Futures Glossary

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A

Appreciation
Arbitrage
Around
Ask Rate
Asset Allocation

B

Back Office
Balance of Trade
Base Currency
Bear Market
Bid Rate
Bid/Ask Spread
Big Figure
Book
Broker
Bretton Woods
Agreement of 1944

Buck
Bull Market
Bundesbank

C

Cable
Candlestick Chart
Central Bank
Chartist
Clearing
Contagion
Collateral
Commission
Confirmation
Contract
Counterparty
Country Risk
Cross Rate
Currency
Currency Risk

D

Day Trading
Dealer
Deficit
Delivery
Depreciation
Derivative
Devaluation

E

Economic Indicator
European Monetary Union (EMU)
EUROEuropean Central Bank (ECB)

F

Federal Deposit
Insurance Corporation (FDIC)
Federal Reserve (Fed)
Flat/Square
Forex
Forward
Forward Points
Fundamental Analysis

Future Contract

G

Good 'Til Cancelled Order (GTC)

H

Hedge

I

Inflation
Initial Margin
Interbank Rates

L

Leading Indicators
LIBOR
Limit Order
Liquidity
Liquidation
Long position

M

Margin
Margin Call
Market-if-Touched
Market-Maker
Market-on-Close
Market Risk
Mark-to-Market
Maturity

O

Offer
Offsetting Transaction
One Cancels the Other Order(OCO)
Open Order
Open Position
Over the Counter (OTC)
Overnight

P

Pips
Political Risk
Position
Premium
Price Transparency

Q

Quote

R

Rate
Resistance
Revaluation
Risk
Risk Management
Roll-Over

S

Settlement
Short Position
Spot Price
Spread
Sterling
Stop Loss Order
Support Levels
Swap

T

Technical Analysis
Tomorrow Next (Tom/Next)
Transaction Cost
Transaction Date
Turnover
Two-Way Price

U

Uptick
Uptick Rule
US Prime Rate

V

Value Date
Variation Margin
Volatility (Vol)

W

Whipsaw 

Y

Yard

     

 

 

Appreciation
A currency is said to 'appreciate' when it strengthens in price in response to market demand.

Arbitrage
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.

Around
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.

Ask Rate
The rate at which a financial instrument is offered for sale (as in bid/ask spread).


Asset Allocation
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.

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Back Office
The departments and processes related to the settlement of financial transactions.

Balance of Trade
The value of a country's exports minus its imports.

Base Currency
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.

Bear Market
A market distinguished by declining prices.

Bid Rate
The rate at which a trader is willing to buy a currency.

Bid/Ask Spread
The difference between the bid and offer price, and the most widely used measure of market liquidity.

Big Figure
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".

Book
In a professional trading environment, a 'book' is the summary of a trader's or desk's total positions.

Broker
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.

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 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.

Buck
Slang for a million.

Bull Market
A market distinguished by rising prices.

Bundesbank
The Central Bank for Germany.

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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 1800's.

Candlestick Chart
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.

Central Bank
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.

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.

Contagion
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'.

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 states the terms of said transaction.

Contract
The standard unit of trading. The Forex market does not require standardized contracts.

Counterparty
One of the participants in a financial transaction.

Country Risk
Risk associated with a cross-border transaction, including but not limited to legal and political conditions.

Cross Rate
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.

Currency
Any form of money issued by a government or central bank and used as legal tender and a basis of trade.

Currency Risk
The probability of an adverse change in exchange rates.

 

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Day Trading
Refers to positions which are open 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 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
A FX trade where both sides make and take actual delivery of the currencies traded.

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.

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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 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.

EURO
The currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).

European Central Bank (ECB)
The Central Bank for the new European Monetary Union.

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Federal 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.

Flat/Square
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.

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.

Fundamental Analysis
Analysis of economic and political information with the objective of determining future movements in a financial market.

Future 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 Contracts - ETC), versus Forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.

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Good 'Til Cancelled Order (GTC)
An order to buy or sell at a specified price. This order remains open until the client cancels.

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Hedge
A position or a combination of positions that reduces the risk of your primary position.

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Inflation
An economic condition whereby prices for consumer goods rise, 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 have traditionally quoted other large international banks.

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Leading Indicators
Statistics that are considered to predict future economic activity.

LIBOR
The London Inter-Bank Offered Rate. 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 were 107.00/03, then a limit order to buy USD would be at a price below 107 (i.e. 106.50).

Liquidity
The ability of a market to accept large transactions with minimal to no impact to price stability.

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.

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Margin
The required equity that an investor must deposit to collateralize a position

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.

Market-if-Touched Order (MIT)
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.

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-on-Close Order (MOC)
An order to buy or sell at the end of the trading session at a price within the closing range of prices.

Market Risk
Exposure to changes in market prices.

Mark-to-Market
Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements.

Maturity
The date for settlement or expiry of a financial instrument.

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Offer
The rate at which the dealer is willing to sell a currency.

Offsetting Transaction
A trade which serves to cancel or offset some or all of the market risk of an open position.

One Cancels the Other Order (OCO)
A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.

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
A deal not yet reversed or settled with a physical payment.

Over the Counter (OTC)
Used to describe any transaction that is not conducted over an exchange.

Overnight
A trade that remains open until the next business day.

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Pips
Digits added to or subtracted from the fourth decimal place, i.e. 0.0002. Also called Points.

Political Risk
Exposure to changes in government policy which will have an adverse effect on an investor's position.

Position
The netted total holdings of a given currency.

Premium
In the currency markets, describes the amount by which the forward or futures price exceeds the spot price.

Price Transparency
Describes quotes to which every market participant has equal access.

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Quote
An indicative market price, normally used for information purposes only.

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Rate
The price of one currency in terms of another typically used for dealing purposes.

Resistance
A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.

Revaluation
An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation.

Risk
Exposure to uncertain change, most often used with a negative connotation of adverse change.

Risk Management
The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.

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.

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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.

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.

Sterling
Slang for British Pound.

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 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.

Support Levels
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.

Swap
A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

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Technical Analysis
An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc…

Tomorrow Next (Tom/Next)
Simultaneous buying and selling of a currency for delivery the following day.

Transaction Cost
The cost of buying or selling a financial instrument.

Transaction Date
The date on which a trade occurs.

Turnover
The total money value of all executed transactions in a given time period; volume.

Two-Way Price
When both a bid and offer rate is quoted for a FX transaction.

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Uptick
A new price quote at a price higher than the preceding quote.

Uptick Rule
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.

US Prime Rate
The interest rate at which US banks will lend to their prime corporate customers.

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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.

Variation Margin
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.

Volatility (Vol)
A statistical measure of a market's price movements over time.

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Whipsaw
Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

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Yard
Slang for a billion.

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