Arbitrage
It is purchasing or selling an instrument while taking an equal and opposite position in a related market, so that price differences can be taken advantage of.
B
Bank Rate
It is the rate at which banks lend money to its domestic system.
Base Currency
In the FOREX market, currency is always traded in pairs. The currency against which an exchange quote is made is called the base currency.
Bear
It is a person usually a trader who believes that the prices or market will show a decline.
Bear Market
It is a market where prices decline to a large extent due to speculation.
Bid
It is the price that a buyer is prepared to purchase at the price offered for a currency.
Bull
It is the opposite of a bear. A bull believes that the prices will rise.
Bull Market
A market where prices keep rising .
Broker
An agent who handles investors' orders to buy and sell currency. For this service, a commission is charged which, depending upon the broker and the amount of the transaction, may or may not be negotiated.
C
Cable
Dealers slang for the Sterling/US Dollar exchange rate.
Call
It is the option to buy a futures contract.
Call Rate
It is the overnight interbank interest rate.
Candlestick Chart
It is a Japanese chart which shows the daily trading prices (open, high, low and close).
Cash Market
It is the common term for the market where the sale and purchase of physical currencies take place.
Close
It is the sale or purchase of a foreign exchange position which results in liquidation of the position.
Commission
It is the fee that a broker charges clients for dealing on their behalf.
Convertible Currency
It is the currency which can be freely exchanged for other currencies or for gold without special authorization from the central bank.
Cross Rate
An exchange rate between two currencies, where neither is the United States dollar.
Currency Risk
The risk of incurring losses which generally results from an adverse change in exchange rates.
Currency Swap
It is a contract where two counter-parties exchange 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 Option
It is a choice ( an option contract) which gives the right to buy or sell a currency with another currency at a specified exchange rate during a specified period.
Currency Swaption
It is an OTC Option to enter into a currency swap contract.
Currency Warrant
It is an OTC Option which is a long-dated (more than one year) currency option.
D
Day Order
A buy or sell order that will expire automatically at the end of the trading day on which it is entered.
Day Trading
It refers to the opening and closing of the same position or positions within one day's trading.
Depreciation
A fall in the value of a currency due to market forces.
Dollar Rate
When a variable amount of a foreign currency is quoted against one US Dollar, regardless of where the dealer is located or in what currency he is requesting a quote.
Direct Quotation
It is the quoting in fixed units of foreign currency against variable amounts of the domestic currency.
E
Exchange Rate Risk
The risk of incurring losses which generally results from an adverse change in exchange rates.
Execution
It is the completion of an order or deal.
F
Fill
It is the process of completing a customer's order to buy or sell a currency pair.
Fixed Exchange Rate
An official rate set by monetary authorities for one or more currencies.
Flat / Square
Both terms mean the same thing and it is a situation where one is neither long or short.
Foreign Exchange Swap
It is a transaction which involves the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed at the time of the conclusion of the contract (short leg), at a date further in the future at a rate agreed at the time of the contract (the long leg).
Foreign Exchange (or Forex or FX)
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.
Forward
A deal that will commence at an agreed date in the future.
Forward Rates
This is the rate at which a currency can be purchased or sold for delivery in the future.
Fundamental Analysis
It is a thorough analysis of economic and political data with the goal of determining future movements in a financial market.
G
GTC
"Good Till Cancelled" is an order left with a dealer to buy or sell at a fixed price.
H
Hedging
The practice of undertaking one investment activity in order to protect against loss in another, e.g. selling short to nullify a previous purchase, or buying long to offset a previous short sale. While hedges reduce potential losses, they also tend to reduce potential profits.
High/Low
It refers to the highest traded price and the lowest traded price for the underlying instrument for the current trading day.
I
Initial Margin
It is the required initial deposit of collateral 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.
L
Limit Order
An order to buy at or below a specified price or to sell at or above a specified price.
Liquidity
The term refers to the relationship between transaction size and price movements.
Liquidation
It refers to the closing of an existing position through the execution of an offsetting transaction.
Long Position
It refers to a market position where a client has bought a currency he previously did not hold own.
M
Margin
An initial deposit used as collateral before trading.
Margin Call
It is a demand for additional funds.
Market Close
The time of day when a market closes.
Market Maker
Refers to a dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices.
Market Risk
The risks that occur when general market pressures cause the value of an investment to fluctuate.
Maturity
The date for settlement of a deal.
Momentum
The movement of a currency pair in one direction.
O
Offer
The price, or rate, that a willing seller is prepared to sell at.
Open Position
Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date.
Over The Counter (OTC)
This refers to any transaction that is not conducted over an exchange.
P
Pip (or Points)
The term is used in currency market to represent the smallest increase an exchange rate can make.
Price Tendency
The ability of all traders to deal at the same price.
Put
It is the option to sell a futures contract.
Q
Quote
A bid and offer in a currency pair made one after the other.
R
Rate
The price at which a currency can be purchased or sold against another currency.
Risk Capital
The amount of money that an individual can afford to invest, which, if lost would not make a very huge impact on his assets.
Risk Management
Employing financial analysis and using trading techniques to reduce and/or control exposure to financial risk.
S
Sell Limit Order
An order to execute a transaction only at a specified limit or at a higher price.
Settlement
It is the actual physical exchange of one currency for another.
Short
To go `short` is to have sold an instrument without actually owning it, and also to hold a short position expecting the price to decline so that it can be bought back in the future at a profit.
Spot
A transaction that occurs immediately, but the funds usually change hands within two days after deal is struck.
Speculator
A speculator is a person who tries to make his profits, by predicting certain movements of the market. Stocks, real estate, commodities etc are held, bought or sold to maximize profits.
Spot Market
It is a market where people buy and sell currencies and arrange for a two-day delivery.
Spot Price
The current market price of a currency that normally settles in 2 business days.
Spread
The difference between the bid and asking prices.
Support Levels
A price level at which buying is expected to take place.
T
Take Profit Order
A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on said position.
Technical Analysis
It is an in-depth look at the forecast of future market activity by analyzing market data such as charts, price trends, and volume.
Tomorrow to Next
It is the simultaneous buying and selling of a currency for delivery the following day and selling for the next day or vice versa.
Two-Way Price
The rates for which both a bid and offer are quoted.
V
Value Date
The settlement date of a spot or forward deal.
Variation Margin
It is the additional margin requirement that a broker will need from a client due to market fluctuation.
Volatility
It is a statistical measure of a market or a security's price movements for a certain period of time.
Y
Yard
A slang word used in the currency industry meaning 'billion'
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