A currency is said to 'appreciate' when it strengthens in price in response to market demand.
The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets.
Dealer's jargon used in quoting when the forward premium/discount is near parity. For example, "two-two around" would translate into 2 points to either side of the present spot.
The rate at which a financial instrument is offered for sale (as in bid/ask spread).
Investment practice that divides funds among different markets to achieve diversification for risk management purposes and/or expected returns consistent with an investor's objectives.
The departments and processes related to the settlement of financial transactions.
Balance of Trade
The value of a country's exports minus its imports.
In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the FX markets, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.
A market distinguished by declining prices.
The rate at which a trader is willing to buy a currency.
The difference between the bid and offer price, and the most widely used measure of market liquidity.
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, an USD/Yen rate might be 107.50/107.53, but would be quoted verbally without the first three digits i.e. "50/53".
In a professional trading environment, a 'book' is the summary of a trader's or desk's total positions.
An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a 'dealer' commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.
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 pledged 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 rater for the major currencies.
Slang for a million.
A market distinguished by rising prices.
The Central Bank for Germany.
Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800's.
A chart that includes 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, the area of the chart is not shaded.
A government or quasi-government 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.
An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.
The process of settling a trade.
The tendency of an economic crisis to spread from one market to another. In 1997, political instability in Indonesia caused high volatility in their domestic currency, the Rupiah. From there, the contagion spread to other Asian emerging currencies, and then to Latin America, and is now referred to as the 'Asian Contagion'.
Something given to secure a loan or as a guarantee of performance.
A transaction fee charged by a broker.
A document exchanged by counterparts to a transaction that states the terms of said transaction.
The standard unit of trading. The Forex market does not require standardized contracts.
One of the participants in a financial transaction.
Risk associated with a cross-border transaction, including but not limited to legal and political conditions.
The exchange rate between any two currencies that are considered non-standard in the country where the 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.
Any form of money issued by a government or central bank and used as legal tender and a basis of trade.
The probability of an adverse change in exchange rates.
Refers to positions which are open and closed on the same trading day.
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 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.
A negative balance of trade or payments.
A FX trade where both sides make and take actual delivery of the currencies traded.
A fall in the value of a currency due to market forces.
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.
The deliberate downward adjustment of a currency's price, normally by official announcement.
A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc…
Monetary Union (EMU)
The principal goal o 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 January 1, 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 and 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.
The currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).
Central Bank (ECB)
The Central Bank for the new European Monetary Union.
Deposit Insurance Corporation (FDIC)
The regulatory agency responsible for administering bank depository insurance in the US.
Federal Reserve (Fed)
The Central Bank for the United States.
Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $1,000,000 then sold $1,000,000 thereby creating a neutral (flat) position.
The simultaneous buying of one currency and selling of another.
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.
Analysis of economic and political information with the objective of determining future movements in a financial market.
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 Contracts - ETC), versus Forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.
Cancelled Order (GTC)
An order to buy or sell at a specified price. This order remains open until the client cancels.
A position or a combination of positions that reduces the risk of your primary position.
An economic condition whereby prices for consumer goods rise, eroding purchasing power.
The initial deposit of collateral required to enter into a position as a guarantee on future performance.
The Foreign Exchange rates at which large international banks have traditionally quoted other large international banks.
Statistics that are considered to predict future economic activity.
The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.
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 were 107.00/03, then a limit order to buy USD would be at a price below 107 (i.e. 106.50).
The ability of a market to accept large transactions with minimal to no impact to price stability.
The closing of an existing position through the execution of an offsetting transaction.
A position that appreciates in value if market prices increase.
The required equity that an investor must deposit to collateralize a position
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.
An order that becomes a market order when a particular price is reached. A sell MIT is placed above the market; a buy MIT is placed below the market.
A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.
An order to buy or sell at the end of the trading session at a price within the closing range of prices.
Exposure to changes in market prices.
Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements.
The date for settlement or expiry of a financial instrument.
The rate at which the dealer is willing to sell a currency.
A trade which serves to cancel or offset some or all of the market risk of an open position.
Cancels the Other Order (OCO)
A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.
An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders.
A deal not yet reversed or settled with a physical payment.
the Counter (OTC)
Used to describe any transaction that is not conducted over an exchange.
A trade that remains open until the next business day.
Digits added to or subtracted from the fourth decimal place, i.e. 0.0002. Also called Points.
Exposure to changes in government policy which will have an adverse effect on an investor's position.
The netted total holdings of a given currency.
In the currency markets, describes the amount by which the forward or futures price exceeds the spot price.
Describes quotes to which every market participant has equal access.
An indicative market price, normally used for information purposes only.
The price of one currency in terms of another typically used for dealing purposes.
A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation.
Exposure to uncertain change, most often used with a negative connotation of adverse change.
The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.
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.
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.
An investment position that benefits from a decline in market price.
The current market price. Settlement of spot transactions usually occurs within two business days.
The difference between the bid and offer prices.
Slang for British Pound.
Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor's position. As an example, if an investor is long USD at 145.37, they might wish to put in a stop loss order for 144.49, which would limit losses should the dollar depreciate, possibly below 144.49.
A technique used in technical analysis that indicates a specific price floor at which a given exchange rate may automatically correct itself. Opposite of resistance.
A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.
An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc…
Simultaneous buying and selling of a currency for delivery the following day.
The cost of buying or selling a financial instrument.
The date on which a trade occurs.
The total money value of all executed transactions in a given time period; volume.
When both a bid and offer rate is quoted for a FX transaction.
A new price quote at a price higher than the preceding quote.
In the U.S., a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.
The interest rate at which US banks will lend to their prime corporate customers.
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.
Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.
A statistical measure of a market's price movements over time.
Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Slang for a billion.