Slang for a billion.
FOREX GLOSSARY
A comprehensive guide to the specific wording knowledge you will need to have to hand to make trading the forex and stock markets efficient and organised.
FOREX GLOSSARY AND KEY TERMS (A-Z)
APPRECIATION
When a currency strengthens in price due to increased demand in the market.
ARBITRAGE
Buying or selling an instrument and simultaneously taking an equal and opposite position in a related market to exploit small price differences between markets.
AROUND
Dealer jargon indicating that the forward premium/discount is near parity.
ASK RATE
The rate at which a financial instrument is offered for sale.
ASSET ALLOCATION
Investment practice that divides funds among different markets to achieve diversification for risk management purposes and/or expected returns consistent with an investor’s objectives.
BACK OFFICE
The departments and processes related to the settlement of financial transactions.
BALANCE OF TRADE
The value of a country’s exports minus its imports.
BASE CURRENCY
In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. 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 / ASK SPREAD
The difference between the bid and offer price, and the most widely used measure of market liquidity.
BID RATE
The rate at which a trader is willing to buy a currency.
BIG FIGURE
Dealer expression 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 107.30/107.35, 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.
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 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.
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.
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.
CHOICE MARKET
A market with no spread. All trades buys and sells occur at that one price
CLEARING
The process of settling a trade.
COLLATERAL
Something was 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.
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’.
CONTRACT
The standard unit of trading
COUNTERPARTY
One of the participants in a financial transaction.
COUNTRY RISK
The risk associated with a cross-border transaction, including but not limited to legal and political conditions.
CROSS RATE
The exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/JPY quote would be considered a cross rate, whereas in UK or Japan 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 RISK
The probability of an adverse change in exchange rates.
DAY TRADING
Refers to positions which are opened and closed on the same trading day.
DEALER
An individual who 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 instruments. An Option is the most common derivative instrument.
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 10 PM GMT.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)
The regulatory agency is responsible for administering bank depository insurance in the US.
FEDERAL RESERVE (FED)
The Central Bank for the United States.
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.
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.
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.
LEADING INDICATORS
Statistics that are considered to predict future economic activity.
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 102.00/05, then a limit order to buy USD would be at a price below 102. (i.e. 101.50)
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.
MARGIN
The required equity that an investor must deposit to collateralize a position.
MARGIN CALL
The required equity that an investor must deposit to collateralize a position.
MARKED-TO-MARKET
Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements.
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 RISK
Exposure to changes in market prices.
MATURITY
Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements
OFFER
The rate at which a dealer is willing to sell a currency.
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
A deal not yet reversed or settled with a physical payment.
OVER THE COUNTER (OTC)
Used to describe any transaction that is not conducted over an exchange.
OVERNIGHT
A trade that remains open until the next business day.
PIPS
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.
QUOTE
An indicative market price, normally used for information purposes only.
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.
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.
SPOT PRICE
The current market price. Settlement of spot transactions usually occurs within two business days.
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 rate.
TECHNICAL ANALYSIS
An effort to forecast prices by analysing market data, i.e. historical price trends and averages, volumes, open interest, etc.
TRANSACTION COST
The cost of buying or selling a financial instrument.
TRANSACTION DATE
The date on which a trade occurs.
TURNOVER
The total money value of all executed transactions in a given time period; volume.
UPTICK
A new price quote at a price higher than the preceding quote.
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 unfavourable price movements.
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 reversal.