These days Forex trading is done mostly by robots. Expert advisors, or trading algorithms, buy and sellthousands of trades per minute to profit from the smallest moves in prices. Execution is so fast that any news has an impact. To avoid sudden spikes and surges in volatility, central bankers must use a specific language. Traders also use specific language when referring to trading in general. The idea of this article is to have a look at the wording used by central bankers and traders in order to properly understand the Forex market.

Central Banking Terminology

Central bankers use specific words when addressing questions. These words and expressions are either trade-related or refer to the economic situation. When a central banker is hawkish, it means they are talking the currency up. This is positive for the respective currency, and traders buy it as a result. A statement can be hawkish, and a press conference can as well. It is the way the central bank chooses to communicate. On the opposite side, a dovish statement will result in the market participants selling the currency.

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Central bank members are therefore grouped into “hawks” and “doves”. To give you an example, the Federal Open Market Committee (FOMC) releases its minutes every 6 weeks, 3 weeks after the last meeting. These minutes show how many hawks and how many doves are on the committee, and this makes the dollar move. If there are more hawks, the dollar will be bought, as this is a hawkish development. If there are more doves, sellers will prevail. When a central bank moves on rates, it either raises or lowers them. Raising rates is referred to as hiking them, while lowering rates is known as cutting them. Economic terminology must be known in order to understand fundamental analysis and what the central bankers are saying. Below are a few examples:

Traders’ Terminology

From a trader’s point of view, the language used is special too. A trader buys or sells a currency pair, but this has a different terminology among Forex traders. When buying a currency pair, the traders is going long, and the price of that currency pair should move to the upside. If this happens, a profit is made. On the other hand, if a trader is sells a currency pair, they are effectively going short. A move downward in that currency pair will result in a profit. Going long or short is the result of an analysis that has been made, which can be either technical or fundamental, or both. At the end of the analysis, if the trader goes long it means they are bullish and expect higher prices. When the trader goes short or sells a currency pair, they are being bearish. As you can see, there is a difference in the terminology used by the two counterparts, central banks and traders. A central banker cannot be bullish, it can only be hawkish. Similarly, a trader can be bearish, but only a central banker can be dovish. In reality, the two things are the same, only that a trader may give a recommendation, while a central bank is only allowed to give a hint regarding the future direction of the market. This is the minimum to be known from a trader’s point of view: long vs short, and the bullish/hawkish vs bearish/dovish. However, there are many other expressions, and we have covered some in previous articles.
Explaining Financial Language - 1
Currencies have “nicknames” too: the Canadian Dollar is called the Loonie, the New Zealand Dollar is called the Kiwi, the Australian Dollar is called the Aussie, and the GBP/USD pair is called the Cable. So it might be that sometimes you’ll hear about a Forex trader being bullish on cable while bearish on the main Aussie pairs. In plain English, it means he/she buys the GBP/USD pair and sells the AUD/USD, buys the EUR/AUD, and so on.

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