B C D E
F G H I
J K L M
N O P Q
R S T U
V W X Y
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.
Appreciation - A currency is said to ’appreciate’ when
it strengthens in price in response to market demand.
Arbitrage - The purchase or sale of an instrument and
simultaneous taking of an equal and opposite position in a related
market, in order to take advantage of small price differentials between
Ask (Offer) Price - The price at which the market is
prepared to sell a specific Currency in a Foreign Exchange Contract
or Cross Currency Contract. At this price, the trader can buy the
base currency. In the quotation, it is shown on the right side of
the quotation. For example, in the quote USD/CHF 1.4527/32, the ask
price is 1.4532; meaning you can buy one US dollar for 1.4532 Swiss
At Best - An instruction given to a dealer to buy or
sell at the best rate that can be obtained.
At or Better - An order to deal at a specific rate or
Balance of Trade - The value of a country’s exports
minus its imports.
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 first currency in a Currency Pair.
It shows how much the base currency is worth as measured against the
second currency. For example, if the USD/CHF rate equals 1.6215 then
one USD is worth CHF 1.6215 In the FX markets, 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. The primary exceptions to this rule are the British Pound, the
Euro and the Australian Dollar.
Bear Market - A market distinguished by declining prices.
Bid Price - The bid is the the price at which the market
is prepared to buy a specific Currency in a Foreign Exchange Contract
or Cross Currency Contract. At this price, the trader can sell the
base currency. It is shown on the left side of the quotation. For
example, in the quote USD/CHF 1.4527/32, the bid price is 1.4527;
meaning you can sell one US dollar for 1.4527 Swiss francs.
Bid/Ask Spread - The difference between the bid and
offer price. Big Figure Quote - Dealer expression referring
to the first few digits of an exchange rate. These digits are often
omitted in dealer quotes.. For example, a USD/JPY rate might be 117.30/117.35,
but would be quoted verbally without the first three digits i.e. "30/35".
Book - In a professional trading environment, a ’book’
is the summary of a trader’s or desk’s total positions.
Broker - An individual or firm that acts as an intermediary,
putting together buyers and sellers 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.
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.
Bull Market - A market distinguished by rising prices.
Bundesbank - Germany’s Central Bank.
Cable - Trader jargon referring to the Sterling/US Dollar
exchange rate. So called because the rate was originally transmitted
via a transatlantic cable beginning in the mid 1800’s.
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.
Cash Market - The market in the actual financial instrument
on which a futures or options contract is based.
Central Bank - A government or quasi-governmental organization
that manages a country’s monetary policy. For example, the US central
bank is the Federal Reserve, and the German central bank is the Bundesbank.
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.
Cleared Funds - Funds that are freely available, sent
in to settle 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 postion.
Clearing - The process of settling a trade.
Contagion - The tendency of an 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’.
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 states the terms of said transaction.
Contract - The standard unit of trading.
Counter Currency - The second listed Currency in a Currency
Counterparty - One of the participants in a financial
Country Risk - Risk associated with a cross-border transaction,
including but not limited to legal and political conditions.
Cross Currency Pairs or Cross Rate - A foreign exchange
transaction in which one foreign currency is traded against a second
foreign currency. For example; EUR/GBP
AUD - Australian Dollar
CAD - Canadian Dollar
EUR - Euro
JPY - Japanese Yen
GBP - British Pound
CHF - Swiss Franc
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 probability of an adverse change
in exchange rates.
Day Trader - Speculators who take positions in commodities
which are then liquidated prior to the close of the same trading day.
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.
Deficit - A negative balance of trade or payments.
Delivery - An FX trade where both sides make and take
actual delivery of the currencies traded.
Depreciation - A fall in the value of a currency due
to market forces.
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
Devaluation - The deliberate downward adjustment of
a currency’s price, normally by official announcement.
Economic Indicator - A government issued statistic that
indicates current economic growth and stability. Common indicators
include employment rates, Gross Domestic Product (GDP), inflation,
retail sales, etc.
End Of Day Order (EOD) - An order to buy or sell at
a specified price. This order remains open until the end of the trading
day which is typically 5PM ET.
European Monetary Union (EMU) - 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.
EURO - the currency of the European Monetary Union (EMU).
A replacement for the European Currency Unit (ECU).
European Central Bank (ECB) - the Central Bank for the
new European Monetary Union.
Federal Deposit Insurance Corporation (FDIC) - The regulatory
agency responsible for administering bank depository insurance in
Federal Reserve (Fed) - The Central Bank for the United
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.
Flat/square - Dealer jargon used to describe a position
that has been completely reversed, e.g. you bought $500,000 then sold
$500,000, thereby creating a neutral (flat) position.
Foreign Exchange - (Forex, FX) - the simultaneous buying
of one currency and selling of another.
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 Points - The pips added to or subtracted from
the current exchange rate to calculate a forward price.
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.
FX - Foreign Exchange.
G7 - The seven leading industrial countries, being US
, Germany, Japan, France, UK, Canada, Italy.
Going Long - The purchase of a stock, commodity, or
currency for investment or speculation.
Going Short - The selling of a currency or instrument
not owned by the seller.
Gross Domestic Product - Total value of a country’s
output, income or expenditure produced within the country’s physical
Gross National Product - Gross domestic product plus
income earned from investment or work abroad.
Good ’Til Cancelled Order (GTC) - An order to buy or
sell at a specified price. This order remains open until filled or
until the client cancels.
Hedge - A position or combination of positions that
reduces the risk of your primary position.
"Hit the bid" - Acceptance of purchasing at the offer
or selling at the bid.
Inflation - An economic condition whereby prices for
consumer goods rise, eroding purchasing power.
Initial Margin - The initial deposit of collateral required
to enter into a position as a guarantee on future performance.
Interbank Rates - The Foreign Exchange rates at which
large international banks quote other large international banks.
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
Kiwi - Slang for the New Zealand dollar.
Leading Indicators - Statistics that are considered
to predict future economic activity.
Leverage - Also called margin. The ratio of the amount
used in a transaction to the required security deposit.
LIBOR - The London Inter-Bank Offered Rate. Banks use
LIBOR when borrowing from another bank.
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 117.00/05, then a limit order to
buy USD would be at a price below 102. (ie 116.50)
Liquidation - The closing of an existing position through
the execution of an offsetting transaction.
Liquidity - The ability of a market to accept large
transaction with minimal to no impact on price stability.
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.
Lot - A unit to measure the amount of the deal. The
value of the deal always corresponds to an integer number of lots.
Margin - The required equity that an investor must deposit
to collateralize a position.
Margin Call - A request from a broker or dealer for
additional funds or other collateral to guarantee performance on a
position that has moved against the customer.
Market Maker - A dealer who regularly quotes both bid
and ask prices and is ready to make a two-sided market for any financial
Market Risk - Exposure to changes in market prices.
Mark-to-Market - Process of re-evaluating all open positions
with the current market prices. These new values then determine margin
Maturity - The date for settlement or expiry of a financial
Net Position - The amount of currency bought or sold
which have not yet been offset by opposite transactions.
Offer (ask) - The rate at which a dealer is willing
to sell a currency. See Ask (offer) price
Offsetting transaction - A trade with which serves to
cancel or offset some or all of the market risk of an open position.
One Cancels the Other Order (OCO) - A designation for
two orders whereby one part of the two orders is executed the other
is automatically cancelled.
Open order - An order that will be executed when a market
moves to its designated price. Normally associated with Good ’til
Open position - An active trade with corresponding unrealized
P&L, which has not been offset by an equal and opposite deal.
Over the Counter (OTC) - Used to describe any transaction
that is not conducted over an exchange.
Overnight Position - A trade that remains open until
the next business day.
Order - An instruction to execute a trade at a specified
Pips - The smallest unit of price for any foreign currency.
Digits added to or subtracted from the fourth decimal place, i.e.
0.0001. Also called Points.
Political Risk - Exposure to changes in governmental
policy which will have an adverse effect on an investor’s position.
Position - The netted total holdings of a given currency.
Premium - In the currency markets, describes the amount
by which the forward or futures price exceed the spot price.
Price Transparency - Describes quotes to which every
market participant has equal access.
Profit /Loss or "P/L" or Gain/Loss - The actual "realized"
gain or loss resulting fromtrading activities on Closed Positions,
plus the theoretical "unrealized" gain or loss on Open Positions that
have been Mark-to-Market.
Quote - An indicative market price, normally used for
information purposes only.
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,
typically used for dealing purposes.
Resistance - A term used in technical analysis indicating
a specific price level at which analysis concludes people will sell.
Revaluation - An increase in the exchange rate for a
currency as a result of central bank intervention. Opposite of
Risk - Exposure to uncertain change, most often used
with a negative connotation of adverse change.
Risk Management - the employment of financial analysis
and trading techniques to reduce and/or control exposure to various
types of risk.
Roll-Over - 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.
Round trip - Buying and selling of a specified amount
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.
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.
Spot Price - The current market price. Settlement of
spot transactions usually occurs within two business days.
Spread - The difference between the bid and offer prices.
Square - Purchase and sales are in balance and thus
the dealer has no open position.
Sterling - slang for British Pound.
Stop Loss Order - Order type whereby an open position
is automatically liquidated at a specific price. Often used to minimize
exposure to losses if the market moves against an investor’s position.
As an example, if an investor is long USD at 156.27, they might wish
to put in a stop loss order for 155.49, which would limit losses should
the dollar depreciate, possibly below 155.49.
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 - A currency swap is the simultaneous sale and
purchase of the same amount of a given currency at a forward exchange
Swissy - Market slang for Swiss Franc.
Technical Analysis - An effort to forecast prices by
analyzing market data, i.e. historical price trends and averages,
volumes, open interest, etc.
Tick - A minimum change in price, up or down.
Tomorrow Next (Tom/Next) - Simultaneous buying and selling
of a currency for delivery the following day.
Transaction Cost - the cost of buying or selling a financial
Transaction Date - The date on which a trade occurs.
Turnover - The total money value of all executed transactions
in a given time period; volume.
Two-Way Price - When both a bid and offer rate is quoted
for a FX transaction.
Unrealized Gain/Loss - The theoretical gain or loss
on Open Positions valued at current market rates, as determined by
the broker in its sole discretion. Unrealized Gains’ Losses become
Profits/Losses when position is closed.
Uptick - a new price quote at a price higher than the
Uptick Rule - In the U.S., a regulation whereby a security
may not be sold short unless the last trade prior to the short sale
was at a price lower than the price at which the short sale is executed.
US Prime Rate - The interest rate at which US banks
will lend to their prime corporate customers.
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.
Variation Margin - Funds a broker must request from
the client to have the required margin deposited. The term usually
refers to additional funds that must be deposited as a result of unfavorable
Volatility (Vol) - A statistical measure of a market’s
price movements over time.
Whipsaw - slang for a condition of a highly volatile
market where a sharp price movement is quickly followed by a sharp
Yard - Slang for a billion.