A
Adjustment
Normally an official action by either change in economic policies or correction to an imbalance or currency rate.
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 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 (Offer) Price
Ask is the market selling price, the price at which the market is prepared to sell a specified Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation, for instance 1.4527-1.4532
Ask Rate
The rate at which a financial instrument is offered for sale (as in bid/ask spread).
Asset
An item having commercial or exchange value.
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.
Aussie
Trade jargon for the AUD/USD currency pair.
B
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. Worth as measured against the Second currency. For example, if the USD/CHF rate equals 1.6215 then one USD is worth CHF 1.6215.
Bar Chart
A type of chart consisting of vertical bars which have four significant points: the high and the low prices, the opening price, which is marked with a small horizontal line to the left of the bar, and the closing price, which is marked with a small horizontal line of the right of the bar.
Base Currency
The first currency in a Currency Pair. A currency against which the exchange rate is applied. Usually, it stands first in the codes of currency rates. It shows how much the base currency is worth as measured against the second currency. For instance, if the USD/CHF rate equals 1.6215, then one USD is worth CHF1.6215.
Bear Market
A market distinguished by declining prices.
Bid or Bid Price
Bid is the market buying price, the price at which the market is prepared to buy a specified Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can sell foreign exchange. It is shown in the left side of the quotation, for example: 1.4527-1.4532
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 QUOTE
Dealer expression referring to the first few digits of an exchange rate. These digits are often omitted in dealer quotes. For example, a USD/JPY rate might be 117.30/117.35, but would be quoted verbally without the first three digits i.e. "30/35".
Book
In a professional trading environment, a ‘book' is the summary of a trader's or desk's total positions.
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 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.
Bull Market
A market distinguished by rising prices in an upward trend.
Bundesbank
Germany's Central Bank.
Buy Limit order
An order to execute a trade at a specific limit price or lower.
C
Cable
Trader jargon referring to the GB Pound/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 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.
Carry
A credit or debit associated with maintaining a foreign exchange position overnight derived from the difference in interest rates for each currency.
Cash Market
The market in the actual financial instrument on which a futures or options contract is based.
Cash Settled
The closing out of currency contracts with the exchange of cash based upon the difference in the value of when the position was opened and the value of when it is closed, rather than the delivery of currency.
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.
CHARTLIST
An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.
Cleared Funds
Funds that are freely available, sent in to settle a trade.
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.
COLLATERAL
Something given to secure a loan or as a guarantee of performance.
Commission
A fee charged by an institution to transact a trade on behalf of a customer.
Confirmation
A notification sent by a dealer to the customer describing the terms of a trade.
Contract
The standard unit of trading. Also referred to as a Lot.
Counter or Cross Currency
The second listed currency in a currency pair.
Counterparty
An opposing participant in a financial transaction.
COUNTRY RISK
Risk associated with a cross-border transaction, including but not limited to legal and political conditions. Cross Currency Pairs or Cross Rate - A foreign exchange transaction in which one foreign currency is traded against a second foreign currency. For example; EUR/GBP.
Cross Currency Pairs
A foreign exchange transaction in which one foreign currency is traded against a second foreign currency.
Cross Rate
An exchange rate between two non-US currencies.
Currency symbols & nickname:
AUD
Australian Dollar (Aussie)
CAD
Canadian Dollar (Canadian)
EUR
Euro Dollar (Euro)
JPY
Japanese Yen (Yen)
GBP
British Pound (Pound)
CHF
Swiss Franc (Swissy)
Currency Pair
The two currencies that make up a foreign exchange rate (USD/CHF).
CURRENCY RISK
The probability of an adverse change in exchange rates.
D
DAY order
An order that will expire automatically at the end of the trading day for which it is entered.
DAY TRade
A trade opened and closed on the same trading day.
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
A Forex trade where both parties 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.
Dollar Value
The amount of lawful currency of the United States which at any moment in time would be generated by the conversion of the relevant Foreign Currency into U.S. Dollars at the broker then prevailing exchange rates for buying or selling such Foreign Currency.
E
ECB (eUROPEAN CENTRAL bANK)
The Central Bank for the European Monetary Union.
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.
Equity
The amount currently held in a customer's account calculated as if all the opened positions will be closed at the current market quotes. The account is comprised of Unrealized gains, less Unrealized Losses and plus or minus storage.
Euro Zone
The group of fifteen countries that have combined their currencies into a single currency (Euro). They still have separate sovereignties, but also have a combined central bank (ECB) which handles economic policy issues for them as one group.
EUROPEAN CENTRAL BANK (ECB)
the Central Bank for the new European Monetary Union.
Execution
The process of completing an order or transaction.
F
FEDERAL RESERVE (Fed)
The Central Bank for the United States.
Fill Price
The price at which a buy or sell order was executed.
Filled Trade
A trade that is fully executed on behalf of a Customer's Account pursuant to an Order. Once filled, an Order cannot be cancelled, amended or waived by Customer.
FLAT/SQUARE
Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.
