuine authorised firm by copying its name, licence number and details.
- Compensation scheme
- A statutory fund that pays eligible clients if an authorised firm fails and cannot return their money, up to a limit.
- Counterparty risk
- The risk that the other side of your trade — often the broker itself — cannot meet its obligations.
D
- Dealing desk
- A broker execution model where the broker acts as counterparty and may internalise client orders.
E
- ECN
- Electronic communication network — used loosely by brokers to describe raw-spread, commission-based pricing from multiple liquidity providers.
- ESMA
- The European Securities and Markets Authority, which introduced EU-wide restrictions on CFDs for retail clients in 2018.
F
- FIFO
- First in, first out — a US rule requiring the oldest position in a currency pair to be closed first.
- FRN
- Firm Reference Number — the unique identifier for a firm on the FCA register.
- FSP number
- The licence number of a Financial Services Provider in South Africa, searchable on the FSCA website.
H
- Hedging
- Holding opposing positions to reduce risk. US rules prohibit holding simultaneous long and short positions in the same pair at one broker.
I
- I-SCAN
- IOSCO's Investor Alerts Portal, which aggregates warnings about unauthorised firms from securities regulators worldwide.
- Introducing broker (IB)
- A person or firm that refers clients to a broker in return for rebates or a revenue share.
L
- Leverage
- Using borrowed exposure to control a larger position than your deposit. 30:1 leverage means a €1,000 margin controls a €30,000 position.
- Liquidity provider
- A bank or non-bank market maker that supplies prices to brokers.
- Lot
- A standard unit of trade size. One standard lot is 100,000 units of the base currency; a mini lot 10,000; a micro lot 1,000.
M
- Margin
- The deposit required to open and maintain a leveraged position.
- Margin call
- A warning that your equity has fallen close to the level at which positions will be closed.
- Margin close-out rule
- An EU/UK/Australian requirement that brokers close retail positions when equity falls to 50% of required margin.
- Market maker
- A broker that quotes prices and takes the other side of client trades.
- MiFID II
- The EU's Markets in Financial Instruments Directive, the main legal framework for investment firms in the EU since 2018.
- MT4 / MT5
- MetaTrader 4 and MetaTrader 5, trading platforms developed by MetaQuotes and licensed to brokers.
N
- Negative balance protection
- A rule or contractual term ensuring retail clients cannot lose more than their account balance.
- NFA ID
- The identification number of a firm or individual registered with the US National Futures Association, searchable in BASIC.
O
- ODP
- Over-the-Counter Derivative Provider — the South African authorisation required to issue OTC derivatives such as CFDs as principal.
- Offshore broker
- A broker entity licensed in a jurisdiction with light regulation, typically without compensation schemes or leverage caps.
P
- Passporting
- The right of an EU/EEA-authorised firm to provide services across the EEA based on its home-state licence.
- Pip
- The standard unit of price movement for a currency pair — usually the fourth decimal place (0.0001), or the second for JPY pairs.
- Pipette
- A fractional pip — one tenth of a pip.
- Professional client
- A client classified as experienced enough to waive some retail protections in exchange for higher leverage.
Q
- Quote currency
- The second currency in a pair. In EUR/USD, the US dollar is the quote currency.
R
- RFED
- Retail Foreign Exchange Dealer — a CFTC registration category for firms dealing forex with US retail clients.
S
- Segregated account
- A bank account holding client money separately from the broker's own funds.
- Slippage
- The difference between the price you requested and the price at which your order was filled.
- Spread
- The difference between bid and ask prices; a core trading cost.
- Spread betting
- A UK/Irish derivative where you bet an amount per point of movement; profits are generally free of UK capital gains tax for individuals.
- Stop-out level
- The margin level at which a broker automatically closes positions.
- STP
- Straight-through processing — an execution model where orders are passed to liquidity providers.
- Swap / rollover
- Interest credited or charged for holding a position overnight.
T
- Tied agent
- A person or firm acting on behalf of a single authorised investment firm, under that firm's responsibility.
- Tier-1 regulator
- An informal term for the strictest financial regulators, such as the FCA, ASIC and CFTC/NFA.
W
- Warning list
- A regulator-published list of firms that are not authorised and may be operating illegally or fraudulently.