--- A ---
Accrual - The apportionment of premiums and discounts
on forward exchange transactions that relate directly to
deposit swap (Interest Arbitrage) deals , over the period of
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 markets.
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 francs.
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
--- B ---
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
Bid Price - The bid is 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
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
Bundesbank - Germany's Central Bank.
--- C ---
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 Pair.
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
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.
--- D ---
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 instrument.
Devaluation - The deliberate downward adjustment of a
currency's price, normally by official announcement.
--- E ---
- 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
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.
--- F ---
Federal Deposit Insurance
Corporation (FDIC) - The regulatory agency responsible for
administering bank depository insurance in the US.
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.
--- G ---
G7 - The seven leading
industrial countries, being US , Germany, Japan, France, UK, Canada,
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 borders.
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.
--- H ---
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.
--- I ---
Inflation - An economic
condition whereby prices for consumer goods rise, eroding purchasing
Initial Margin - The initial deposit of collateral
required to enter into a position as a guarantee on future
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.
--- L ---
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 numbe
--- M ---
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
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
Maturity - The date for settlement or expiry of a financial
--- N ---
Net Position - The
amount of currency bought or sold which have not yet been offset by
--- O ---
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 Cancelled Orders.
Open position - An active trade with corresponding
unrealized P&L, which has not been offset by an equal and opposite
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
- The smallest unit of price for any foreign currency. Digits added
to or subtracted from the fourth decimal place, i.e. 0.0001. Also
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.
--- Q ---
Quote - An indicative market
price, normally used for information purposes only.
--- R ---
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 Devaluation.
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
--- S ---
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
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
Swap - A currency swap is the simultaneous sale and purchase
of the same amount of a given currency at a forward exchange rate.
Swissy - Market slang for Swiss Franc.
--- T ---
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
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.
--- U ---
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
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.
--- V ---
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 price movements.
Volatility (Vol) - A statistical measure of a market's
price movements over time.
--- W ---
Whipsaw - slang for a condition
of a highly volatile market where a sharp price movement is quickly
followed by a sharp reversal.
--- Y ---
Yard – Slang for milliard, one