Glossary
A-C
Appreciation
A currency is said to appreciate when it strengthens in price in response to market demand.
Ask Rate
The rate at which a financial instrument is offered for sale (as in bid/ask spread).
Base Currency
In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the forex 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 Rate
The rate at which a financial instrument is bid for purchase (as in bid/ask spread).
Big Figure
A 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/JPY rate might be 107.30/107.35, but would be quoted verbally without the first three digits, i.e. "30/35".
Binary
A type of option that allows the trader to speculate on whether or not an event will happen.
Bull Market
A market distinguished by rising prices.
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-1800s.
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.
Commission
A transaction fee charged by a broker.
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 Risk
The probability of an adverse change in exchange rates.
D-G
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.
Depreciation
A fall in the value of a currency due to market forces.
Derivative
A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument.
Devaluation
The deliberate downward adjustment of a currency's price, normally by official announcement.
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.
European Central Bank (ECB)
The Central Bank for the new European Monetary Union.
Federal Reserve (FED)
The Central Bank for the United States.
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. Also refered to as "swap points".
H-N
Initial Margin
The initial deposit of collateral required to enter into a position as a guarantee on potential future losses.
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.
Leverage
Allows a trader to gain a large exposure with a relatively small outlay. Also known as "gearing".
Limit Order
An order to buy or sell at a set price.
Liquidation
The closing of an existing position through the execution of an offsetting transaction.
Long position
A position that appreciates in value if market prices increase.
Margin call
A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer.
Margin
The cash deposit that you are required to hold against an open position.
O-R
Offer
The rate at which a dealer is willing to sell a currency.
OCO Order (One Cancels the Other)
Similar to an IFD order, but the execution of either order cancels the other.
Open order
An order that will be executed when a market moves to its designated price.
Open position
A deal not yet reversed or settled with a physical payment.
Option
The right, but not the obligation, to buy or sell an underlying financial instrument on or before a specific date at a given price.
Pips/Points
Digits added to or subtracted from the fourth decimal place, i.e. 0.0001.
Position
The netted total holdings of a given currency.
Price Transparency
Describes quotes to which every market participant has equal access.
Resistance
A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
Risk
Exposure to uncertain change, most often used with a negative connotation of adverse change.
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.
S-Z
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.
Slippage
If the market spikes or falls below a level specified by you in a stop order, without actually trading at that level.
Spot Price
The current market price. Settlement of spot transactions usually occurs within two business days.
Spread
The difference between the bid and offer prices.
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/JSP at 120.40, they might wish to put in a stop loss order for 120.00, which would limit losses should the dollar depreciate below the 120.00 level.
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 this is resistance.
Swap Points
The pips added to or subtracted from the current exchange rate to calculate a forward price.
Technical Analysis
An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.
Trailing Stop
A Stop that tracks profitable positions automatically – and closes trades should the market move against a trader
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 the maturity date.
Volatility
A statistical measure of a market's price movements over time.
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