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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
All or None
A limit price order that requires the entire order to be filled at the stated price or not at all.
Arbitrage
The simultaneous purchase and sale of an instrument in two different markets to profit from a temporary price disparity.
Ask (Offer) Price
The price at which the market is prepared to sell a specific Currency.
Accrual
The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (Interest Arbitrage) deals , over the period of each deal.
Back Office
The processes related to the settlement of financial transactions eg settlement of trades and record keeping.
Base Currency
The currency against which other currencies are quoted. Example, the primary base currency is the u.s. dollar.
Basis
The spot price minus the futures price.
Balance
Amount of funds in a trading account.
Best Effort
An order to be executed at the best available price. Discretion is given to the dealer as to when to execute the order.
Bear Market
A market distinguished by a prolonged period of declining prices.
Bid
The price that a buyer is prepared to purchase at; the price offered for a currency.
Broker
An individual who matches buy and sell orders in return for a commission. The bid and offer prices are those of the market participants and not of the broker, unlike market makers.
Bull Market
A market distinguished by a prolonged period of rising prices.
Cable
A market term used for the British Pound Sterling.
Call Rate
The overnight interbank interest rate.
Cash Market
The market for the purchase and sale of physical currencies.
Convertible Currency
Currency, which can be freely exchanged for other currencies or gold without special authorization from the appropriate central bank.
Counter Party
The customer or bank with which a foreign deal is made. The term is also used in interest and currency swaps markets to refer to a participant in a swap exchange.
Covered Interest Rate Arbitrage
A transaction that consists of borrowing in currency A, in exchange for currency B, investing currency B and covering in the forward market. The transaction takes advantage of interest rate differentials.
Credit Line
The amount of foreign currency exposure a firm will allow a client to take.
Credit Risk
The idea that an outstanding currency position will not be repaid as agreed by the counter party, either voluntarily or not. Also known as counter party risk.
Cross Rates
Often referred to as the exchange rate between any two currencies not involving the u.s. dollar. In reality, however, all rates are technically cross rates.
Correspondent Bank
The foreign banks representative who regularly performs services for a bank which has no branch in the relevant center, e.g. to facilitate the transfer of funds.
Cost of Carry
The cost of borrowing money in order to maintain a position. It is based on the interest parity that determines the forward price.
Daylight Position Limit
Position limits on a currency or aggregate on a series of currencies that a trader can carry during regular trading hours.
Day Trading
Refers to opening and closing the same position or positions within one day's trading.
Dollar Rate
When a variable amount of a foreign currency is quoted against one US Dollar, regardless of where the dealer is located or in what currency he is requesting a quote. The exception is the Sterling/US Dollar rate (cable), which is quoted as variable amount of US Dollars to one Sterling.
Domestic Rates
The interest rates applicable to deposits in the country of origin.
Direct Dealing
An approach whereby dealers contact each other to transact without a broker.
Discount Forward Spread
The forward points that is subtracted from the spot to arrive at the forward price. This means that the foreign interest rate is lower than the u.s. rate for the period. Also known as swap points.
European Monetary Unit
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. Currently, the Euro exists only as a banking currency and for paper financial transactions and foreign exchange. The current members of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal.
Exchange control
A system of controlling inflows and out flows of foreign exchange, devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges.
Exotic
A less broadly traded currency.
Federal Reserve (Fed)
The Central Bank of the United States.
Fixed Exchange Rate
Official rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower bands, leading to intervention.
Forward Outright
A foreign exchange deal with maturity beyond the spot delivery date.
Forward Spread
Refers to the forward premium or discount that the forward price trades at. The forward price is calculated with the spot price, interest rate differential, and days to delivery.
G7
The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.
Going long
The act of buying a currency pair. For example, if a client bought the EUR/USD, he would be “going long” the Euro.
Going short
The act of selling a currency pair. For example, if a client sold the EUR/USD, he would be “going short” the Euro.
Hedging
The practice of undertaking one investment activity in order to protect against loss in another, e.g. selling short to nullify a previous purchase, or buying long to offset a previous short sale. While hedges reduce potential losses, they also tend to reduce potential profits.
High/Low
Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.
Initial Margin
The margin paid initially to trade currency futures or margined Forex. A trader’s loss may not exceed this margin per contract/lot.
Interbank Rates
The Foreign Exchange rates at which large international banks quote other large international banks.
Libor
London Interbank Offered Rate. This is the rate at which banks will lend to each other, set at 11:00 a.m. London time.
Liquidity
The term used to describe the amount of volume available to buy or sell at a point in time.
Major Currency
The Euro, Swiss franc (Swissie), British pound, and Japanese yen.
Market Maker
One that consistently makes two way prices, providing both a bid and an offer. Unlike brokers, market makers trade their capital, although they will hedge.
Mark-to-Market
A system by which futures contracts and other markets are revalued using closing market prices to determine cash flow requirements for margin purposes.
Matching Systems
An electronic system that attempts to duplicate the brokers market. Bids and offers are available to any bank for execution. EBS is a matching system.
Moving Average
A way of smoothing a set of price/rate data by taking the average price of data range of values.
Negative Carry
A market position whereby the currency owned pays a lower rate of interest than that of the currency borrowed resulting in a negative cash flow.
Offer
The price for which a willing seller will sell the asset.
Overnight Position Limit
Position limits on a currency or aggregate on a series of currencies that a trader can carry during overnight trading hours. These limits are usually smaller than day light position limits.
One Cancels Other Order (O.C.O. Order)
A contingent order where the execution of one part of the order automatically cancels the other part.
Open Position
Any deal, which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date.
Over The Counter (OTC)
Used to describe any transaction that is not conducted over an exchange.
Overnight Trading
Refers to a purchase or sale between the hours of 9.00 pm and 8.00 am. on the following day.
Pip
The term used in the currency markets to denote the smallest incremental move an exchange rate can make.
Positive Carry
A market position whereby the currency owned pays a higher rate of interest than that of the currency borrowed, resulting in a positive cash flow.
Premium Forward Spread
The forward points that is added to the spot price to determine a forward price. A forward premium means that the foreign interest rate is higher than the u.s. rate for the period.
Purchasing Power Parity
This states that the price for a good in one nation should be equal to the price of the same good in any other nation, all things being equal, exchanged at the current rate.
Quotation American Terms
A quotation that reflects the number of USD units per foreign currency.
Quotation European Terms
A quotation that reflects the number of foreign currency units per us dollars.
Rollover
A transaction designed for spot deals whereby the delivery is extended and "exchanged" from the old spot delivery date to the current spot delivery date.
Swap points
Are either subtracted or added reflecting either a positive cost of carry of negative.
Spot Deal
A forex deal whereby a party will deliver a certain currency against receiving a certain amount of another currency based on an agreed rate from another party, within a certain amount of business days.
Spot Next
Forex deal which matures one business day past the spot date, thus, 3 business days to maturity.
Swap Deal
Forex deal, which consists of a simultaneous purchase and sale for different maturity dates with the same counter party.
SWIFT
Society for World-wide Interbank Telecommunications is Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions. The society is also responsible for the standardization of the currency codes used for confirmation and identification purposes (i.e.. USD = US Dollars, EUR = The Euro, JPY = Japanese Yen).
Tick
A minimum change in price, up or down.
Trailing stop loss
A complex stop loss order in which the stop loss price is set at some fixed percentage below the market price. If the market price rises, the stop loss price rises proportionately, but if the stock price falls, the stop loss price doesn't change. This technique allows an investor to set a limit on the maximum possible loss without setting a limit on the maximum possible gain, and without requiring paying attention to the investment on an ongoing basis.
Transaction date
The date on which a trade occurs.
Tom Next
Tomorrow Next, is a forex deal, which matures one day prior to a regular spot deal, thus maturity is the next business day.
Two-Way Price
A quotation with both the bid and offer price.
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.
Value Date
Settlement date of a spot or forward deal.
Variation Margin
An additional margin requirement that a broker will need from a client due to market fluctuation.
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.
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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