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Friday, August 29, 2008
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
Labels: Forex Glossary
A transaction that matures on the day the transaction takes place.
A strategy of buying at the bid and selling at the offer as soon as possible
Special Drawing Right. A standard basket of five major currencies in fixed amounts as defined by the IMF.
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.
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.
Rate at which a bank is willing to sell foreign currency.
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.
The date by which an executed order must be settled by the transference of instruments or currencies and funds between buyer and seller.
Risk associated with the non-settlement of the transaction by the counter party.
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.
Contracts with up to six months to delivery.
Buying to unwind a short position of a particular currency pair
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.
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.
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.
The pressure on short sellers to cover their positions as a result of sharp price increases.
Normally the 90-day rate
Singapore International Monetary Exchange
Standard International Trade Classification. A system for reporting trade statistics in a common manner.
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.
More potential sellers than buyers, which creates an environment where rapid price falls are likely.
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.
A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck.
Market where people buy and sell actual financial instruments (currencies) for two-day delivery.
The contract month closest to delivery or settlement.
The overnight swap from the spot date to the next business day.
The current market price. Settlement of spot transactions usually occurs within two business days.
A standard period of one week swap measured from the current value date of the currency spot rate.
The standardized settlement procedure for foreign exchange transactions that sets the value date 2 business days forward from the Trade Date (see: Spot).
Purchase and sales are in balance and thus the dealer has no open position.
Action by a central bank to reduce supply in order to increase the price of money.
An active market which can absorb large sales or purchases of currency without major moves.
Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the FX market.
British pound, otherwise known as cable
A index based on the movement of sterling against the major currency.
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.
An order to buy or to sell a currency when the currency's price reaches or passes a specified level.
U.S. term for the lowest accepted price for Treasury Bills at auction.
The client entered price that activates a stop loss order
The simultaneous purchase/sale of both call and put options for the same share, exercise/strike price and expiry date.
Recession or low growth in conjunction with high inflation rates.
A combination of two calls and one put
Also called exercise price. The price at which an options holder can buy or sell the underlying instrument.
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
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.
A price as a differential between two dates of the swap.
A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.
A price as a differential between two dates of the swap.
Society for World-wide Interbank Telecommunications is Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions
Swiss Franc.
Labels: Forex Glossary
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
Labels: Forex Glossary
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.
Labels: Forex Glossary
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.
Labels: Forex Glossary
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.
Labels: Forex Glossary
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.
Labels: Forex Glossary
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.
Labels: Forex Glossary
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.
Labels: Forex Glossary
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.
Labels: Forex Glossary
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.
Labels: Forex Glossary
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.
Labels: Forex Glossary
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".
Labels: Forex Glossary
