Here's your A-to-Z guide of investment terms and definitions.
Account - Record of all transactions.
Account Balance - Same as balance.
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.
Adjustment - A change made in the internal economic policies to correct a payment imbalance or in the official currency rate.
Agent - An individual employed to act on behalf of another (the principal).
Aggregate Demand - The sum of government spending, personal consumption expenditures, and business expenditures.
All or None - A limit price order that instructs the broker to fill the whole order at the specified price or not at all.
Appreciation - An increase in the value of an asset.
Arbitrage - The purchase or sale of an instrument, and simultaneous taking of an equal and opposite position in a related market, to profit from small price differentials.
Ask Rate - The lowest price at which a financial instrument is offered for sale (as in bid/ask spread).
Ask Size - The amount of shares being offered for sale at the ask rate.
Asset Allocation - Investment practice that distributes funds among different markets (cash, forex, stocks, bonds, commodity, real estate) to achieve diversification for risk management purposes.
At Best - An instruction given to a dealer to buy or sell at the best rate that can be obtained.
At or Better - An order to deal at a specific rate or better.
Attorney in Fact - Someone who is allowed to transact business and execute documents on behalf of another person (holds power of attorney).
Back Office - The departments and processes related to the settlement of financial transactions (i.e. written confirmation and settlement of trades, record keeping).
Balance - Amount of money in an account.
Balance of Payments - A record of a nation's claims of transactions with the rest of the world over a particular time period. These inlcude merchandise, services and capital flows.
Balance of Trade - The value of a country's exports minus its imports.
Base Currency - The currency in which an investor or issuer maintains its books; the currency that other currencies are quoted against. In the forex market, 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.
Basis - The difference between spot price and futures price.
Basis Point - One hundredth of a percent.
Bear - An investor who believes that prices/the market will decline.
Bear Market - A market distinguished by a prolonged period of declining prices, usually accompanied with widespread pessimism.
Bid - The price a buyer is prepared to purchase at; the price offered for a currency.
Bid/Ask Spread - See spread
Big Figure - Dealer phrase 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/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits; i.e. "30/35".
Bonds - Tradable debt securities issued by a borrower to raise capital. They pay either fixed or floating interest, known as the coupon. As interest rates fall, bond prices rise and vice versa.
Book - In a professional trading environment, a book is the summary of a trader's total positions.
Bretton Woods Accord of 1944 - An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and set the price of gold at US $35 per ounce. The agreement lasted until 1971.
Broker - An individual or firm that acts as an intermediary, putting together buyers and sellers (for a fee or commission).
Bull - An investor who believes that prices/the market will rise.
Bull Market - A market distinguished by a prolonged period of rising prices. (Opposite of bear market).
Bundesbank - The central bank ofGermany
Cable - Slang for the British Pound Sterling.
Candlestick Charts - A chart that indicates the trading ranges for the day as well as the opening and closing price.
Capital Markets - Markets for medium to long term investment (usually over 1 year).
Central Bank - A government or quasi-governmental organization that manages a country's monetary policy a prints a nation’s currency. For example, theUS
Chartist - An individual who uses charts and graphs and interprets historical data to find trends, predict future movements and perform technical analysis.
Clearing - The process of settling a trade.
Close a Position (Position Squaring) - To eliminate an investment from one's portfolio by either buying back a short position or selling a long position.
Collateral - Something of value given to secure a loan or as a guarantee of performance.
Commission - The fee a broker charges for a transaction.
Confirmation - A document exchanged by counterparts to a transaction that confirms the terms of said transaction.
Contagion - The tendency of an economic crisis to spread from one market to another.
Contract (Unit orLot ) - The standard unit of trading on certain exchanges.
Convertible Currency - A currency which can be exchanged freely for other currencies at market rates, or gold.
Cost of Carry - The cost associated with borrowing money in order to maintain a position. It is based on the interest parity, which determines the forward price.
Counter Currency - The second listed Currency in a Currency Pair.
Counter Party - The participant, either a bank or customer, with whom the financial transaction is made.
Country Risk - The risk associated with government intervention (does not include central bank intervention). Examples are legal and political events such as war, or civil unrest.
Credit Checking - Due to the large size of certain financial transactions that change hands, it is essential to check that the counter parties have room for the trade. Once the price has been agreed the credit is checked. If the credit is bad then no trade takes place. Credit is very important when trading, both in the Inter-bank market and between banks and their customers.
Credit Netting - Arrangements that exist to maximize free credit and speed the dealing process by reducing the need to constantly re-check credit.
Cross Rates - An exchange rate between two currencies.
Currency - A country’s unit of exchange issued by their government or central bank whose value is the basis for trade.
Currency Risk - The risk of incurring losses resulting from an adverse change in exchange rates.
Currency symbols:
AUD - Australian Dollar
CAD - Canadian Dollar
EUR - Euro
JPY - Japanese Yen
GBP - British Pound
CHF - Swiss Franc
Day Trading - Opening and closing the same position or positions within the same trading session.
Dealer - Someone who acts as a principal or counterpart to a transaction; places the order to buy or sell.
Deficit - A negative balance of trade (or payments); when expenditures are greater than income/revenue.
Delivery - An actual delivery where both sides transfer possession of the currencies traded.
Deposit - The borrowing and lending of cash. The rate that money is borrowed/lent at is known as the deposit rate (or depo rate).
Depreciation - A decline in the value of a currency, usually due to market forces.
Derivatives - Trades that are constructed or derived from another security (stock, bond, currency, or commodity).
Devaluation - The deliberate downward adjustment of a currency's value versus the value of another currency, normally caused by an official announcement.
Economic Exposure - The risk on a company's cash flow, stemming from foreign exchange fluctuations.
Economic Indicator - A statistic that indicates current economic growth and stability issued by the government or a non-government institution (i.e. Gross Domestic Product (GDP), Employment Rates, Trade Deficits, Industrial Production, and Business Inventories).
Efficient Market - A market in which the current price reflects all available information from past prices and volumes.
End Of Day (or Mark-to-Market) - Traders account for their positions in two ways: accrual or mark-to-market. An accrual system accounts only for cash flows when they occur, hence, it only shows a profit or loss when realized. The mark-to-market method values the trader's book at the end of each working day using the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start the next day with a net position.
Estimated Annual Income - Projected yearly earnings.
Euro - The currency of the European Monetary Union (EMU) which replaced the European Currency Unit (ECU).
European Central Bank - The Central Bank for the European MonetaryUnion .
European MonetaryUnion - The principal goal of the EMU was to establish a single European currency called the Euro, which replaced the national currencies of the member EU countries in 2002. The current members of the EMU are Germany , France , Belgium , Luxembourg , Austria , Finland , Ireland , the Netherlands , Italy , Spain and Portugal
Exchange Rate Risk - See Currency Risk.
Federal Deposit Insurance Corporation (FDIC) - The regulatory agency responsible for administering bank depository insurance in theUS
Federal Reserve (Fed) - The Central Bank of theUnited States
First In First Out (FIFO) - Open positions are closed according to the FIFO accounting rule. All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.
Fixed Exchange Rate - An official exchange rate set by monetary authorities for one or more currencies.
Fixed Interest - The agreed interest rate remains constant for the term of the deal.
Flat (or Square) - To be neither long nor short.
Floating Rate Interest - As opposed to a fixed rate, the interest rate on this type of deal will fluctuate with market rates or benchmark rates.
Foreign Exchange (or Forex or FX) - The simultaneous buying of one currency and selling of another in an over-the-counter market.
Foreign Exchange Risk - See Currency Risk
Forex - Foreign Exchange.
Forward - A deal that will commence at an agreed date in the future.
Forward Points - The points (pips) added to or subtracted from the current exchange rate to calculate a forward price.
Forward Rate Agreements (FRAs) - Transactions that allow one to borrow/lend at a stated interest rate over a specific time period in the future.
Front Office - The trading room and other main business activities.
Fundamental Analysis - Thorough analysis of economic and political data with the goal of determining future movements in a financial market.
Futures - A way of trading financial instruments, currencies or commodities for a specific price on a specific date in the future. Unlike options, futures give the obligation (not the option) to buy or sell instruments at a later date. They can be used to both protect and to speculate against the future value of the underlying product.
FX - Foreign Exchange.
G7 - The seven leading industrial countries, being theUS , Germany , Japan , France , the UK , Canada , and Italy
Going Long - The purchase of a stock, commodity, or currency for investment or speculation.
Going Short - The selling of a currency or instrument not owned by the seller.
Gross Domestic Product - Total value of a country's output, income or expenditure produced within the country's borders.
Gross National Product - Gross domestic product plus income earned from investment or work abroad.
Good 'Til Cancelled Order (GTC) - An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.
Hedge - An investment position or combination of positions that reduces the volatility of your portfolio value. One can take an offsetting position in a related security. Instruments used are varied and include forwards, futures, options, and combinations of all of them.
High/Low - Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.
"Hit the bid" - Acceptance of purchasing at the offer or selling at the bid.
Inflation - An economic condition where there is an increase in the price of consumer goods, thereby eroding purchasing power.
Initial Margin - The required initial deposit of collateral to enter into a position as a guarantee on future performance
Interbank Rates - The Foreign Exchange rates at which large international banks quote other large international banks
Interest Rate Swaps - An exchange of two debt obligations that have different payment streams. The transaction usually exchanges two parallel loans; one fixed, the other floating.
Interest Rate Swap Points - Interest rates may be determined by a simple rule using the bid and offer spread on an fx rate. If the rate quoted is in foreign (non US) terms and the offered price is higher than the bid, then the interest rate in that nation is higher than the rate in the base nation for the particular time in question. If quoted in American terms, the opposite is true. Example – USD/ JPY quoted 105.75 to 105.65. Because the offered price is lower than the bid, then you know that rates are lower inJapan than in the US
Intervention - Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.
ISDA (International Swaps and Derivatives Association) - The body that sets terms and conditions for derivative trades
Kiwi - Slang for theNew Zealand
Leading Indicators - Economic variables that are considered to predict future economic activity (i.e. Unemployment, Consumer Price Index, Producer Price Index, Retail Sales, Personal Income, Prime Rate, Discount Rate, and Federal Funds Rate).
Leverage - Also called margin. The ratio of the amount used in a transaction to the required security deposit.
LIBOR - Stands forLondon
LIFFE - TheLondon UK
Limit Order - An order to buy at or below a specified price or to sell at or above a specified price.
Liquid and Illiquid Markets - The ability of a market to buy and sell at ease with no impact on price stability. A market is described as liquid if the spread between the bid and the offer is small. Another measure of liquidity is the presence of buyers and seller, with more players creating tighter spreads. Illiquid markets have few players, hence, wider dealing spreads.
Liquidation - To close an open position throgh the execution of an offsetting transaction.
Liquid Assets - Assets that can be easily converted into cash. Examples: money market fund shares, US Treasury Bills, bank deposits, etc.
Long - A position to purchase more of an instrument than is sold, hence, an appreciation in value if market prices increase.
Lot - A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.
Margin - Customers must deposit funds as collateral to cover any potential losses from adverse movements in prices.
Margin Call - A requirement from a broker or dealer for additional funds or other collateral to bring the margin up to a required level to guarantee performance on a position that has moved against the customer.
Mark to Market (or End Of Day) - Traders account for their positions in two ways: accrual or mark-to-market. An accrual system accounts only for cash flows when they occur, hence, it only shows a profit or loss when realized. The mark-to-market method values the trader`s book at the end of each working day using the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start the next day with a net position.
Market Maker - A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices. A market maker runs a trading book.
Market Order - An order to buy/sell at the best price available when the order reaches the market.
Market Risk - Risk relating to the market in general and cannot be diversified away by hedging or holding a variety of securities.
Maturity - The date a debt becomes due for payment.
Mine and Yours - To announce that a trader wants to buy he/she may say or type Mine. This would also be known as taking the offer. To sell he will use Yours. This would be known as `hitting the bid`.
Money Markets - Refers to investments that are short-term (i.e. under one year) and whose participants include banks and other financial institutions. Examples include Deposits, Certificates of Deposit, Repurchase Agreements, Overnight Index Swaps and Commercial Paper. Short-term investments are safe and highly liquid.
Net Position - The amount of currency bought or sold which has not yet been offset by opposite transactions.
Net Worth - Amount of assets which exceed liabilities. May also be known as stockholders equity or net assets.
Off Balance Sheet - Products such as Interest Rate Swaps and Forward Rate Agreements are examples of 'off balance sheet' products. Also, financing from other sources other than equity and debt are listed.
Offer - The price, or rate, that a willing seller is prepared to sell at.
Offsetting Transaction - A trade that serves to cancel or offset some or all of the market risk of an open position.
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 Order - An order to buy or sell when a market moves to its designated price.
Open Position - A deal not yet reversed or settled and the investor is subject to exchange rate movements.
Options - An agreement that allows the holder to have the option to buy/sell a specific security at a certain price within a certain time. Two types of options – call and put. A call is the right to buy while a put is the right to sell.
Order - An order is an instruction, from a client to a broker to trade. An order can be placed at a specific price or at the market price. Also, it can be good until filled or until close of business.
Overnight - A trade that remains open until the next business day.
Over The Counter (OTC) - Used to describe any transaction that is not conducted over an exchange.
Pegging - A form of price stabilization; typically used to stabilize a country’s currency by making it fixed to the exchange rate with another country.
Pips (or Points) - The term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).
Political Risk - Changes in a country’s governmental policy, which may have an adverse effect on an investor's position.
Position - A trading view expressed by buying or selling. It can refer to the amount of a currency either owned or owed by an investor.
Premium - In the currency markets, it is the amount of points added to the spot price to determine a forward or futures price.
Price Transparency - Every market participant has equal access to the description of quotes.
Profit /Loss or "P/L" or Gain/Loss - The actual "realized" gain or loss resulting fromtrading activities on Closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.
Quote - An indicative market price; shows the highest bid and/or lowest ask price available on a security at any given time.
Rally - A recovery in price after a period of decline.
Range - The difference between the highest and lowest price of a future recorded during a given trading session.
Rate - The price of one currency in terms of another, typically used for dealing purposes.
Realized and Unrealized Profit and Loss - One using an accrual type accounting system has an “unrealized profit” until he sells his shares. Upon the sale of one’s shares, the profit becomes “realized.”
Re-purchase (or Repo) - This type of trade involves the sale and later re-purchase of an instrument, at a specified time and date. Occurs in the short-term money market.
Resistance - A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross above. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line.
Revaluation Rates - The revaluation rates are the market rates used when a trader runs an end-of-day to establish profit and loss for the day.
Risk - Exposure to uncertain change, the variability of returns significantly the likelihood of less-than-expected returns.
Risk Capital - The amount of money that an individual can afford to invest, which, if lost would not affect their lifestyle.
Risk Management - To hedge one's risk they will employ financial analysis and trading techniques.
Rollover - The settlement of a deal is rolled forward to another value date with the cost of this process based on the interest rate differential of the two currencies.
Round trip - Buying and selling of a specified amount of currency.
Settlement - The finalizing of a transaction, the trade and the counterparts are entered into the books.
Short - To go 'short' is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit.
Short Position - An investment position that results from short selling. Benefits from a decline in market price because the position has not been covered yet.
Spot - A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck.
Spot Price - The current market price. Spot transaction settlements usually occurs within two business days.
Spread - The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity.
Square - Purchase and sales are in balance and thus the dealer has no open position.
Sterling
Stop Order - An order to buy/sell at an agreed price. One could also have a pre-arranged stop order, whereby an open position is automatically liquidated when a specified price is reached or passed.
Support Levels - A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross below. Recurring failure for the price to move below that point produces a pattern that can usually be shaped by a straight line.
Swaps - A swap occurs when one currency is temporarily exchanged for another, then the currency is held and exchanged later after a fixed period of time. To calculate the swap take the interest rate differential between the two underlying currencies, thus it may be used for speculative purposes to exploit anticipated movement in the interest rates.
Swissy - Market slang for Swiss Franc.
Technical Analysis - An effort to forecast future market activity by analyzing market data such as charts, price trends, and volume.
Tick - Minimum price move.
Ticker - Shows current and/or recent history of a currency either in the format of a graph or table.
Tomorrow Next (Tom/Next) - Simultaneous buying and selling of a currency for delivery the following day.
Transaction Cost - The cost associated with buying or selling of a financial instrument.
Transaction Date - The date on which the trade occurs.
Turnover - The volume traded, or level of trading, over a specified period, usually daily or yearly.
Two-Way Price - Both the bid and offer rate is quoted for a Forex transaction.
Unrealized Gain/Loss - The theoretical gain or loss on Open Positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains' Losses become Profits/Losses when position is closed.
Uptick - A new price quote that is higher than the preceding quote for the same currency.
Uptick Rule - In theU.S.
US Prime Rate - The interest rate at which US banks will lend to their prime corporate customers.
Value Date - The date that both parties of a transaction agree to exchange payments.
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.
Volume - The number, or value, of securities traded during a specific period.
Warrants - Warrants are a form of traded option. They are the right to purchase shares or bonds issued by a company at a specific price within a specified time span.
Whipsaw - A term used to describe a condition in a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Yard - Another term for a billion.
Account - Record of all transactions.
Account Balance - Same as balance.
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.
Adjustment - A change made in the internal economic policies to correct a payment imbalance or in the official currency rate.
Agent - An individual employed to act on behalf of another (the principal).
Aggregate Demand - The sum of government spending, personal consumption expenditures, and business expenditures.
All or None - A limit price order that instructs the broker to fill the whole order at the specified price or not at all.
Appreciation - An increase in the value of an asset.
Arbitrage - The purchase or sale of an instrument, and simultaneous taking of an equal and opposite position in a related market, to profit from small price differentials.
Ask Rate - The lowest price at which a financial instrument is offered for sale (as in bid/ask spread).
Ask Size - The amount of shares being offered for sale at the ask rate.
Asset Allocation - Investment practice that distributes funds among different markets (cash, forex, stocks, bonds, commodity, real estate) to achieve diversification for risk management purposes.
At Best - An instruction given to a dealer to buy or sell at the best rate that can be obtained.
At or Better - An order to deal at a specific rate or better.
Attorney in Fact - Someone who is allowed to transact business and execute documents on behalf of another person (holds power of attorney).
Back Office - The departments and processes related to the settlement of financial transactions (i.e. written confirmation and settlement of trades, record keeping).
Balance - Amount of money in an account.
Balance of Payments - A record of a nation's claims of transactions with the rest of the world over a particular time period. These inlcude merchandise, services and capital flows.
Balance of Trade - The value of a country's exports minus its imports.
Base Currency - The currency in which an investor or issuer maintains its books; the currency that other currencies are quoted against. In the forex market, 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.
Basis - The difference between spot price and futures price.
Basis Point - One hundredth of a percent.
Bear - An investor who believes that prices/the market will decline.
Bear Market - A market distinguished by a prolonged period of declining prices, usually accompanied with widespread pessimism.
Bid - The price a buyer is prepared to purchase at; the price offered for a currency.
Bid/Ask Spread - See spread
Big Figure - Dealer phrase 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/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits; i.e. "30/35".
Bonds - Tradable debt securities issued by a borrower to raise capital. They pay either fixed or floating interest, known as the coupon. As interest rates fall, bond prices rise and vice versa.
Book - In a professional trading environment, a book is the summary of a trader's total positions.
Bretton Woods Accord of 1944 - An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and set the price of gold at US $35 per ounce. The agreement lasted until 1971.
Broker - An individual or firm that acts as an intermediary, putting together buyers and sellers (for a fee or commission).
Bull - An investor who believes that prices/the market will rise.
Bull Market - A market distinguished by a prolonged period of rising prices. (Opposite of bear market).
Bundesbank - The central bank of
Cable - Slang for the British Pound Sterling.
Candlestick Charts - A chart that indicates the trading ranges for the day as well as the opening and closing price.
Capital Markets - Markets for medium to long term investment (usually over 1 year).
Central Bank - A government or quasi-governmental organization that manages a country's monetary policy a prints a nation’s currency. For example, the
Chartist - An individual who uses charts and graphs and interprets historical data to find trends, predict future movements and perform technical analysis.
Clearing - The process of settling a trade.
Close a Position (Position Squaring) - To eliminate an investment from one's portfolio by either buying back a short position or selling a long position.
Collateral - Something of value given to secure a loan or as a guarantee of performance.
Commission - The fee a broker charges for a transaction.
Confirmation - A document exchanged by counterparts to a transaction that confirms the terms of said transaction.
Contagion - The tendency of an economic crisis to spread from one market to another.
Contract (Unit or
Convertible Currency - A currency which can be exchanged freely for other currencies at market rates, or gold.
Cost of Carry - The cost associated with borrowing money in order to maintain a position. It is based on the interest parity, which determines the forward price.
Counter Currency - The second listed Currency in a Currency Pair.
Counter Party - The participant, either a bank or customer, with whom the financial transaction is made.
Country Risk - The risk associated with government intervention (does not include central bank intervention). Examples are legal and political events such as war, or civil unrest.
Credit Checking - Due to the large size of certain financial transactions that change hands, it is essential to check that the counter parties have room for the trade. Once the price has been agreed the credit is checked. If the credit is bad then no trade takes place. Credit is very important when trading, both in the Inter-bank market and between banks and their customers.
Credit Netting - Arrangements that exist to maximize free credit and speed the dealing process by reducing the need to constantly re-check credit.
Cross Rates - An exchange rate between two currencies.
Currency - A country’s unit of exchange issued by their government or central bank whose value is the basis for trade.
Currency Risk - The risk of incurring losses resulting from an adverse change in exchange rates.
Currency symbols:
AUD - Australian Dollar
CAD - Canadian Dollar
EUR - Euro
JPY - Japanese Yen
GBP - British Pound
CHF - Swiss Franc
Day Trading - Opening and closing the same position or positions within the same trading session.
Dealer - Someone who acts as a principal or counterpart to a transaction; places the order to buy or sell.
Deficit - A negative balance of trade (or payments); when expenditures are greater than income/revenue.
Delivery - An actual delivery where both sides transfer possession of the currencies traded.
Deposit - The borrowing and lending of cash. The rate that money is borrowed/lent at is known as the deposit rate (or depo rate).
Depreciation - A decline in the value of a currency, usually due to market forces.
Derivatives - Trades that are constructed or derived from another security (stock, bond, currency, or commodity).
Devaluation - The deliberate downward adjustment of a currency's value versus the value of another currency, normally caused by an official announcement.
Economic Exposure - The risk on a company's cash flow, stemming from foreign exchange fluctuations.
Economic Indicator - A statistic that indicates current economic growth and stability issued by the government or a non-government institution (i.e. Gross Domestic Product (GDP), Employment Rates, Trade Deficits, Industrial Production, and Business Inventories).
Efficient Market - A market in which the current price reflects all available information from past prices and volumes.
End Of Day (or Mark-to-Market) - Traders account for their positions in two ways: accrual or mark-to-market. An accrual system accounts only for cash flows when they occur, hence, it only shows a profit or loss when realized. The mark-to-market method values the trader's book at the end of each working day using the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start the next day with a net position.
Estimated Annual Income - Projected yearly earnings.
Euro - The currency of the European Monetary Union (EMU) which replaced the European Currency Unit (ECU).
European Central Bank - The Central Bank for the European Monetary
European Monetary
Exchange Rate Risk - See Currency Risk.
Federal Deposit Insurance Corporation (FDIC) - The regulatory agency responsible for administering bank depository insurance in the
Federal Reserve (Fed) - The Central Bank of the
First In First Out (FIFO) - Open positions are closed according to the FIFO accounting rule. All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.
Fixed Exchange Rate - An official exchange rate set by monetary authorities for one or more currencies.
Fixed Interest - The agreed interest rate remains constant for the term of the deal.
Flat (or Square) - To be neither long nor short.
Floating Rate Interest - As opposed to a fixed rate, the interest rate on this type of deal will fluctuate with market rates or benchmark rates.
Foreign Exchange (or Forex or FX) - The simultaneous buying of one currency and selling of another in an over-the-counter market.
Foreign Exchange Risk - See Currency Risk
Forex - Foreign Exchange.
Forward - A deal that will commence at an agreed date in the future.
Forward Points - The points (pips) added to or subtracted from the current exchange rate to calculate a forward price.
Forward Rate Agreements (FRAs) - Transactions that allow one to borrow/lend at a stated interest rate over a specific time period in the future.
Front Office - The trading room and other main business activities.
Fundamental Analysis - Thorough analysis of economic and political data with the goal of determining future movements in a financial market.
Futures - A way of trading financial instruments, currencies or commodities for a specific price on a specific date in the future. Unlike options, futures give the obligation (not the option) to buy or sell instruments at a later date. They can be used to both protect and to speculate against the future value of the underlying product.
FX - Foreign Exchange.
G7 - The seven leading industrial countries, being the
Going Long - The purchase of a stock, commodity, or currency for investment or speculation.
Going Short - The selling of a currency or instrument not owned by the seller.
Gross Domestic Product - Total value of a country's output, income or expenditure produced within the country's borders.
Gross National Product - Gross domestic product plus income earned from investment or work abroad.
Good 'Til Cancelled Order (GTC) - An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.
Hedge - An investment position or combination of positions that reduces the volatility of your portfolio value. One can take an offsetting position in a related security. Instruments used are varied and include forwards, futures, options, and combinations of all of them.
High/Low - Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.
"Hit the bid" - Acceptance of purchasing at the offer or selling at the bid.
Inflation - An economic condition where there is an increase in the price of consumer goods, thereby eroding purchasing power.
Initial Margin - The required initial deposit of collateral to enter into a position as a guarantee on future performance
Interbank Rates - The Foreign Exchange rates at which large international banks quote other large international banks
Interest Rate Swaps - An exchange of two debt obligations that have different payment streams. The transaction usually exchanges two parallel loans; one fixed, the other floating.
Interest Rate Swap Points - Interest rates may be determined by a simple rule using the bid and offer spread on an fx rate. If the rate quoted is in foreign (non US) terms and the offered price is higher than the bid, then the interest rate in that nation is higher than the rate in the base nation for the particular time in question. If quoted in American terms, the opposite is true. Example – USD/ JPY quoted 105.75 to 105.65. Because the offered price is lower than the bid, then you know that rates are lower in
Intervention - Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.
ISDA (International Swaps and Derivatives Association) - The body that sets terms and conditions for derivative trades
Kiwi - Slang for the
Leading Indicators - Economic variables that are considered to predict future economic activity (i.e. Unemployment, Consumer Price Index, Producer Price Index, Retail Sales, Personal Income, Prime Rate, Discount Rate, and Federal Funds Rate).
Leverage - Also called margin. The ratio of the amount used in a transaction to the required security deposit.
LIBOR - Stands for
LIFFE - The
Limit Order - An order to buy at or below a specified price or to sell at or above a specified price.
Liquid and Illiquid Markets - The ability of a market to buy and sell at ease with no impact on price stability. A market is described as liquid if the spread between the bid and the offer is small. Another measure of liquidity is the presence of buyers and seller, with more players creating tighter spreads. Illiquid markets have few players, hence, wider dealing spreads.
Liquidation - To close an open position throgh the execution of an offsetting transaction.
Liquid Assets - Assets that can be easily converted into cash. Examples: money market fund shares, US Treasury Bills, bank deposits, etc.
Long - A position to purchase more of an instrument than is sold, hence, an appreciation in value if market prices increase.
Margin - Customers must deposit funds as collateral to cover any potential losses from adverse movements in prices.
Margin Call - A requirement from a broker or dealer for additional funds or other collateral to bring the margin up to a required level to guarantee performance on a position that has moved against the customer.
Mark to Market (or End Of Day) - Traders account for their positions in two ways: accrual or mark-to-market. An accrual system accounts only for cash flows when they occur, hence, it only shows a profit or loss when realized. The mark-to-market method values the trader`s book at the end of each working day using the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start the next day with a net position.
Market Maker - A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices. A market maker runs a trading book.
Market Order - An order to buy/sell at the best price available when the order reaches the market.
Market Risk - Risk relating to the market in general and cannot be diversified away by hedging or holding a variety of securities.
Maturity - The date a debt becomes due for payment.
Mine and Yours - To announce that a trader wants to buy he/she may say or type Mine. This would also be known as taking the offer. To sell he will use Yours. This would be known as `hitting the bid`.
Money Markets - Refers to investments that are short-term (i.e. under one year) and whose participants include banks and other financial institutions. Examples include Deposits, Certificates of Deposit, Repurchase Agreements, Overnight Index Swaps and Commercial Paper. Short-term investments are safe and highly liquid.
Net Position - The amount of currency bought or sold which has not yet been offset by opposite transactions.
Net Worth - Amount of assets which exceed liabilities. May also be known as stockholders equity or net assets.
Off Balance Sheet - Products such as Interest Rate Swaps and Forward Rate Agreements are examples of 'off balance sheet' products. Also, financing from other sources other than equity and debt are listed.
Offer - The price, or rate, that a willing seller is prepared to sell at.
Offsetting Transaction - A trade that serves to cancel or offset some or all of the market risk of an open position.
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 Order - An order to buy or sell when a market moves to its designated price.
Open Position - A deal not yet reversed or settled and the investor is subject to exchange rate movements.
Options - An agreement that allows the holder to have the option to buy/sell a specific security at a certain price within a certain time. Two types of options – call and put. A call is the right to buy while a put is the right to sell.
Order - An order is an instruction, from a client to a broker to trade. An order can be placed at a specific price or at the market price. Also, it can be good until filled or until close of business.
Overnight - A trade that remains open until the next business day.
Over The Counter (OTC) - Used to describe any transaction that is not conducted over an exchange.
Pegging - A form of price stabilization; typically used to stabilize a country’s currency by making it fixed to the exchange rate with another country.
Pips (or Points) - The term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).
Political Risk - Changes in a country’s governmental policy, which may have an adverse effect on an investor's position.
Position - A trading view expressed by buying or selling. It can refer to the amount of a currency either owned or owed by an investor.
Premium - In the currency markets, it is the amount of points added to the spot price to determine a forward or futures price.
Price Transparency - Every market participant has equal access to the description of quotes.
Profit /Loss or "P/L" or Gain/Loss - The actual "realized" gain or loss resulting fromtrading activities on Closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.
Quote - An indicative market price; shows the highest bid and/or lowest ask price available on a security at any given time.
Rally - A recovery in price after a period of decline.
Range - The difference between the highest and lowest price of a future recorded during a given trading session.
Rate - The price of one currency in terms of another, typically used for dealing purposes.
Realized and Unrealized Profit and Loss - One using an accrual type accounting system has an “unrealized profit” until he sells his shares. Upon the sale of one’s shares, the profit becomes “realized.”
Re-purchase (or Repo) - This type of trade involves the sale and later re-purchase of an instrument, at a specified time and date. Occurs in the short-term money market.
Resistance - A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross above. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line.
Revaluation Rates - The revaluation rates are the market rates used when a trader runs an end-of-day to establish profit and loss for the day.
Risk - Exposure to uncertain change, the variability of returns significantly the likelihood of less-than-expected returns.
Risk Capital - The amount of money that an individual can afford to invest, which, if lost would not affect their lifestyle.
Risk Management - To hedge one's risk they will employ financial analysis and trading techniques.
Rollover - The settlement of a deal is rolled forward to another value date with the cost of this process based on the interest rate differential of the two currencies.
Round trip - Buying and selling of a specified amount of currency.
Settlement - The finalizing of a transaction, the trade and the counterparts are entered into the books.
Short - To go 'short' is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit.
Short Position - An investment position that results from short selling. Benefits from a decline in market price because the position has not been covered yet.
Spot - A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck.
Spot Price - The current market price. Spot transaction settlements usually occurs within two business days.
Spread - The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity.
Square - Purchase and sales are in balance and thus the dealer has no open position.
Stop Order - An order to buy/sell at an agreed price. One could also have a pre-arranged stop order, whereby an open position is automatically liquidated when a specified price is reached or passed.
Support Levels - A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross below. Recurring failure for the price to move below that point produces a pattern that can usually be shaped by a straight line.
Swaps - A swap occurs when one currency is temporarily exchanged for another, then the currency is held and exchanged later after a fixed period of time. To calculate the swap take the interest rate differential between the two underlying currencies, thus it may be used for speculative purposes to exploit anticipated movement in the interest rates.
Swissy - Market slang for Swiss Franc.
Technical Analysis - An effort to forecast future market activity by analyzing market data such as charts, price trends, and volume.
Tick - Minimum price move.
Ticker - Shows current and/or recent history of a currency either in the format of a graph or table.
Tomorrow Next (Tom/Next) - Simultaneous buying and selling of a currency for delivery the following day.
Transaction Cost - The cost associated with buying or selling of a financial instrument.
Transaction Date - The date on which the trade occurs.
Turnover - The volume traded, or level of trading, over a specified period, usually daily or yearly.
Two-Way Price - Both the bid and offer rate is quoted for a Forex transaction.
Unrealized Gain/Loss - The theoretical gain or loss on Open Positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains' Losses become Profits/Losses when position is closed.
Uptick - A new price quote that is higher than the preceding quote for the same currency.
Uptick Rule - In the
US Prime Rate - The interest rate at which US banks will lend to their prime corporate customers.
Value Date - The date that both parties of a transaction agree to exchange payments.
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.
Volume - The number, or value, of securities traded during a specific period.
Warrants - Warrants are a form of traded option. They are the right to purchase shares or bonds issued by a company at a specific price within a specified time span.
Whipsaw - A term used to describe a condition in a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Yard - Another term for a billion.
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