Account - Record of all transactions.
Account Balance - Amount of money in an account.
Appreciation - A currency is said to appreciate when price rises in response to market demand; an
increase in the value of an asset.
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.
Ask, Offer - The price, or rate, that a willing seller is prepared to sell at.
Ausie - The Australian Dollar
Back Office - The departments and processes related to the settlement of financial transactions (i.e.
written confirmation and settlement of trades, record keeping.(
Balance of Payments - A record of a nation’s claims of transactions with the rest of the world over a
particular time period. These include merchandise, services and capital flows.
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 currency in which an investor or issuer maintains its book of accounts; the
currency that other currencies are quoted against. In the forex market, 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.
Basis Point - One hundredth of a percent.
Bear - An investor who believes that prices/the market will decline.
Bear Market - A market distinguished by a prolonged period of declining prices accompanied with
widespread pessimism.
BID - The price that a buyer is prepared to purchase at; the price offered for a currency.
Big Figure - Dealer phrase 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 .
, but would be
30/107.35
quoted verbally without the first three digits i.e. "30/35."
Bonds - Bonds are tradable instruments (debt securities) which are issued by a borrower to raise
capital. They pay either fixed or floating interest, known as the coupon. As interest rates fall, bond
prices rise and vice versa.
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
usually 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 .
Buba - Bundesbank, Central Bank of Germany
Bull - An investor who believes that prices/the market will rise.
Bull Market - A market distinguished by a prolonged period of rising prices. (Opposite of bear
market)
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.
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 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 Eurobond).
Central Bank - A government or quasi-governmental organization that manages a country’s
monetary policy a prints a nation’s currency. For example, the US central bank is the Federal
Reserve, others include the ECB, BOE, BOJ .
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 .
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.
Commission - A transaction fee charged by a broker.
Confirmation - A document exchanged by counterparts to a transaction that confirms the terms of
said transaction.
Contract - The standard unit of trading.
Counter Party - The participant, either a bank or customer, with whom the financial transaction is
made.
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.
Day Trading - Opening and closing the same position or positions within the same trading session.
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 actual delivery where both sides transfer possession of the currencies traded.
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.
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.
ECB - European Central Bank - The Central Bank for the European Monetary Union.
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).
EMU - European Monetary Union - 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.
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).
Execution Date - The date on which a trade occurs.
Fed - Federal Reserve - The Central Bank for the United States.
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.
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.
FOMC - Federal Open Market Committee - The Federal Reserve monetary committee.
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.
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.
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.
Front and Back Office - The front office usually comprises of the trading room and other main
business activities.
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.
G5 - 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.
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.
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.
Hedge - A position or combination of positions that reduces the risk of your primary position.
High/Low - Usually the highest traded price and the lowest traded price for the underlying
instrument for the current trading day.
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.
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.
Interbank Rates - The Foreign Exchange rates at which large international banks quote other large
international banks .
Intervention - Action by a central bank to affect the value of its currency by entering the market.
Concerted intervention refers to action by a number of central banks to control exchange rates.
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.
Kiwi - The New-Zealand Dollar.
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.(
Leverage - Also called margin. The ratio of the amount used in a transaction to the required security
deposit.
Libor - London InterBank Offered Rate - The London Inter-Bank Offered Rate. Large international
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 - A position to purchase more of an instrument than is sold, hence, an appreciation in value if
market prices increase.
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.
Lot - A unit to measure the amount of the deal. The value of the deal always corresponds to an
integer number of lots.
Margin - The required equity that an investor must deposit to collateralize a position.
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.
Money Markets - 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.
MPC - Monetary Policy Committee - A committee of the central bank that is responsible for the
monetary policy decisions.
OCO - One Cancels the Other - A contingent orders where the execution of one part of the order
automatically cancels the other part.
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 deal.
Options - An agreement that allows the holder to have the option to buy/sell a specific security at a
certain price within a certain time. Two types of options – call and put. A call is the right to buy while
a put is the right to sell. One can write or buy call and put options.
Order - An order is an instruction, from a client to a broker to trade. An order can be placed at a
specific price or at the market price. Also, it can be good until filled or until close of business.
Overnight Position - A trade that remains open until the next business day.
Points, Pips - The term used in currency market to represent the smallest incremental move an
exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of
EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).
Position - A position is a trading view expressed by buying or selling. It can refer to the amount of a
currency either owned or owed by an investor.
Premium - In the currency markets, it is the amount of points added to the spot price to determine a
forward or futures price.
Profit/Loss (P/L) - The actual "realized" gain or loss resulting from trading activities on Closed
Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-
Market.
Quote - An indicative market price; shows the highest bid and/or lowest ask price available on a
security at any given time.
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.
Repo - Re-purchase - This type of trade involves the sale and later re-purchase of an instrument, at
a specified time and date. Occurs in the short-term money market.
Resistance - A term used in technical analysis indicating a specific price level at which a currency
will have the inability to cross above. Recurring failure for the price to move above that point
produces a pattern that can usually be shaped by a straight line.
Risk Management - To hedge one’s risk they will employ financial analysis and trading techniques.
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 - 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.
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 - A transaction that occurs immediately, but the funds will usually change hands within two
days after deal is struck.
Spot Price - The current market price. Settlement of spot transactions usually occurs within two
business days.
Spread - The difference between the bid and offer (ask) prices; used to measure market liquidity.
Narrower spreads usually signify high liquidity.
Stop Loss Order - 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.
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 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.
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.
Volatility - A statistical measure of a market or a security’s price movements over time and is
calculated by using standard deviation. Associated with high volatility is a high degree of risk.
Volume - The number, or value, of securities traded during a specific period.
