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B

2008-09-06T20:43:00.000-07:00

FOREX GLOSSARY

Backwardation
Term referring to the amount that the spot price exceeds the forward price.

Balance of Payments
A record of a nations claims of transactions with the rest of the world over a particular time period. These include merchandise, services and capital flows.

Balance of Trade
The value of a country's exports minus its imports.

Band
The range in which a currency is permitted to move. A system used in the ERM.

Banking day (or Business day)
Any day that commercial banks are open for business in the financial center of the country whose currency a position is taken.

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

Bank of Japan or BOJ
The central bank of Japan.

Bank Note
Paper issued by the central bank, redeemable as money and considered to be full legal tender

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

Bar Chart
A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar

Base Currency
The currency in which an investor or issuer maintains its book of accounts; the currency that other currencies are quoted against. In the forex market, the US Dollar is normally considered the `base` currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair

Base Rate
A term used predominantly in the UK for the rate used by banks to calculate the interest rate charged to borrowers. Top quality borrowers will pay a small amount over base rate while lesser quality credits will pay a rate much higher than the base rate.

Basis
The difference between the cash price and futures price.

Basis Point
One hundredth of a percent

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

Bear
An investor who believes that price of an investment product is going to fall.

Bear Market
A market distinguished by a prolonged period of declining prices accompanied with widespread pessimism.

Bear Squeeze
The condition in the market where investors or traders who are short an investment product are forced to cover their position because a rising market condition, has inflicted losses on the account

Best-Efforts Basis
The execution of an order at the next available price taking into consideration the volume available to buy or sell at that price and the quantity and volume of orders that precede the customers order.

BID
Dealer phrase referring to the first few digits of an exchange rate. These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity. For example, a USD/Yen rate might be 107.30/107.36, but would be quoted verbally without the first three digits i.e. "30/36".

Big Figure
The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 110.00/06 the big figure is 110. GBP/USD price of 1.8450 the big figure is 1.84

Book
In a professional trading environment,a “book” is the summary of a trader’s or desk’s total positions

Bonds
Bonds are tradable instruments (debt securities) which are issued by a borrower to raise capital. They pay either fixed or floating interest, known as the coupon. As interest rates fall, bond prices rise and vice versa.

Break or Break out
Term used to describe a sudden or rapid fall in instruments pricing away from a consolidated range.

Bretton Woods Agreement of 1944
An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies

Broker
An individual, or firm, that acts as an intermediary, putting together buyers and sellers usually for a fee or commission. In contrast, a `dealer` commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.

Brokerage
Commission charged by a broker.

Buba
Bundesbank, Central Bank of Germany

Bull
An investor who believes that prices/the market will rise.

Bull Market
A market distinguished by a prolonged period of rising prices. (Opposite of bear market)

Business Day
Any day on which commercial banks are open for business other than Saturday or Sunday in the principal financial center of the country in whose currency a position is taken.

Buying Rate
Rate at which the market and a market maker in particular is willing to buy the currency. Sometimes called bid rate.

Buy Limit
Specifies the highest price at which the purchase of the Base Currency in a Currency Pair can be executed. The limit price in a Buy limit order should be BELOW the current dealing Ask price.

Buy On Margin
The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.

Buy Stop
A Buy Stop is a Stop Order that is placed ABOVE the current dealing Ask price and is not activated until the market Ask price is at or above the Stop Price. The buy stop order, once triggered, becomes a market order to buy at the current market price.

O

2008-09-06T20:22:00.000-07:00

FOREX GLOSSARY

OCO - One Cancels the Other
A contingent order where the execution of one part of the order automatically cancels the other part.

Odd Lot
A non standard amount for a transaction.

OECD
Organisation of Economic Co-operation and Development. Membership is the more than developed countries.

Offer(ask)
The price at which a dealer is willing to sell. The Offer is also called the Ask or Ask Price.

Offered market
Temporary situation where offers exceed bid

Offset
The closing-out or liquidation of a futures position.

Official Settlements Account
A U.S. balance of payments measure based on movement of dollars in foreign official holdings and US reserves. Also referred to as reserve transaction account

Old Lady
Old lady of Threadneedle Street, a term for the Bank of England, the central bank of England.

Omnibus Account
An account maintained by one broker with another in which all of the accounts of the former are combined and carried only in its name, rather than designated separately.

Open Interest
The total number of outstanding option or futures contracts that have not been closed out by offset or fulfilled by delivery

Open Market Operations
Central Bank operations in the markets to influence exchange and interest rates.

Open Order
An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders.

Open Outcry
A public auction method of trading conducted by calling out bids and offers across a trading ring or pit and having them accepted.

Open Position
The difference between assets and liabilities in a particular currency. This may be measured on a per currency basis or the position of all currencies when calculated in base currency.

Options
An agreement that allows the holder to have the option to buy/sell a specific security at a certain price within a certain time. Two types of options – call and put. A call is the right to buy while a put is the right to sell. One can write or buy call and put options.

Option Class
All options of the same type - calls or puts -listed on the same underlying instrument

Option Contract
A financial contract giving the buyer the right, but not the obligation, to purchase or sell a specific forex contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount the buyer pays to the seller for the contract rights is called the "premium."

Option Premium
The amount the buyer pays to the seller for the rights of an option contract.

Option Series
All options of the same class having the same exercise/strike price and expiration date.

Order
An order is an instruction, from a client to a broker to trade. An order can be placed at a specific price or at the market price. Also, it can be good until filled or until close of business.

OTC/Over The Counter
A market conducted directly between dealers and principals via a telephone and computer network rather than a regulated exchange trading floor. These markets have not been very popular. They were never part of the Stock Exchange since they were seen as "unofficial". Each OTC firm operates a market in the shares of a restricted list of (generally small and little-known) companies. Sometimes the dealer simply puts would-be buyers and sellers together but does not take a position in the shares himself. These days OTC trading is seen as "consumer-friendly," meaning that it is interested in getting the buyer and seller the best possible price. Some see this as what share-trading is all about. However, market makers, many of whom create market movements purposefully, feel they are being elbowed out by OTC, and that speculation, arbitrage and "smart-trading" are undermined by the new market.

Out-of-the-Money
An option contract having no intrinsic value.

Outright Deal
A forward deal that is not part of a swap operation

Overnight limit
Net long or short position in one or more currencies that a dealer can carry over into the next dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces the need for dealers to maintain these unmonitored exposures.

Overhang
A holding of foreign exchange that is temporarily unable to be converted from the reserve currency into other reserve assets.

Overheated (Economy)
Is an economy where high-growth rates placing pressure on production capacity resulting in increased inflationary pressures and higher interest rates.

Overnight Limit
Net long or short position in one or more currencies that a dealer can carry over into the next dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces the need for dealers to maintain these unmonitored exposures.

Overnight Position
A trade that remains open until the next business day.

Oscillators
Quantitative methods designed to provide signals regarding the overbought and oversold conditions

P

2008-09-06T20:10:00.000-07:00

FOREX GLOSSARY

Package Deal
When a number of exchange and /or deposit orders have to be fulfilled simultaneously.

Paris
A term for USD FRF Spot Rate.

Parity
The equivalent value of one currency in terms of another; also, sometimes used as a synonym for currency pair.

Parity Grid
A term used in the context of the European Monetary System which consists of the upper, central and lower intervention points between member currencies

Payment Date
A system where a currency moves in line with another currency, some pegs are strict while others have bands of movement.

Pegged
A system where a currency moves in line with another currency. Some pegs are strict while others have bands of movement.

Pending Orders Report
The Pending Orders report will show all the pending orders that the client has entered over the user specified dates whether the Pending Order is executed or not. Any Pending Order that is cancelled by the client will still be displayed, giving the client a full audit trail of the orders.

Petrodollars
Foreign exchange reserves of oil producing nations arising from oil sales

Philadelphia Stock Exchange (PHLX)
The oldest U.S. securities exchange which offers currency futures and options on currency futures

Points, Pips
The term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).

Political Risk
Exposure to changes in governmental policy which will have an adverse effect on an investor's
position.

Portfolio Insurance
An option hedging strategy to protect long cash market positions.

Position
trading view expressed by buying or selling. It can refer to the amount of a currency either owned or owed by an investor.

Position Clerk
A clerk who assist the dealer in recording a dealers position and ensures that all deal tickets are completed and transferred to the back office or input into the books in a position keeping system.

Position Limit
The maximum position, either net long or net short, in one future or in all futures of one currency or instrument combined which may be held or controlled by one person.

Premium
In the currency markets, it is the amount of points added to the spot price to determine a forward or futures price.

Pre-Spot Dates
Quoted standard periods that fall between the transaction date and the current spot value date.

Price
The price at which the underlying currency can be bought or sold.

Price Transparency
The ability of all market participants to "see" or deal at the same price.

Prime Rate
(1) The rate from which lending rates by banks are calculated in the US.
(2) The rate of discount of prime bank bills in the UK

Primary Reserves
Gold related monetary reserves, being gold, SDR, etc.

Principal
A dealer who buys or sells stock for his/her own account.

Principal Value
The original amount invested by the client.

Producer Price Index
An economic indicator which gauges the average changes on prices received by domestic producers for their output at all stages of processing

Profit/Loss (P&L)
The actual "realized" gain or loss resulting from trading activities on Closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.

Profit Graph
A graphical representation of the profits to a given options strategy for different underlying asset prices

Proxy Hedge
A term to describe when it is necessary to hedge against a currency where there is no market but it follows a major currency, the hedge is entered against the major currency.

Purchasing Power Parity
Model of exchange rate determination stating that the price of a good in one country should equal the price of the same good in another country, exchanged at the current rate. Also known as the law of one price

Put Option
A put option confers the right but not the obligation to sell currencies, instruments or futures at the option exercise price within a predetermined time period

Put Call Parity
The equilibrium relationship between premiums of call and put options of the same strike and expiry

Pyramiding
The use of cash generated by positive variation margins on a futures position to increase the size of the position, each reinvestment in successively smaller increments

R

2008-09-06T19:55:00.000-07:00

FOREX GLOSSARY

Random Walk Theory
An efficient market hypothesis, stating that prices move randomly versus their intrinsic value. Therefore, no one can forecast market activity based on the available information

Rally
A recovery in price after a period of decline.

Range
The difference between the highest and lowest price of a future recorded during a given trading session.

Rate
The price of one currency in terms of another.

Ratio Calendar Spread
Selling more near-term options than longer maturity options at the same strike price.

Ratio Spread
Buying a specific quantity of options and selling a larger quantity of out of the money options.

Reaction
A decline in prices following an advance.

Real
A price, interest rate or statistic that has been adjusted to eliminate the effect of inflation

Realignment
Simultaneous and mutually co-ordinated re- and devaluation of the currencies of several countries. An activity that mostly refers to EMS activity.

Realized P/L
The profit and loss generated from closed positions.

Reciprocal Currency
A currency that is normally quoted as dollars per unit of currency rather than the normal quote method of units of currency per dollar. Sterling is the most common example

Regulated Market
A market that is regulated usually by a governmental agency that issues a number of guidelines and restrictions designed to protect investors.

Reinvestment Rate
The rate at which interest earned on a loan can be reinvested. The rate may not attract the same level of interest as the principal amount

Repo - Re-purchase
This type of trade involves the sale and later re-purchase of an instrument, at a specified time and date. Occurs in the short-term money market.

Report
French term for premium

Reporting Dealer
Term for US Primary Dealers

Reserves
Funds held against future contingencies., normally a combination of convertible foreign currency, gold, and SDRs. Official reserves are to ensure that a government can meet near term obligations. They are an asset in the balance of payments

Reserve Currency
A currency held by a central bank on a permanent basis as a store of international liquidity, these are normally Dollar, Euro, and sterling

Reserve Requirement
The ratio of reserves to deposits, expressed as a fraction prescribed by national banking authorities, including the United States

Reserve Tranche
The 25% of its quota to which a member of the IMF has unconditional access, and for which there is no obligation to repay.

Resistance
A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross above. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line.

Rescheduling
The renegotiation of the terms of existing debts. The term is usually used with reference to LDC debt. The term rescheduling is considered to be refinancing to avoid any implication of default. Major sovereign debt rescheduling for Brazil, and Mexico have been undertaken in recent years

Retail Price Index
Measurement of the monthly change in the average level of prices at retail, normally of a defined group of goods

Revaluation
Increase in the exchange rate of a currency as a result of official action.

Revaluation Rate
(1)The rate for any period or currency which is used to revalue a position or book.
(2) Revolving credit Upon repayment by the borrower the credit becomes automatically available.

Reversal
(1)Process of changing a call into a put.
(2) Reversal patterns that occur at the end of the trend, signalling the trend change

Right hand side
Corresponds to the Ask or Offer price of a foreign exchange rate. For example, given a price of 1.9720 - .1.9726, the right hand side is .9635. The right hand side is the side that a client would buy at.

Ring
An area on a trading floor where futures or equities are traded

Risk Capital
The amount of money the Customer is willing to put at risk and, which if lost would not, change the Customer's lifestyle or the Customer's family lifestyle

Risk Factor
The risk factor (delta) indicates the risk of an option position relative to that of the related futures contract.

Risk Management
To hedge one's risk they will employ financial analysis and trading techniques
Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies.

Risk Position
An asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates

Risk Premium
Additional sum payable or return to compensate a party for adopting a particular risk.

Risk Reversal
(1)Additional sum payable or return to compensate a party for adopting a particular risk
(2)The put limits downside, while the call limits the upside

Rollover
The process of extending the settlement value date on an open position forward to the next valid value date.

Rollover Credit
Medium term credit with a variable interest rate, which is governed by the currently prevailing rates on the Euromarket.

Round Trip
Buying and selling of a specified amount of currency.

Running a Position
Keeping open positions in the hope of a speculative gain.

Q

2008-09-06T05:34:00.000-07:00

FOREX GLOSSARY

Quota
(1) A limit on imports or exports.
(2) A country's subscription to the IMF

Quote
An indicative market price; shows the highest bid and/or lowest ask price available on a security at any given time.

K

2008-09-06T05:32:00.001-07:00

FOREX GLOSSARY

Kappa
A measure of the sensitivity of the price of an option to a change in its implied volatility.

Key currency
Small countries, which are highly dependent on exports, orientates their currencies to their major trading partners, the constituents of a currency basket.

Kiwi
The New-Zealand Dollar

J

2008-09-06T05:31:00.000-07:00

FOREX GLOSSARY

J Curve
Where short term instruments are trading at premiums to long term instruments.

Jobber
A trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.

T

2008-09-06T04:27:00.000-07:00

FOREX GLOSSARY

Take Profit Order
A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on said position.

Technical Analysis
An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.

Technical Correction
An adjustment to price not based on market sentiment but on technical factors such as volume and charting.

Temporal Accounting
Method of determining accounting exposure which translates all balance sheet items at the current rate of exchange, not the one at the time the cost was incurred

Tender
(1) a formal offer to supply or purchase goods or services.
(2) In the UK the term for the weekly Treasury Bill issue.

Tenor
Maturity or number of days to maturity normally on bills of exchange

Terms of Trade
The ratio between export and import price indices

Theory of Elasticities
A model of exchange rate determination stating that the exchange rate is simply the price of the foreign exchange which maintains the BOP in equilibrium. The degree to which the exchange rate responds to a change in price

Threshold of Divergence
A safety feature for the EMS which creates an emergency exit for currencies which become the singular focus of various adverse forces. The threshold of divergence indicates when the specific country with the pressured currency should take additional steps other then simple central bank intervention in the foreign exchange markets

Theta
A measure of the sensitivity of the price of an option to a change in its time to expiry

Thin Market
A market in which trading volume is low and in which bid and ask quotes are wide and the liquidity of the instrument traded is low.

Thursday/Friday Dollars
A U.S. foreign exchange technicality. If the bank leaves the funds overnight and transfers them on Friday by means of a clearing house cheque then clearance is not until Monday, the next working day. Higher interest rates for this period are thus available

Tick
A minimum change in price, up or down.

Tier One
A measure of a banks financial strength used by the BIS being the shareholders' equity available to cover actual or potential irredeemable and non-cumulative preference shares. It excludes, hybrid forms of capital such as fixed term stock, goodwill, and revaluation reserves. BIS has a minimum requirement of 4 percent on risk-weighted assets.

Tight Money
A condition where there is a shortage of credit as a result of monetary policy restricting the supply of credit normally through raising interest rates

TIFFE
Tokyo International Financial Futures Exchange

Time Decay
(1)The decline in the time value of an option as the expiry approaches
(2) Interest bearing deposits at a savings institution that has a specific maturity

Time Value
That part of an option premium which reflects the length of time remaining in the option prior to expiration. The longer the time remaining until expiration, the higher the time value.

Today/Tomorrow
Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa. Also referred to as overnight

Tombstone
Colloquial term for announcement in a publication that a loan or bond has been arrange

Tomorrow Next (Tom/Next),(T/N),T/N Roll
Simultaneous buying and selling of a currency for delivery the following day.

Trade date
The date on which a trade occurs.

Trade Deficit/Surplus
The difference between the value of imports and exports. Often only reported in visible trade terms

Trade-weighted Exchange Rate
The changes in the exchange rate against a trade weighted basket including the currencies of the county's principal trading partners

Tradeable Amount
Smallest transaction size acceptable

Traded Options
Transferable options with the right to buy and sell a standardised amount of a currency at a fixed price within a specified period.

Tranche
A portion of, specifically used for borrowings from the IMF.

Transaction
The buying or selling of foreign exchange amount resulting from the execution of an order.

Transaction Cost
The cost of buying or selling a financial instrument.

Transaction Date
The date on which a trade occurs.

Transaction Exposure
(1)Potential profit and loss generated by current foreign exchange transactions
(2) The calculation of loss or profit resulting from the valuation of foreign assets and liabilities for balance sheet purposes, when consolidating into the base currency

Treasury Bills
Short-term obligations of a Government issued for periods of one year or less. Treasury bills do not carry a rate of interest and are issued at a discount on the par value. Treasury bills are repaid at par on the due date. In the UK they are normally for 91 days, and are offered at weekly tenders. In the US they are auctioned.

Turnover
The total volume of all executed transactions in a given time period.

Two-Tier Market
A dual exchange rate system where normally only one rate is open to market pressure, e.g. South Africa.

Two Way Price
Both the bid and ask rate is quoted for a Forex transaction.

V

2008-09-05T10:26:00.000-07:00

Forex Glossary

Value at Risk
The expected loss from an adverse market movement.

Value Date
The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date.

Value Spot
Normally settlement for two working days from today. See value date.

Value Today
Transaction executed for same day settlement; sometimes also referred to as "cash transaction.

Velocity of Money
The speed with which money circulates or turnover in the economy. It is calculated as the annual national income: average money stock in the period

Vertical (bear or bull) Spread
The sale of an option with a high exercise price and the purchase (in the case of a bull) or the sale (in the case of a bear ) of an option with a lower exercise price. Both options will have the same expiration date.

Volatility
A statistical measure of a market or a security's price movements over time and is calculated by using standard deviation. Associated with high volatility is a high degree of risk.

Variation Margin
Funds, which are required to bring the equity in an account back up to the initial margin level, calculated on a day-to-day basis.

Volatility
Statistical measure of the change in price of a financial currency pair over a given time period.

Volume
The number, or value, of securities traded during a specific period.

Vostro Account
A local currency account maintained with a bank by another bank. The term is normally applied to the counterparty's account from which funds may be paid into or withdrawn, as a result of a transaction.

W

2008-09-05T10:15:00.000-07:00

Forex Glossary

Wash Trade
A matched deal which produces neither a gain nor a loss.

Whipsaw
Term for where a trader takes a position, then experiences a move against it, triggering stop loss limits and liquidation of positions, followed by a reversal and move in the original direction. Normally occurs in volatile markets.

Wholesale Money
Money borrowed in large amounts from banks and institutions rather than from small investors

Wholesale Price Index
It measures changes in prices in the manufacturing and distribution sector of the economy and tends to lead the consumer price index by 60 to 90 days. The index is often quoted separately for food and industrial products.

Withholding Tax
Income tax withheld from employees' wages and paid directly to the government by the employer

Wire Transfer
The transfer of money electronically from one bank to another.

Working Balance
Discretionary element in the monetary reserves of a central bank.

Working Day
A day on which the banks in a currency's principal financial centre are open for business. For FX transactions, a working day only occurs if the bank in both (all relevant currency centers in the case of a cross are open)

World Bank
A bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available

Y

2008-09-05T10:13:00.000-07:00

Forex Glossary

Yard

A slang word used in the currency industry meaning 'billion'.

Z

2008-09-05T10:09:00.000-07:00

Forex Glossary

Z-Score

A statistical measure that quantifies the distance (measured in standard deviations) a data point is from the mean of a data set.In a more financial sense, Z-score is the output from a credit-strength test that gauges the likelihood of bankruptcy.

U

2008-08-29T19:04:00.000-07:00

Forex Glossary

Uncovered position
Another term for an open position.

Under Reference (Order)
Before finalizing a transaction all the details should be submitted for approval to the order giver, who has the right to turn down the proposal

Under Valuation
An exchange rate is normally considered to be undervalued when it is below its purchasing power parity

Undo
A colloquial term for reversing a transaction, e.g., a spot sale by means of a forward purchase or if done in error a spot purchase

Unload
Term for sale of assets or unwinding positions either to limit loss or to undermine other market participants positions

Unmatched Book
If the average maturity of a banks liabilities is less than that of its assets, it is said to be running an unmatched book.

Unwind
Selling of assets and or instruments to square a position

Unrealized P/L
Unrealized P/L is the real time profit or loss on the current open position(s), given the current exchange rate(s).

Uptick
A transaction executed at a price greater than the previous transaction.

Uptick Rule
In the US a regulation whereby a security may not be sold unless the last trade prior to the short sale was at a price at which at which the short sale is executed

US Dollar
The legal tender of the United States of America.

US Prime Rate
The interest rate at which US banks will lend to their prime corporate customers.

US Treasury
The United States Department of the Treasury is the government department responsible for issuing all Treasury bonds, notes, and bills.

US Quote
Exchange rate quotation on a reciprocal basis. Also known as an American Quote

S

2008-08-29T19:02:00.002-07:00

FOREX GLOSSARY

Same day transaction
A transaction that matures on the day the transaction takes place.

Scalping
A strategy of buying at the bid and selling at the offer as soon as possible

SDR
Special Drawing Right. A standard basket of five major currencies in fixed amounts as defined by the IMF.

Sell Limit
Specifies the lowest price at which the sale of Base Currency in a Currency Pair can be executed. The limit price in a Sell limit order should be above the current dealing Bid price.

Sell Stop
A Sell Stop is a Stop Order that is placed below the current dealing Bid price and is not activated until the market Bid price is is at or below the stop price. The sell stop order, once triggered, becomes a market order to sell at the current market price.

Selling Rate
Rate at which a bank is willing to sell foreign currency.

Settlement
The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.

Settlement Date
The date by which an executed order must be settled by the transference of instruments or currencies and funds between buyer and seller.

Settlement Risk
Risk associated with the non-settlement of the transaction by the counter party.

Short
To go short is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit.

Short Contracts
Contracts with up to six months to delivery.

Short Covering
Buying to unwind a short position of a particular currency pair

Short Forward Date/Rate
The term short forward refers to period up to two months, although it is more commonly used with respect to maturities of less than one month.

Short Position
An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.

Short Sale
The sale of a specified amount of currency not owned by the seller at the time of the trade. Short sales are usually made in expectation of a decline in the price.

Short Squeeze
The pressure on short sellers to cover their positions as a result of sharp price increases.

Short-Term Interest Rates
Normally the 90-day rate

SIMEX
Singapore International Monetary Exchange

SITC
Standard International Trade Classification. A system for reporting trade statistics in a common manner.

Slippage
It's the experience of not getting filled at (or even very close to…) your expected price when you place a market order or stop loss. This can happen because either: market price is simply moving too fast, the market is not liquid or you're talking to an unmotivated broker.

Soft Market
More potential sellers than buyers, which creates an environment where rapid price falls are likely.

Speculative
Trading Foreign Exchange is speculative in that there is no guarantee that those who invest in Foreign Exchange will make any money. The conditions also exist that the client can lose his entire deposited margin making trading FX highly speculative. Those who trade foreign exchange should only risk that capital which is considered risk capital, defined as the amount of which if lost would not, change the Customer's lifestyle or the Customer's family's lifestyle.

Spot
A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck.

Spot Market
Market where people buy and sell actual financial instruments (currencies) for two-day delivery.

Spot Month
The contract month closest to delivery or settlement.

Spot Next
The overnight swap from the spot date to the next business day.

Spot Price/Rate
The current market price. Settlement of spot transactions usually occurs within two business days.

Spot Week
A standard period of one week swap measured from the current value date of the currency spot rate.

Spot Settlement Basis
The standardized settlement procedure for foreign exchange transactions that sets the value date 2 business days forward from the Trade Date (see: Spot).

Spread

The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity.

Square
Purchase and sales are in balance and thus the dealer has no open position.

Squeeze
Action by a central bank to reduce supply in order to increase the price of money.

Stable market
An active market which can absorb large sales or purchases of currency without major moves.

Sterilization
Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the FX market.

Sterling
British pound, otherwise known as cable

Sterling Index
A index based on the movement of sterling against the major currency.

Stop Loss Order
An order to buy/sell at an agreed price. One could also have a pre-arranged stop order, whereby an open position is automatically liquidated when a specified price is reached or passed.

Stop Order
An order to buy or to sell a currency when the currency's price reaches or passes a specified level.

Stop Out Price
U.S. term for the lowest accepted price for Treasury Bills at auction.

Stop Price Level
The client entered price that activates a stop loss order

Straddle
The simultaneous purchase/sale of both call and put options for the same share, exercise/strike price and expiry date.

Stagflation
Recession or low growth in conjunction with high inflation rates.

Strap
A combination of two calls and one put

Strike Price
Also called exercise price. The price at which an options holder can buy or sell the underlying instrument.

Supply Side Economics
The concept is that tax cuts will boost investment leading to an increase in the supply of goods in the economy. To be compared with demand led Keynesian economics

Support Levels
A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.

Swap Price
A price as a differential between two dates of the swap.

Swap
A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

Swap as a Percentage
A price as a differential between two dates of the swap.

SWIFT
Society for World-wide Interbank Telecommunications is Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions

Swissy
Swiss Franc.

N

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FOREX GLOSSARY

Naked Intervention
A central bank type of intervention in the foreign exchange market which consist solely of the foreign exchange activity. This type of intervention has a monetary effect on the money supply and a long term effect on foreign exchange

Narrow Money
Limited definition of money to include cash or near cash

Nearby Contracts
The closest active futures contracts, i.e. those that expire the soonest

Negative Sloping Yield Curve
A yield curve where interest rates in the shorter dates are above those in the longer dates

Net Interest Rate Differential
The difference in interest rates from the countries of two different currencies. For example, if the spot next rate for the Euro is 3.25% and the spot/next rate in the US is 2.00%, the interest differential is 1.25% (3.25% - 2.00% = 1.25%).

Netting
The method of settling under which only the differences in the traded currencies are settled at the close

Net Position
The amount of currency bought or sold which have not yet been offset by opposite transactions.

Next Best Price Stop-loss
A stop-loss order which must be executed after the request level was reached

Nominal Quotation
Used in Futures markets to refer to the estimated price for a future month or date for which there is no bid, ask or trade price

Nominee Name
Name in which a security is registered and held in trust on behalf of the beneficial owner

Nostro Account
A foreign currency current account maintained with another bank. The account is used to receive and pay currency assets and liabilities denominated in the currency of the country in which the bank is resident.

Non Client Order
An order on an exchange that is made by a participant firm or on behalf of a partner, officer, director, or employee of the participant firm. Where a participant firm is a firm that is entitled to trade on the exchange, also known as a member firm. While these orders are allowed, priority must be given to client orders for the same securities.

Note
A financial instrument consisting of a promise to pay rather than an order to pay or a certificate of indebtedness

Notice Day
Any day on which notices of intent to deliver on futures contracts may be issued

M

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FOREX GLOSSARY

M1
Cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities.

M2
Includes demand deposits time deposits and money market mutual funds excluding large CDs

M3
In the UK it is M1 plus public and private sector time deposits and sight deposits held by the public sector.

M4
In the US it is M2 plus negotiable CDs.

Maintenance Margin
The minimum margin, which an investor must keep at forex company to maintain an open position

Managed Float
When the monetary authorities intervene regularly in the market to stabilize the rates or to aim the exchange rate in a required direction.

Margin
The required equity that an investor must deposit to collateralize a position

Margin Account
An account that allows leverage buying on credit and borrowing on currencies already in the account. Buying on credit and borrowing are subject to standards established by the firm carrying the account. Interest is charged on any borrowed funds and only for the period of time that the loan is outstanding.

Margin Call
A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse exchange rate movements

Marginal Risk
The risk that a customer goes bankrupt after entering into a forward contract. In such an event the issuer must close the commitment running the risk of having to pay the marginal movement on the contract

Market Amount
The minimum amount conventionally dealt for between banks.

Mark to Market
The daily adjustment of an account to reflect unrealized profits and losses.

Market Maker
A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.

Market Order
An order to buy/sell at the best price available when the order reaches the market.

Market Close
This refers to the time of day that a market closes. In the 24 hour-a-day foreign exchange market, there is no official market close. 5:00 PM EST is often referred to and understood as the market close because value dates for spot transactions change to the next new value date at that time.

Market Rate
The current quote of a currency pair.

Market Risk
The risks that occur when general market pressures cause the value of an investment to fluctuate.

Marry
Where a dealer is able to match two customer deals which off set one another.

Marshall – Lerner
A model that states that if the sum of the elasticity's of demand for a country's and that of the imports exceed one, then devaluation will have a positive effect upon the trade balance.

Matched Book
If the distribution of the maturities of a banks liabilities equal that of its assets , it is said to be running a matchedbook.

Matching
The process of ensuring that purchases and sales in each currency and deposits given and taken in each currency are in balance, by amount and maturity.

Matching System
Electronic Systems duplicating the traditional brokers market. A price shown by a bank is available to all trades.

Maturity Date
The date on which payment of a financial obligation is due.

Mid-price or Middle Rate
The price half-way between the two prices, or the average of both buying and selling prices offered by the market makers.

Minimum price fluctuation
The smallest increment of market price movement possible in a given futures contract.

Minimum Reserve
Reserves required to be deposited at central banks by commercial banks and other financial institutions. Sometimes referred to as Registered Reserves
Mismatch
(1) A mismatch between the interest rate maturities of a banks assets and liabilities.
(2) Forward purchases differ in the value date from the forward sales in a given currency.

MITI
Japanese ministry of International Trade & Industry.

Momentum
The tendency of a currency pair to continue movement in a single direction.

Money Markets/MM
Refers to investments that are short-term (i.e. under one year) and whose participants include banks and other financial institutions. Examples include Deposits, Certificates of Deposit, Repurchase Agreements, Overnight Index Swaps and Commercial Paper. Short-term investments are safe and highly liquid.

Money Market Operations
Comprises the acceptance and re-lending of deposits on the money market

Money Supply
The amount of money in the economy, which can be measured in a number of ways. See definitions of M0-M4.

Monetarism
A school of economics which believes that strict control of money supply is the principal tool for implementing monetary policy, especially against inflation. Policies include cuts in public spending and high interest rates.

Monetary Base
Currency in circulation plus banks' required and excess deposits at the central bank

Monetary Easing
A modest loosening of monetary constraint by changing interest rate, money supply, deposit ratios.

Money Supply
Money supply figures, and M1 specifically, once were the most important release to watch in the Treasury market, as the Fed directly targeted M1 growth in the early 1980s. The focus on money supply has long since been abandoned, however. To the extent that money supply is still monitored by the market, M2 is the favored monetary aggregate. The Fed still targets both M2 and M3 in a rhetorical sense, but these targets mean little when it comes to policy decisions. If the Fed misses its target, it is more likely to change the target than it is to change policy. In 2000, the Fed finally abandoned the targets altogether, thereby removing any remaining emphasis on this one-time star release.

MPC - Monetary Policy Committee
A committee of the central bank that is responsible for the monetary policy decisions.

Monetary Union
An agreement between countries to maintain a fixed exchange rate between their currencies. A process which the EMS is intended to lead to, especially after the Maastricht Treaty.

Most Favored Nation (MFN)
An undertaking to give the rate of tariff concession offered to members of the GATT. More concessionaire rates can exist

Moving Average
A way of smoothing a set of price/rate data by taking the average price of data range of values.

L

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FOREX GLOSSARY

Ladder
Dealers analysis of the forward book or deposit book showing every existing deal by maturity date, and the net position at each future date arising.

Lagging Indicator
A measure of economic activity which tends to change after change has occurred in the overall economy e.g. CPI.

Last Trading Day
The day on which trading ceases for an expiring contract.

Lay Off
To carry out a transaction in the market to offset a previous transaction and return to a square position.

Leading Indicators
Economic variables that are considered to predict future economic activity (i.e. Unemployment, Consumer Price Index, Producer Price Index, Retail Sales, Personal Income, Prime Rate, Discount Rate, and Federal Funds Rate).

Leads and Lags
The effect on foreign trade payments of an anticipated move in the exchange rate, normally a devaluation. Then payment of imports is faster and export receipts is slowed down.

Left-hand side
Taking the left hand side of a two way quote i.e. selling the quoted currency

Leverage
Also called margin. The ratio of the amount used in a transaction to the required security deposit

Liability
In terms of foreign exchange , the obligation to deliver to a counterparty an amount of currency either in respect of a balance sheet holding at a specified future date or in respect of an un-matured forward or spot transaction.

Libor - London InterBank Offered Rate
The London Inter-Bank Offered Rate. Large international banks use LIBOR when borrowing from another bank.

Life of Contract
The period between the beginning of trading in a particular future and the expiration of trading

LIFFE
London International Financial Futures Exchange

Limit Down
The maximum price decline from the previous trading day's settlement price permitted in one trading session.
Limit Move
A price that has advanced or declined the permissible limit permitted during one trading session.

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 110.00/06, then a limit order to buy USD would be at a price below 110. (ie 109.20)

Limit Price
The price that the client specifies when entering a limit order.

Limit Up
The maximum price advance from the previous trading day's settlement price permitted in one trading session

Limited Convertibility
When residents of a country are prohibited from buying other currencies even though non-residents may be completely free to buy or sell the national currency.

Liquid
The condition in the market where there is ample amount of volume to buy or sell

Liquidation
The closing of an existing position through the execution of an offsetting transaction

Liquidation Level
The account value level that initiates the liquidation of all the client's open position at the best price or exchange rate available at that moment. Liquidation occurs when the Account Value is not sufficient to maintain the current open position(s). A client can prevent liquidation by depositing additional margin into the account, or by closing out existing open position(s).

Liquidity
The ability of a market to accept large transaction with minimal to no impact on price stability.

Locked Market
A market is locked when the bid price equals the asked price.

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

Long Dated Shorts
A forward purchase and sale with a brief uncovered position between them. This may also be referred to as long short dates.

Long Hedge
The purchase of futures contracts for price protection purposes, as a defensive position against an increase in cash prices, or falling interest rates

Long Position
A position that appreciates in value if market prices increase. When the base currency in the pair is bought, the position is said to be long.

Loonie
The Canadian Dollar.

Loss in Excess of their Margin Deposit
There exists the opportunity for clients to lose more than the margin that they initially pledge to open and maintain a position.

Lot
A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.

I

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FOREX GLOSSARY

ICCH
International Commodities Clearing House Limited, a clearing house based in London operating world wide for many futures markets.

IFEMA
International Foreign Exchange Master Agreement

IMF - International Monetary Fund
The IMF is an international organization of 184 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment

IMM
International Monetary Market, part of the Chicago Mercantile Exchange that lists a number of currency and financial futures' implied volatility. A measurement of the market's expected price range of the underlying currency futures based on the traded-option premiums.

Implied Rates
The interest rate determined by calculating the difference between spot and forward rates.

In-the-money
An option contract that has intrinsic value.

Inconvertible Currency
Currency which cannot be exchanged for other currencies, either because this is forbidden by the foreign exchange regulations

Index Linking
The process of linking wages, social benefits payments, prices, interest rates or loan values to an economic index, usually of prices.

Indicative quote
A market-maker's price which is not firm.

Inflation
An economic condition where there is an increase in the price of consumer goods, thereby eroding purchasing power.

Initial Margin
The initial deposit of collateral required to enter into a position as a guarantee on future performance

Initial Margin Requirement
The minimum portion of a new security purchase that an investor must pay for in cash.

Interbank Market
The interbank market is the over-the-counter market of dealers that make markets in foreign exchange to one another.

Interbank Rates
The Foreign Exchange rates at which large international banks quote other large international banks

Inter-dealer Broker
A specialist broker who acts as an intermediary between market-makers who wish to buy or sell securities to improve their book positions, without revealing their identities to other market-makers.

Interest Arbitrage
Switching into another currency by buying spot and selling forward, and investing proceeds in order to obtain a higher interest yield. Interest arbitrage can be inward, i.e. from foreign currency into the local one or outward, i.e. from the local currency to the foreign one. Sometimes better results can be obtained by not selling the forward interest amount. In that case, some treat it as no longer being a complete arbitrage, as if the exchange rate moved against the arbitrageur, the profit on the transaction may create a loss.

Interest Parity
One currency is in interest parity with another when the difference in the interest rates is equalised by the forward exchange margins. For instance, if the operative interest rate in Japan is 3% and in the UK 6%, a forward premium of 3% for the Japanese Yen against sterling would bring about interest parity

Interest Rate Cap
An agreement that provides the buyer of a cap with a maximum interest rate for future borrowing requirements.

Interest Rate Collar
A combination of a cap and a floor to provide maximum and minimum interest rates for borrowing or lending.
Interest Rate Floor
An agreement which provides the buyer of the floor with a minimum interest rate for future lending requirements.

Interest Rate Option
An agreement permitting a party to obtain a particular interest rate, issued both OTC and by exchanges.

Interest Rate Swaps
An agreement to swap interest rate exposures from floating to fixed or vice versa. There is no swap of the principal. It is the interest cash flows, whether payments or receipts are exchanged.

Intervention
Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.

Intraday Limit
Limit set by bank management on the size of each dealer's Intra Day Position.

Intra Day Position
Open positions run by a client Usually squared within the day by the close.

Intrinsic Value
The difference between the strike price and the underlying fx spot contract rate (American Style Options) or the fx forward rate (European Style Options). The intrinsic value represents the actual value of the option if exercised. Please note that the intrinsic value must be zero (0) or above - if an option has no intrinsic value, then the option is simply referred to as having no (or zero) intrinsic value (the intrinsic value is never represented as a negative number).

Inverted Market
Where short term instruments are trading at premiums to long term instruments.

Introducing Broker
A person or legal entity that introduces customers to forex company often in return for compensation in terms of a fee per transaction .introducing broker are prevented from accepting margined funds from their clients.

IRS - Interest Rate Swaps
An exchange of two debt obligations that have different payment streams. The transaction usually exchanges two parallel loans; one fixed the other floating.

H

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FOREX GLOSSARY

Hard Currency
A currency whose value is expected to remain stable or increase in terms of other currencies.

Head and shoulders
A pattern in price trends which chartists consider indicating a price trend reversal. The price has risen for some time, at the peak of the left shoulder, profit-taking has caused the price to drop or level. The price then rises steeply again to the head before more profit-taking causes the the price to drop to around the same level as the shoulder. A further modest rise or level will indicate that a further major fall is imminent. The breach of the neckline is the indication to sell.

Hedge
A position or combination of positions that reduces the risk of your primary position

Hedge Ratio
The number of futures or options required to hedge a given exposure in the cash market.

High/Low
Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day

Hit the bid
Term used to describe the action of a seller of a currency pair when wanting to sell at the market bid side.

Holder
Buyer of a currency pair.

G

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FOREX GLOSSARY

G5
The five leading industrial countries, being US, Germany, Japan, France, UK

G7
The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.

G10
G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.

Gap
The price Gap between consecutive trading ranges ( i.e. the low of the current range is higher than the high of the previous range)

GDP - Gross Domestic Product
Total value of a country's output, income or expenditure produced within the country's physical borders

GNP - Gross National Product
Gross domestic product plus income earned from investment or work abroad.

Globex
A system for global after hours electronic trading in futures and options developed by Reuters for CME and CBOT for use in conjunction with various exchanges around the world.

Gold Standard
The original system for supporting the value of currency issued. The way that where the price of gold is fixed against the currency it means that the increased supply of gold does not lower the price of gold but causes prices to increase.

Gold Tranche
Part of the country quota for IMF members that had to be paid in gold. This was normally 25% of the quota, the remainder being in domestic currency. The Gold Tranche was automatically available to members without condition.

Golden Cross
An intersection of two consecutive moving averages which move in the same direction and suggest that the currency will move in the same direction

Going long
The act of buying a currency pair. For example, if a client bought the GBP/USD, he would be “going long” the GBP.

Going short
The act of selling a currency pair. For example, if a client sold the GBP/USD, he would be “going short” the GBP.

GTC - Good-Till-Cancelled
An order left with a Dealer to buy or sell at a fixed price. The GTC will remain in place until executed or cancelled.

Gross Settlement
A process where full payment of each transaction is made rather than clearing a group of transactions as currently occurs in the FX market. A method designed to eliminate capital risk.

F

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FOREX GLOSSARY

Factory Orders
An economic indicator which refers to the total orders of durable and nondurable goods. The nondurable goods orders consist of food , clothing , light industrial products and products designed for the maintenance of the durable goods.

FASB #8 (Financial Accounting Standards Board's Statement Number 8
The original accounting rules regarding foreign exchange were standardized in 1975, which set the procedures for foreign currency translations into US Dollars in the consolidated balance sheets of US multinational corporations.

Fast market
The rapid movement of prices or rates in a market caused by disequilibria in supply and demand conditions from buyers and/or sellers. In such circumstances rates or prices may not be readily available to clients until orderly markets resume.

Fed Fund Rate
The short term (overnight) rate pegged by the Federal Reserve Bank used to conduct monetary policy and affect changes in the money supply that causes changes in the level of activity in the United States economy.

Fed Funds
Cash balances held by banks with their local Federal Reserve Bank.

Fed - Federal Reserve
The Central Bank for the United States.

Federal Deposit Insurance Corporation (FDIC )
The regulatory agency responsible for administering bank depository insurance in the US.

Federal Reserve Board
The board of the Federal Reserve System, appointed by the US President for 14 year terms, one of whom is appointed for four years as chairman.

Federal Reserve System
The central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board. Membership of the Fed is compulsory for banks chartered by the Comptroller of Currency and optional for state chartered banks.

Fedwire
An automated communications and settlement system linking the Federal Reserve banks with other banks and with depository institutions.

Fill or Filled
A deal that has been executed on behalf of a Customer's Account given a Customer's Order. Once filled, an Order cannot be canceled, amended or waived by Customer.

Fill Price
The price at which a buy or sell order was executed.

Financial Risk
The risk that a firm will be unable to meet its financial obligations.

Finex
A currency market part of the New York Cotton Exchange (NYCE), the oldest futures exchange in New York. The exchange lists futures on the European Currency Unit and the USDX a basket of 10 currencies.

Firm Quotation
A verbal price given in response to a request for a firm rate at which the quoting party is willing to execute a deal for a reasonable amount for spot settlement.

First In First Out (FIFO)
Open positions are closed according to the FIFO accounting rule. All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.

Fiscal Policy
Use of taxation as a tool in implementing monetary policy

Fixed dates
The monthly calendar dates similar to the spot. There are two exceptions. For detailed description see value dates.

Fixed Exchange Rate (Representative Rate )
An official exchange rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.

Fixing
A method of determining rates by normally finding a rate that balances buyers to sellers. Such a process occurs either once or twice daily at defined times. Used by some currencies particularly for establishing tourist rates.

Flat (Square, Balanced)
To be neither long nor short is the same as to be flat or square. One would have a flat book if he has no positions or if all the positions cancel each other out.

Flexible exchange rate
Exchange rates with a fixed parity against one or more currencies with frequent revaluations. A form of managed float.

Floating exchange rate
An exchange rate where the value is determined by market forces. Even floating currencies are subject to intervention by the monetary authorities. When such activity is frequent, the float is known as a dirty float.

FOMC - Federal Open Market Committee
The Federal Reserve monetary committee. The body of individuals that decide the course of monetary policy that will be conducted in United States. The FOMC is directly responsible for pegging the Federal Funds rate and the Discount Rate. Both rates are influential in controlling the levels of money supply growth and the levels of economic activity in the United States.

Forex - Foreign Exchange
The simultaneous buying of one currency and selling of another in an over-the-counter market. Most major FX is quoted against the US Dollar.

Forex Club
Groups formed in the major financial centers to encourage educational and social contacts between foreign exchange dealers, under the umbrella of Association Cambiste International.

Forward
The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.

Forward Deal
A deal with a value date greater than the spot value date.

Forward Margins
Discounts or premiums between spot rate and the forward rate for a currency. Normally quoted in points.

Forward Operation
Foreign exchange transactions, on which the fulfillment of the mutual delivery obligations is made on a date later than the second business day after the transaction was concluded.

Forward Outright
A commitment to buy or sell a currency for delivery on a specified future date or period. The price is quoted as the spot rate minus or plus the forward points for the chosen period.

Forward Points
The pips added to or subtracted from the current exchange rate to calculate a forward price.

Forward Rate/Forward Price
Forward rates are quoted in terms of forward points, which represents the difference between the forward and spot rates. In order to obtain the forward rate from the actual exchange rate the forward points are either added or subtracted from the exchange rate.
The decision to subtract or add points is determined by the differential between the deposit rates for both currencies concerned in the transaction. The base currency with the higher interest rate is said to be at a discount to the lower interest rate quoted currency in the forward market. Therefore, the forward points are subtracted from the spot rate. Similarly, the lower interest rate base currency is said to be at a premium, and the forward points are added to the spot rate to obtain the forward rate.

FRA - Forward Rate Agreements
FRA`s are transactions that allow one to borrow/lend at a stated interest rate over a specific time period in the future.

Fundamentals
The macro economic factors that are accepted as forming the foundation for the relative value of a currency, these include inflation, growth, trade balance, government deficit, and interest rates.

FX
FX" is a popular acronym for Foreign Exchange. Foreign Exchange generally refers to off exchange trading in foreign currency. It may also refer to currency trading on exchanges such as the IMM at the Chicago Mercantile Exchange.

Fundamental Analysis
Analysis of economic and political information with the objective of determining future movements in a financial market.

Futures Contract
An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contacts - ETC), versus forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.

E

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FOREX GLOSSARY

Easing
A decline in interest rates initiated by the central.

EBS
Electronic Brokerage System", the electronic system on which major banks trade with each other. This is considered to be the most definitive indicator of prices at which currencies are "really" trading, at least for EUR/USD and USD/JPY.

ECB - European Central Bank
The Central Bank for the European Monetary Union.

Economic Exposure
Reflects the impact of foreign exchange changes on the future competitive position of a company.

Economic Indicator
A statistic that indicates current economic growth and stability issued by the government or a non-government institution (i.e. Gross Domestic Product (GDP), Employment Rates, Trade Deficits, Industrial Production, and Business Inventories).
The principal goal of the EMU is to establish a single European currency called the Euro, which will officially replace the national currencies of the member EU countries in 2002. On Janaury1, 1999 the transitional phase to introduce the Euro began. The Euro now exists as a banking currency and paper financial transactions and foreign exchange are made in Euros. This transition period will last for three years, at which time Euro notes an coins will enter circulation. On July 1,2002, only Euros will be legal tender for EMU participants, the national currencies of the member countries will cease to exist. The current members of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal.

ECU
European Currency Unit.

Either way market
In the Euro Interbank deposit market where both bid and offer rates for a particular period are the same.

End Of Day (Mark-to-Market)
Traders account for their positions in two ways: accrual or mark-to-market. An accrual system accounts only for cash flows when they occur, hence, it only shows a profit or loss when realized. The mark-to-market method values the trader`s book at the end of each working day using the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start the next day with a net position.

Euro
The currency of the European Monetary Union (EMU) which replaced the European Currency Unit (ECU).

Eurocurrency
A currency deposited outside its country of origin.

Eurodollars
US dollars deposited in a bank (US or non US) located outside the USA.

European Monetary System (EMS)
A system designed to stabilize, if not eliminate, exchange risk between member states of the EMS as part of the economic convergence policy of the EU. It permits currencies to move in a measured fashion (divergence indicator) within agreed bands (the parity grid) with respect to the ECU and consequently with each other.

European Union
The group formerly known as the European Community.

Euro Rates
The interest rates quoted for Euro-currencies over specific periods.

Exchange
A physical location where instruments are traded and often regulated. Examples: the New York Stock Exchange, the Chicago Board of Trade.

Exchange control
A system of controlling inflows and out flows of foreign exchange, devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges.

Execution
The Process of completing an order or deal.

Execution Date
The date on which a trade occurs.

Exotic
A less broadly traded currency

Exposure
(i) Net working capital - The current assets in a foreign currency minus current liabilities in the currency;
(ii) Net financial method - The current assets in a foreign currency minus current liabilities and long term debt in the currency;
(iii) Monetary/non-monetary method - Monetary assets and liabilities in the foreign currency are valued at present exchange rates, while non-monetary items are entered at the relevant historic rates.

Extrinsic Value
Commonly referred to as the "time" value and is defined as the value of an option beyond the intrinsic value.

D

2008-08-29T18:51:00.000-07:00

FOREX GLOSSARY

Day Order
An order that if not executed on the specific day is automatically canceled.

Day Trade
A trade opened and closed on the same trading day.

Day Trader
A trader who buys and sells on the basis of small short-term price movements.

Day Trading
Opening and closing the same position or positions within the same trading session.

Deal Blotter
listing of all the deals that were executed over a specified time period, usually the trading day.

Deal date
The date on which a transaction is agreed upon.

Deal Ticket
The primary method of recording the basic information relating to a transaction.

Dealer
An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission

Dealing Desk
Generally speaking, the collection of dealers working for forex company that facilitate the pricing and execution of customer orders.

Declaration Date
The latest day or time by which the buyer of an option must indicate to the seller his intention to the option.

Default
Generally speaking a breach of contract.

Deficit
A negative balance of trade or payments.

Delivery
An actual delivery where both sides transfer possession of the currencies traded.

Delivery Date
The date of maturity of the contract, when the exchange of the currencies is made. This date is more commonly known as the value date in the FX or money markets.

Delivery Month
The calendar month in which a futures contract comes to maturity and becomes deliverable.

Delivery Points
Those locations designated by futures exchanges at which the currency represented by a futures contract may be delivered in fulfilment of the contract

Delivery Risk
A term to describe when a counterparty will not be able to complete his side of the deal, although willing to do so.

Delta
The change in price of an option relative to a change in the underlying fx spot rate.

Deposit
The borrowing and lending of cash. The rate that money is borrowed/lent at is known as the deposit rate (or depo rate). Certificates of Deposit (CD`S) are also tradable instruments.

Depreciation
A decline in the value of a currency due to market forces

Depth of market
A measure of the size of volume available for transaction purposes for a particular currency pair at a specific point in time.

Desk
Term referring to a group dealing with a specific currency or currencies.

Details
All the information required to finalize a foreign exchange transaction, i.e. name, rate, and dates

Derivative
A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument

Devaluation
The deliberate downward adjustment of a currency's price, normally by official announcement

Direct Quotation
Quoting in fixed units of foreign currency against variable amounts of the domestic currency.

Dirty Float
Floating a currency when the rate is controlled by intervention by the monetary authorities.

Discount Rate
The interest rate at which eligible depository institutions may borrow funds directly from the Federal Reserve Banks. This rate is controlled by the Federal Reserve and is not subject to trading.

Discount
Forward rate is lower than spot rate (2) an option that is trading for less than its intrinsic value.

Discreationary Account
An account in which the customer permits a trading institution to act on the customer's behalf in buying and selling currency pairs. The institution has discretion as to the choice of currency pairs, prices, and timing-subject to any limitations specified in the agreement.

Discretionary Income
Net of tax and fixed personal spending commitments.

DM, DMark
Deutsche Mark

Domestic Rates
The interest rates applicable to deposits in the country of origin.

Double
An option either to buy or sell an instrument or currency at a specified price. The exercise of the right to sell causes the right to buy to expire and vice versa

Down tick
sale of a security (usually an equity or stock) at a price lower than the previous one.

Durable Goods Order
An economic indicator which measures the changes in sales of products with a life span in excess of three years.

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2008-08-29T18:49:00.000-07:00

FOREX GLOSSARY

Cable
Trader jargon for the British Pound Sterling referring to the Sterling/US Dollar exchange rate. Term began due to the fact that the rate was originally transmitted via a transatlantic cable starting in the mid 1800`s

Calender Spread
An option position comprised of purchase and sale of two option contracts of the same type with different expiration dates at the same exercise price.

Calender Combination
An option position comprised of purchase and sale of two option contracts of the same type with different expiration dates at the same exercise price.

Carry
The interest cost of financing securities or other financial instruments held.

Cash
normally refers to an exchange transaction contracted for settlement on the day the deal is struck.

Cash and Carry
The buying of an asset today and selling a future contract on the asset. A reverse cash and carry is possible by selling an asset and buying a future.

Cash Delivery
Same day settlement.

Cash on Deposit
Cash on Deposit equals the amount of funds deposited in the account, plus or minus the realized closed position P/L and other debits or credits such as rollovers;and commission

Cash Market
The market in the actual financial instrument on which a futures or options contract is based.

Cash Settlement
A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.

Candlestick Chart
A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.

Capital Account
position of the long and short term capital imports and exports of a country.

Capital Markets
Markets for medium to long term investment (usually over 1 year). These tradable instruments are more international than the �money market� (i.e. Government Bonds and Eurobonds).

Central Bank
A government or quasi-governmental organization that manages a country`s monetary policy a prints a nations currency. For example, the US central bank is the Federal Reserve, others include the ECB, BOE, BOJ.

Central Bank Intervention
The act by which a central bank or central banks enter the spot foreign exchange market and attempt to influence unbalanced supply and demand forces through the direct purchase (or sale) of foreign exchange.

Central Rate
Exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.

CHIPS
(Clearinghouse House Interbank Payment System) A computerised system used for foreign exchange dollar settlements.

CHAPS
Clearing House Automated Payment System.

CFTC
The Commodity Futures Trading Commission, the US Federal regulatory agency for futures traded on commodity markets, including financial futures.

Chartist
An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader

Choice Market
A market with no spread.All trades buys and sells occur at that one price

Clean Float
An exchange rate that is not materially affected by official intervention.

Cleared Funds
Funds that are freely available, sent in to settle a trade.

Clearing
The process of settling a trade.

Closed Position
Exposures in Foreign Currencies that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will 'square' the position

Closing Market Rate
The rate at which a position can be closed based on the market price at end of the day.

CME
Chicago Mercantile Exchange

Collateral
Something given to secure a loan or as a guarantee of performance

Commission
A transaction fee charged by a broker

Confirmation
A document exchanged by counterparts to a transaction that confirms the terms of said transaction

Contagion
The tendency of economic crisis to spread from one market to another. In 1997,political instability in Indonesia caused high volatility in their domestic currency,the Rupiah. From there,the contagion spread to other Asian emerging currencies,and then to Latin America,and is now referred to as the ‘Asian Contagion

Contract
The standard unit of trading.

Consumer Price Index
Monthly measure of the change in the prices of a defined basket of consumer goods including food, clothing, and transport. Countries vary in their approach to rents and mortgages.

Conversion arbitrage
A transaction where the asset is purchased and buys a put option and sells a call option on the asset purchased, each option having the same exercise price and expiry.

Conversion Rate
The rate for a specific currency pair that is used to convert (or sweep) non-US dollar profits/losses into dollars at the end of a trading day.

Correlation
A statistical measure referring to the relationship between two or more variables (events, occurrences etc.). A correlation between two variables suggests some causal relationship between these variables. Typically the Swiss Franc is closely correlated with the German Mark.

Correspondent Bank
The foreign banks representative who regularly performs services for a bank which has no branch in the relevant center, e.g. to facilitate the transfer of funds.

Cost of Carry/Interest/Premium
The interest rate parity, where the forward price is determined by the cost of borrowing money in order to hold the position.

Counter Currency
The second currency in a currency pair. In the Currency Pair EUR/USD, the Counter Currency is the USD.

Counter Party
The participant, either a bank or customer, with whom the financial transaction is made.

Country Risk
The risk attached to a transaction by virtue of its association to a particular country. This involves examination of economic, political and geographical factors of a particular country.

Counter Value
Where a person buys a currency against the dollar, it is the dollar value of the transaction.

Cover
The act of performing a transaction that closes out a position.

Covered Arbitrage
Arbitrage between financial instruments denominated in different currencies, using forward cover to eliminate exchange risk.

Covered Margin
The interest rate margin between two instruments denominated in different currencies after taking account of the cost of forward cover.

Credit Risk
The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised to be delivered.

Cross Currency Contract
A spot contract to purchase or sell one foreign currency in exchange for another specific foreign currency. The currencies exchanged are not the US Dollar.

Cross Rate
An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary
currency pairs traded.

Currency
Any form of money issued by a government or central bank and used as legal tender and a basis for trade.

Currency Pair
The two currencies that make up a foreign exchange rate. For Example, EUR/USD

Currency Risk
The risk of incurring losses resulting from an adverse change in exchange rates

Currency Swap
Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity

Currency Swaption
OTC Option to enter into a currency swap contract

Currency Symbols
AUD - Australian Dollar
CAD - Canadian Dollar
EUR – Euro
JPY - Japanese Yen
GBP - British Pound
CHF - Swiss Franc

Currency Warrant
OTC Option; long-dated (more than one year) currency option.

Current Account
The net balance of a country's international payment arising from exports and imports, together with unilateral transfers such as aid and migrant remittances. It excludes capital flows.

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2008-08-29T06:30:00.000-07:00

FOREX GLOSSARY

Account
Record of all transactions

Account Balance
Amount of money in an account

Account Statement report
This report will give the client all the debit and credit activity that occurs in the client account over a user specified time period.

Account Status window
The Account Status Window is the window that shows the Margin Monitor. Including is account balances, and the unrealized profit/loss on open positions. It also has a numerical and graphical representations of the margin levels for the client given existing open positions.

Account Value
The current value of a customers account given the amount of money deposited and changes as a result of profits and losses from existing and closed out positions, credits and debits from daily rollover and charges from such things as commissions, transfer fees or bank related fees if applicable.

Accrual
The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (Interest Arbitrage) deals , over the period of each deal.
Adjustment
Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or. Adjustment - Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or.

Aggregate Demand
Total demand for goods and services in the economy. It includes private and public sector demand for goods and services within the country and the demand of consumers and firms in other countries for good and services.

Aggregate Risk
Size of exposure of a single customer to a market related movement.

Aggregate Supply
Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.

Appreciation
Describes a currency increasing or strengthening in response to a market reaction

Arbitrage
Taking advantage of countervailing prices in different markets by the purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market to profit from small price differentials

Around
Dealer jargon used in quoting when rhe forward premium/discount is near parity.For example,”two-two around would translate into 2 points to either side of the present spot

Asset Allocation
Dividing funds among different investment alternatives in order to attempt to achieve diversification or maximum return.

Ask, Offer
The price, or rate, that a willing seller is prepared to sell at

Association Cambiste Internationale
The international society of foreign exchange dealers consisting of national "Forex clubs" affiliated on a worldwide basis.

At best
A specific instruction given to a dealer to buy or sell at the best rate that can be obtained. The term is synonymous with the term “at the market” or is implied by the customer issuing a market order.

At or Better
An order to deal at a specific rate or better.

At the Price Stop-Loss Order
A stop-loss order that must be executed at the requested level regardless of market conditions

Ausie
The Australian Dollar

Authorized dealer
A financial institution or bank authorized to deal in foreign exchange.

Average Rate Option
A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an "Asian option".