Forex Terminology
Master the Language of Trading with our Comprehensive Forex Terminology Guide.
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ABNORMAL RETURNS
Describes the difference between a portfolio's performance vs. the average market performance over a set period of time
ABSOLUTE ADVANTAGE
A country is said to have an absolute advantage if its output per unit of inputs of all goods is larger than that of another country
ACCOUNT
A record of financial transactions for an individual at a bank or a brokerage company
ACCOUNT BALANCE
The dollar amount currently remaining in an account
ACCOUNT EXECUTIVE
An individual who usually works for a brokerage company and has the legal power to buy or sell financial instruments on behalf of a client
ACCOUNT STATEMENT
A summary of all transactions and positions (long and short) between a broker/dealer and a client
ACCOUNTS PAYABLE
Money owed to customers or suppliers
ACCOUNTS RECEIVABLE
Money owed by customers
ACTIVITY
Accredited investors must have a combined net worth with their spouse in excess of $1,000,000, or individual income for the past two years in excess of $200,000, or have joint income with their spouse in excess of $300,000 for the past two years or be a director or executive officer of the company
ADJUSTABLE RATE
An interest rate that is adjusted periodically, usually according to a standard market rate outside the control of the bank or savings institution
AFFILIATE
Relationship between two companies when one company owns substantial interest of another company
AFTER HOURS TRADING
Trading after regular trading hours on organized exchanges
AGENT
An agent acts as intermediary between buyer and seller, taking no financial risk personally or as a firm, and charging a commission for the service
AGGREGATE DEMAND
The total demand for goods and services produced in the economy over a period of time. It includes consumer demand of durable and nondurable items, investment spending by companies on capital goods, government spending on publicly provided goods and services, and the difference between exports and imports of goods and services of the country
AGGREGATE SUPPLY
A measure of the total supply of goods and services produced within the economy from domestic sources that are available to meet aggregate demand
ALL OR NONE
A Futures order that instructs the broker to either fill the whole order or not at all
ALPHA
A coefficient measuring the risk-adjusted performance of a currency or stock option. A large alpha indicates that the underlying has performed better than would be predicted given its beta (volatility)
ALTERNATIVE INVESTMENTS
Investments in hedge funds that pursue strategies uncommon in mutual funds such as long-short equity, event driven, statistical arbitrage, fixed income arbitrage, convertible arbitrage, short bias, global macro, and equity market neutral
AMERICAN OPTION
An option that may be exercised at any time prior to expiration, as opposed to a European option that can only be exercised on a specific date (usually at expiration)
AMEX
American Stock Exchange
AMMAN STOCK EXCHANGE
The formal securities market in Jordan
AMORTIZATION
The repayment of a loan by installments
ANALYST
An employee of a brokerage house who studies companies and makes buy/sell recommendations on various instruments
ANNOUNCEMENT DATE
Date when particular news concerning a company is announced to the public
ANNUAL REPORT
Yearly record of a company's financial condition. It includes the firm's operations, balance sheet, income statement, and cash flow statement
ARBITRAGE
The simultaneous purchase and sale of the same (or equivalent) financial instrument on different markets to profit from price discrepancies
ASK
The price at which the currency or instrument is offered
ASSET
Any possession that has value
ASSET BACKED SECURITY
A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, not real estate.
ASSET MANAGEMENT ACCOUNT
Account at a brokerage house, bank, or savings institution that integrates banking services and brokerage features
AT BEST
Instructions given to a dealer to buy or sell the currency or instrument at the best rate that can be obtained
AT OR BETTER
Instructions given to a dealer to buy or sell the currency or instrument at a specific rate or better
AT PAR
A price equal to nominal or face value of a security
AT THE MARKET
A price equal to nominal or face value of a security
AT-THE-MONEY
An option whose strike/exercise price is equal to or near the current market price of the underlying instrument
AUDIT
An examination of a company's accounting records and books conducted by an outside professional in order to determine whether the company is maintaining records according to generally accepted accounting principles
AWAY FROM THE MARKET
On limit orders, a buy order away from the market would be placed lower than the current market price, and sell orders would be placed higher than the current market price. Such orders are usually held to be executed later
B2B
Business to Business; A strategy of dealing directly with businesses, rather than consumers
BACK OFFICE
Clerical operations that support settlement of trades and related processes
BACK TESTING
Creating a hypothetical performance history by applying current selection criteria to prior time periods
BALANCE OF PAYMENTS
A record of all economic transactions between the residents of a country and the rest of the world, usually over a specific period of time
BALANCE OF TRADE
The value of exports less imports of an economy. There are visible and invisible balance figures. The visible balance represents the physical goods while the invisible represents the service economy
BANK NOTES
Bank notes are paper issued by the central bank and are legal tender
BANK RATE
The rate at which a central bank is prepared to lend money to its domestic banking system
BANK WIRE
A computer message system linking major banks that is used as a mechanism to advise the receiving bank of some action that occurred
BANKRUPTCY
Inability to pay debts
BARRIER OPTION
A path dependent option that has a knock-in or knock-out feature that causes the option to become effective or terminate if a specified barrier level is reached
BASE CURRENCY
In Foreign exchange markets, the base currency is the first currency in a currency pair. The second currency is named the quote currency or secondary
BASIS POINT
One hundredth of a percentage point (0.01%)
BASIS
The difference between the cash price and futures price
BEAR (PUT) SPREAD
A spread designed to exploit falling exchange rates by purchasing a put option with a high strike price and selling one with a low strike price
BEAR MARKET
A substantial drop in prices over a prolonged period of time
BEAR
An investor who believes that prices are going to fall
BENEFICIAL OWNER
Person who enjoys the benefits of ownership even though title is in another name
BETA
The measure of an asset's risk in relation to the market. A security with a beta of 1.5, will move about 1.5 times the market return
BID
The highest price a dealer will pay at any given time to purchase a currency pair or a financial instrument
BIG FIGURE
Refers normally to the first three digits of an exchange rate
BLACK-SCHOLES MODEL
An option pricing formula initially derived by Fisher Black and Myron Scholes for securities options and later refined by Black for options on futures
BOLLINGER BANDS
A technical study used by chartists; Plus or minus two standard deviations where the standard deviations are calculated historically in a moving window estimation. Hence, the bands will widen if the most recent data is more volatile. If the prices break out of the band, this is considered a significant move
BOND
Bonds are debt instruments issued by a government or municipality for a period of more than one year. An investor is lending money when buying bonds. The seller of the bond agrees to repay the principal amount of the loan at a specified time plus interest
BOND RATING
A rating based on the possibility of default by a bond issuer. The ratings range from AAA to D
BREAK EVEN POINT
The price of a financial instrument where total revenue received equals total costs (TR=TC)
BREAK OUT
A technical term used by chartists to denote a break of a support, a resistance level, or any technical formation
BROKER
An agent who executes orders to buy and sell currencies and related instruments either for a commission or a spread
BROKERAGE
The commission charged by a broker
BUBA (BUNDESBANK)
Bundesbank, the Central Bank of Germany
BULL MARKET
A spread designed to exploit rising exchange rates by purchasing a put option with a lower strike price and selling one with a higher strike price
BULL (CALL) SPREAD
An option strategy combining a bull and bear spread. It uses three strike prices. The lower two strike prices are used in the bull spread and the higher strike price from the bear spread. Both puts and calls can be used
BULLION
A term for gold bars
BUTTERFLY SPREAD
An option strategy combining a bull and bear spread. It uses three strike prices. The lower two strike prices are used in the bull spread and the higher strike price from the bear spread. Both puts and calls can be used
BUYER/TAKER
The purchaser of a currency pair or an option
BUYING RATE
Rate at which the dealer is willing to buy the currency; or bid price
BUYING THE SPREAD
In an option, buy the nearby contract and simultaneously sell the deferred contract; also referred to as a bull spread
CABLE
A term used in the foreign exchange market for the USD/GBP rate
CALENDAR SPREAD
An option position comprised of purchase and sale of two option contracts of the same type and at the same strike price but with different expiration dates
CALL OPTION
An option that gives the holder the right, but not the obligation, to buy the underlying instrument at a specified price during a fixed period
CANCEL
To void a working order in the market
CAPITAL
Money invested in a company
CAPM
Capital Asset Pricing Model; An economic theory that describes the relationship between risk and expected return, and serves as a model for the pricing of risky securities
CAPITAL GAIN
When securities are sold for a profit, the capital gain is the difference between the net sales price of the securities and their net cost
CAPITAL MARKETS
A general term encompassing all markets for financial instruments with more than one year to maturity
CAR
A term used to describe the amount of an underlying commodity; one commodity contract
CASH COW
A company that generates a steady and significant amount of free cash flow
CASH DELIVERY
Same day settlement
CASH FLOW
Measure of the actual cash generated by a business rather than the accounting profit
CASH MARKETS
Also called spot markets; these are markets that involve the immediate delivery of an instrument
CASH SETTLEMENTS
A method of settling certain futures or option contracts whereby the seller pays the buyer the cash value of the commodity traded
CEILING
The highest price such as an interest rate or other numerical factor allowable in a financial transaction
CENTRAL BANK
A bank which is responsible for controlling a country's monetary policy
CERTIFICATE OF DEPOSIT
A negotiable certificate in bearer form issued by a commercial bank as evidence of a deposit with that bank which states the maturity value, maturity rate and interest rate payable
CHAPTER 7 PROCEEDINGS
Provisions of the Bankruptcy Reform Act under which the debtor's assets are liquidated by a court because reorganization would fail to establish a profitable business
CHAPTER 11 PROCEEDINGS
Provisions of the Bankruptcy Reform Act under which the debtor is reorganized by a court because the estimated value of the reorganization exceeds the expected proceeds from its liquidation
CHARTIST
An individual who studies graphs of historic data to find trends and predict support and resistance levels as well as other continuation and reversal patterns
CLASS
Options of the same type with the same underlying security
CLEARING
The procedure were a clearing house or principle becomes the buyer and/or the seller, and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract
CLEARING HOUSE
An adjunct to a futures exchange through which transactions executed on its floor are settled by a process of matching trades
CLOSED POSITION
A transaction which leaves the trade with a zero net exposure to the market with respect to a particular currency
CME
Chicago Mercantile Exchange
COMEX
Commodity Exchange of New York
COMMISSION
The fee that a broker may charge clients for dealing on their behalf
COMMODITY
A commodity is food, metal, or another fixed physical substance that investors buy or sell, usually through futures contracts
CONDOR
An option strategy consisting of both puts and calls at different strike prices to capitalize on a narrow range of volatility
CONFIRMATION
Monthly measure of prices of a specified set of consumer goods and services, providing a measure of inflation. Rising CPI is normally associated with expectation of higher short term interest rates and may therefore be supportive for a currency in the short term.
CONTRACT EXPIRY DATE
The last trading date of a futures or options contract
CORPORATE FINANCE
The processes by which companies raise capital to fund growth, acquisitions etc; the division of an investment bank which advises on acquisitions, mergers, bid defenses, restructures and disposals
COVER
Any transaction taken to limit exposure
COVERED CALL
Having a long position in a currency or an asset combined with a short call option position on the same underlying currency or asset
COST OF LIVING INDEX
An index that measures inflation such as CPI
COUNTER PARTY
The party that takes the other side of an exchange transaction
COUNTER VALUE
If a currency is traded against the dollar, the counter value would be the dollar value of the transaction
CREDIT RISK
The risk of loss due to a counterparty defaulting or a debtor not repaying, or more generally the risk of loss due to some "credit event"
CROSS DEAL
A foreign exchange deal involving two currencies that neither of which is the US Dollar or the base currency
CROSS RATES
Rates between two currencies that neither of which is the US Dollar or the base currency
CURRENCY SWAP
An agreement to swap a series of specified payment obligations denominated in one currency for a series of specified payment obligations denominated in a different currency
CURRENT ACCOUNT
The net balance of a country's balance of payments (BOP) and contains the import and export items of goods and services as well as transfer payments and net investment income
DAY ORDER
An order that is automatically canceled if not executed during the day
DAY TRADER
A trader who takes positions that are closed during the same trading day
DEAL DATE
The date that the transaction took place
DEAL TICKET
The primary method of recording the basic information of a transaction
DEALER
An individual or firm acting as a principal in the purchase or sale of currencies or securities. Dealers trade for their own account and risk
DECLARATION DATE
The latest day or time by which the buyer of an option must indicate to the seller his intention to execute the option
DEFAULT
Failure to make timely payment of interest or principal on a debt security
DEFICIT
A shortfall that is usually referenced to the balance of trade
DEFLATOR
A price index measuring changes in prices of all new, domestically produced, final goods and services in an economy
DELIVERY DATE
The date when the exchange of the currencies is made on a currency contract, or the value date. Could also refer to the exchange of commodity on a commodities contract
DELIVERY MONTH
The calendar month in which a futures contract comes to maturity and becomes deliverable
DELIVERY POINTS
Those locations designated by futures exchanges at which the futures contract may be delivered in fulfillment of the contract
DELIVERY
The settlement of a futures contract by receipt or tender of a financial instrument, currency or commodity
DELTA
Delta measures the sensitivity of the value of an option to changes in the price of its underlying instrument
DELTA HEDGING
A method used by option writers to hedge risk exposure of written options by purchase or sale of the underlying instrument in proportion to the delta
DELTA SPREAD
A ratio spread of options established as a neutral position by using the deltas of the options concerned to determine the hedge ratio
DEPO
Deposit
EXERCISE PRICE
The price at which an options holder can buy or sell the underlying instrument
DEPRECIATION
A fall in the value of a currency due to market forces
DEREGULATION
The reduction of government's role in controlling markets, which leads to a free and presumably a more efficient marketplace
DERIVATIVES
A broad term relating to instruments such as futures or options. The value of a derivative instrument moves in relation to the underlying
DEVALUATION
Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement from the government
DIAGONAL SPREAD
The purchase of a longer maturity option and the sale of a shorter maturity, lower exercise price option. The choice of calls or puts will determine its bear or bull character
DIRECT QUOTE
For foreign exchange, the number of US dollars needed to buy one unit of a foreign currency
DIRTY FLOAT
A system of floating exchange rates in which a government may intervene to change the direction of the value of the country's currency
DISCLOSURE
The release of all information pertaining to the company's business activity, regardless of how that information may influence investors
DISCOUNT
A term used for instruments where the forward rate is lower than the spot rate or where an option is trading for less than its intrinsic value
DISCOUNT RATE
The rate at which a central bank is prepared to discount certain bills for financial institutions as a means of easing their liquidity
DISCRETIONARY ACCOUNT
Accounts over which an individual or organization, other than the person in whose name the account is carried, exercises trading authority or control
DISINFLATION
A decrease in the rate of inflation
DISINVESTMENT
A reduction in capital investment of a company and its decision not to replace depleted capital goods
DISPOSABLE INCOME
Earnings after tax
DIVERGENCE
When two or more averages or indexes fail to show confirming trends
DIVIDEND
A portion of a company's profit paid to common and preferred shareholders
DIVIDEND RATE
The fixed or floating rate paid on preferred stock based on par value
DOMESTIC MARKET
A nation's internal market representing the mechanisms for issuing and trading securities of entities domiciled within that nation
DOUBLE BOTTOM
A term used in technical analysis to refer to the drop of a stock's price, a rebound, and then a drop back to the same level as the original drop
DOUBLE TOP
A term used in technical analysis to refer to the rise of a stock's price, a drop, and then a rise back to the same level as the original rise
DOWNGRADE
A negative change in ratings for a stock, or other rated security
DUE DILIGENCE
Background check and research conducted by the company to assess validity of a prospective client and that client's customers
DURABLE GOODS ORDERS
A measure of new orders placed with domestic manufacturers for immediate and future delivery. A major indicator of the health of the manufacturing sector in an economy
EBIT
Earnings before Interest and Taxes
EBITD
Earnings before Interest, Taxes and Depreciation
EBITDA
Earnings before Interest, Taxes, Depreciation and Amortization
ECB
Earnings Per Share; A company's profit divided by its number of outstanding shares
EPS
A day when the banks in a currency's principal financial center are open for business
EASING
A modest decline in interest rates or prices
ECONOMIC INDICATOR
A statistic released by a government body that indicates current economic trends such as growth rate, retail sales, employment, etc.
EMPLOYMENT RATE
The percentage of the labor force that is employed
EQUILIBRIUM EXCHANGE
Exchange rate at which demand for a currency is equal to the supply of the currency in the economy
EQUITY
The residual dollar value of a trading account, assuming its liquidation is at the current market price
EUROCURRENCY
Currency deposited by companies and federal governments in banks outside their own country, usually currency of a non-European country deposited in Europe
EURODOLLARS
Deposits denominated in United States Dollar at banks outside the United States
EUROPEAN OPTION
An option that can be exercised only on its expiration date rather than before that date
EUROPEAN UNION
The group of countries formally known as the European Community
EXCHANGE CONTROL
A system of controlling inflows and outflows of foreign exchange
EXCHANGE RATE
The price of one country's currency expressed in another country's currency
EXECUTION
The process of completing an order to buy or sell an instrument
EXERCISE NOTICE
The formal notification that the holder of a call (or put) option wishes to buy (or sell) the underlying security at the exercise price
EXERCISE PRICE
The price at which an options holder can buy or sell the underlying instrument
EXERCISE VALUE
The profit amount between the strike price and the underlying investment when the option is exercised
EXOTIC
A less broadly traded currency or option
EXPIRATION DATE
The last date after which the option can no longer be exercised
EXPIRATION MONTH
The month in which an option expires
EXPIRY DATE
The last date on which an option can be bought or sold
EXPOSURE
The condition of being subjected to a source of risk
FAIR MARKET PRICE
Amount at which an asset would change hands between two parties, were both have knowledge of the relevant facts
FAST MARKET
A financial market that has a combination of high volatility and heavy trading
FED FUND RATE
The interest rate at which banks lend to each other overnight. This is a closely watched short term interest rate that the Fed controls through open market operations
FED
The United States Federal Reserve. The 7-member Board of Governors that oversees Federal Reserve Banks, establishes monetary policy, and monitors the economic health of the country
FEDERAL OPEN MARKET COMMITTEE
A 12-member committee which sets credit and interest rate policies for the Federal Reserve System. This committee consists of 7 members of the Board of Governors, and 5 of the 12 Federal Reserve Bank Presidents. This group, headed by the Chairman of the Federal Reserve Board, sets interest rates either directly (by changing the discount rate) or through the use of open market operations (by buying and selling government securities which affects the federal funds rate)
FEDERAL RESERVE BOARD
The 7-member Board of Governors that oversees Federal Reserve Banks. Its members are appointed by the President subject to Senate confirmation, and serve 14-year terms. Also called the Fed
FEDERAL RESERVE SYSTEM
The central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board
FIDUCIARY
One who must act for the benefit of another party
FILL
The price at which an order is executed
FILL OR KILL
An exchange traded order that is canceled unless executed within a designated time period
FINANCE COMPANY
A company whose business and primary function is to make loans to individuals, while not receiving deposits like a bank
FINANCIAL INSTITUTION
An enterprise such as a bank whose primary business and function is to collect money from the public and invest it in financial assets
FINANCIAL FUTURE
A futures contract based on a financial instrument
FINANCIAL MARKET
An organized institutional structure for creating and exchanging financial assets
FISCAL POLICY
Government spending and taxing for the specific purpose of stabilizing the economy
FIXED EXCHANGE RATE
Official rate set by monetary authorities. Often the fixed exchange rate permits fluctuation within a band
FIXING
A method for determining fixed rates. Such a process occurs either once or twice daily at defined times. The system is also used in the London Bullion market
FLEXIBLE EXCHANGE RATE
Exchange rates with a fixed parity against one or more currencies with frequent revaluation. A form of managed float
FLOATING EXCHANGE RATE
An exchange rate where the value is determined by market forces
FLOATING PROFIT/LOSS
The profit/loss that may only be realized if the open contracts are liquidated (settled)
FLOOR
An exchanges trading area. May also be used as the lower limit of an option or an interest rate
FOMC
See Federal Open Market Committee
FOREIGN EXCHANGE
The purchase or sale of a currency against another
FOREX
An over-the-counter market where buyers and sellers conduct foreign exchange transactions
G7
The seven leading industrial countries, being US, Germany, Japan, France, UK, Canada, Italy
G10
G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions
GAMMA
A measurement of how fast delta changes, given a unit change in the underlying price of the instrument
GAP
A significant price movement of a currency, security or commodity between two trading sessions
GLOBALIZATION
A Tendency toward a worldwide investment environment and the integration of national capital markets
GLOBEX
A system for global after hours electronic trading in futures and options developed by Reuters for CME and CBOT for use in conjunction with various exchanges around the world
GOLD BULLION
A Investment-grade gold which may be smelted into gold coins or bars
GOLD STANDARD
A monetary system that backs its currency with a reserve of gold, and allows currency holders to convert their currency into gold. The U.S. went off the gold standard in 1971
GOOD UNTIL CANCELED
(GTC) An instruction to a broker that the order must remain valid until cancelled by the client
GROSS
Before deduction of tax
GROSS DOMESTIC PRODUCT
GDP is the broadest measure of aggregate economic activity available. The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports
GDP DEFLATOR
A ratio that is used to account for the effect of inflation on the GDP figure
GTC
See Good until Canceled
GTF
(GTF) An instruction to a broker that the order must remain valid until closing of trading day on Friday
HARD CURRENCY
A freely convertible currency that is not expected to depreciate in value in the foreseeable future
HEAD AND SHOULDERS
A technical analysis term referring to a chart formation in which a price exhibits three successive rallies, the second one being the highest. The name derives from the fact that on a chart the first and third rallies look like shoulders and the second looks like a head. Bearish indicator
HEDGE
An investment made in order to reduce the risk of adverse price movements in a currency or security, by taking an offsetting position in the same or a related instrument
HEDGE FUND
A fund that may employ a variety of techniques to enhance returns
HIBOR
Hong Kong Inter-bank Offered Rate
HISTORICAL VOLATILITY
The historical rate at which the price of an underlying currency or security moves up and down
HOLDER
Buyer
HORIZONTAL SPREAD
The simultaneous purchase and sale of two options that differ only in their expiration dates
HOUSING STARTS
A measure of the number of residential units on which construction is begun each month
HYPERINFLATION
Very high and self-sustaining inflation levels
KEYNESIAN ECONOMICS
An economic theory of British economist, John Maynard Keynes that active government intervention is necessary to ensure economic growth and stability
KIWI
Slang for the New Zealand dollar
KNOCK IN
Where a barrier option becomes active as the underlying spot price hits the barrier level
KNOCK OUT
Where a barrier option ceases to exist as the underlying spot price hits the barrier level
LAGGING INDICATORS
Economic indicators that follow rather than precede the country's overall pace of economic activity
LAISSEZ-FAIRE
Doctrine that a government should not interfere with business and economic affairs
LAST TRADING DAY
The day on which trading ceases for an expiring contract
LBO
A transaction used to take a public corporation private that is financed through debt such as bank loans and bonds
LEAD MANAGER
The commercial or investment bank with the primary responsibility for organizing syndicated bank credit or bond issue. The lead manager recruits underwriting banks, negotiates terms of the issue with the issuer, and assesses market conditions
LEADING INDICATORS
An economic indicator that changes before the economy has changed. Examples of leading indicators include production workweek, building permits, unemployment insurance claims, money supply, inventory changes, and stock prices
LEVERAGE
The degree to which an investor or business is utilizing borrowed money
LIBID
The London Interbank Bid Rate; the rate charged by one bank to another for deposits
LIBOR
The London Interbank Offered Rate, the rate charged by one bank to another for lending money
LIFFE
London International Financial Futures Exchange
LIMIT DOWN
The maximum price decline permitted in one trading session
LIMIT ORDER
An order to buy or sell a specified amount of a security at a specified price or better
LIMIT UP
The maximum price advance permitted in one trading session
LIMIT
The amount that one bank is prepared to trade with another; or the amount that a dealer is permitted to trade in a given currency
LINES
A banking arrangement to lend an investor any amount up to the full amount of the line
LIQUIDATION
Any transaction that closes out a previously established position
LIQUIDITY
The ability of an asset to be quickly converted into cash; or a market with a large number of buyers and sellers
LOMBARD RATE
One of the key commercial interest rates in Europe; an interest rate for a loan against the security of pledged paper
LONG
The state of actually owning a currency, security, or commodity
LONG HEDGE
The purchase of futures contracts for price protection purposes as a defensive position against an increase in cash prices
M0
Cash in circulation; only used by the UK
M1
Cash in circulation plus demand deposits at commercial banks
M2
Includes demand deposits, time deposits and money market mutual funds, excluding large CDs
M3
M2 plus large time deposits, repos of maturity greater than one day and institutional money market accounts
M4
M2 plus negotiable CDs
MACROECONOMICS
Analysis of a country's economy as a whole
MAINTENANCE MARGIN
The minimum margin which an investor must keep on deposit in a margin account at all times for of each open contract
MARGIN CALL
Difference between the buying and selling rates; or the initial deposit made brokerage firm upon establishing an account
MARGIN
The risk that a customer goes bankrupt after entering into a forward contract
MARKED-TO-MARKET
An arrangement whereby the profits or losses on a futures contract are settled each day
MARK UP
The difference between the lowest current offered price and the higher price that a dealer charges to a customer
MARKET AMOUNT
The conventional amount dealt between banks
MARKET IF TOUCHED (MIT)
An exchange order that automatically becomes a market order if the specified price is reached
MARKET ON CLOSE (MOC)
An exchange order that is filled as close as possible to the close
MARKET MAKER
A brokerage company or a bank that maintains a firm bid and ask price and is ready, willing, and able to buy or sell at publicly quoted prices
MARKET ORDER
An order to buy or sell a financial instrument immediately at the best possible price
MATIF
Marche a Terme International de France
MATURITY DATE
The last trading day of a futures contract
MEDIUM TERM NOTE
A corporate debt instrument that has maturity bands of: 9 months to 1 year, more than 1 year to 18 months, more than 18 months to 2 years, etc., up to 30 years
MICROECONOMICS
The study of the behavior of small economic units such as individual consumers or households
MIDDLE OFFICE
The group of employees responsible for calculating profits and losses and for managing risks
MID-PRICE
The average of both buying and selling prices
MINE
Expression used to indicate that the willingness to buy at the rate offered by the counter party
MINIMUM PRICE FLUCTUATION
The smallest increment of market price movement possible
MINIMUM RESERVE
Reserves required to be deposited at central banks by commercial banks and other financial institutions
MIO
Traders' reference for a Million
MM
Money Markets
MODERN PORTFOLIO THEORY
Principles underlying the analysis and evaluation of rational portfolio choices based on risk-return trade-offs and efficient diversification
MOMENTUM INDICATORS
Technical analysis term referring to indicators used to detect the speed or strength of a price movement
MONEY MARKET
Market for short-term debt securities with maturity of one year or less and often 30 days or less
MONEY SUPPLY
The total supply of money in circulation in a given country's economy at a given time
MOVING AVERAGE
A technical analysis term meaning the average price of an instrument over a specified time period, used in order to spot pricing trends by flattening out large fluctuations
MUTUAL FUND
An open-ended fund operated by an investment company that raises money from shareholders and invests in a group of assets in accordance with a stated set of objectives
NASD
National Association of Securities Dealers; Nonprofit organization formed under the joint sponsorship of the investment bankers' conference and the SEC to provide regulation on the OTC market
NET ASSET VALUE
The value of a fund's investments
NET POSITION
The difference between total open long and open short positions in a given instrument held by an individual
NET PRESENT VALUE
The present value of the expected future cash flows minus the cost
NEUTRAL
Describing an opinion that is neither bearish nor bullish
NEW YORK MERCANTILE EXCHANGE NYMEX
The world's largest physical commodity futures exchange
NEW YORK STOCK EXCHANGE
NEW YORK STOCK EXCHANGE
NOSTRO ACCOUNT
A foreign currency current account maintained with another bank that is used to receive and pay currency assets and liabilities denominated in the currency of the country in which the bank is resident
NOT HELD ORDER
A futures order, usually a Market order, in which the customer gives the floor broker total discretion to transact on a best-efforts basis
NOTE
A short-term debt security usually with a maturity of five years or less
OECD
An international organization helping governments tackle the economic, social and governance challenges of a global economy
OFFER
The price at which a seller is willing to sell
OFFERED MARKET
Temporary situation where offers exceed bids
OFFERING MEMORANDUM
A document that outlines the terms of securities to be offered in a private placement
OFFSET
The closing-out or liquidation of a position
OFF-SHORE
The operations of a financial institution that although physically located in a country, has little connection with that country's financial systems
OMNIBUS ACCOUNT
An account maintained by one broker with another in which all of the accounts of the former are combined and carried only in its name, rather than designated separately
OPEN INTEREST
The total number of outstanding option or futures contracts that have not been closed out by offset or fulfilled by delivery
OPEN MARKET COMMITTEE
Same as Federal Open Market Committee
OPEN MARKET OPERATIONS
Central Bank operations in the markets to influence exchange and interest rates
OPEN POSITION
A position that is not yet closed
OPTION CLASS
Options of the same type as said to be of the same class
OPTION SERIES
The right, but not the obligation, to buy (call) or sell (put) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (the strike price) during a specified period of time
OPTION
The net of the total commitments in a given currency
OTC
Over-the-Counter; A security which is not traded on an exchange
OUT-OF THE MONEY
A call option whose strike price is higher than the market price of the underlying, or a put option whose strike price is lower than the market price of the underlying
OVER BOUGHT
Technically too high in price, and hence a technical correction is expected
OVERNIGHT LIMIT
Net long or short position in one or more currencies that a dealer can carry over into the next dealing day
OVERNIGHT
A deal from today until the next business day
OVER THE COUNTER
See OTC
OVER SOLD
Technically too low in price, and hence a technical correction to the upside is expected
PAID-IN CAPITAL
Represents the excess of funds received for stock of a corporation in excess of its book value
PAR
Equal to the nominal or face value of a security; A bond selling at par is worth an amount equivalent to its original issue value or its value upon redemption at maturity
PARITY
Equality; the value of one currency in terms of another
PAYMENT DATE
The date on which a dividend or bond interest payment is scheduled to be delivered
PAYROLL EMPLOYMENT
Payroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government
P/E
Price Earnings Ratio; shows the multiple of earnings at which a stock sells and determined by dividing current stock price by current earnings per share
PENSION FUND
A fund set up to pay the pension benefits of workers after retirement
PETRODOLLARS
Foreign exchange reserves of oil producing nations arising from oil sales
PHYSICAL COMMODITY
A commodity is food, metal, or another fixed physical substance that investors buy or sell
PIP
The smallest price unit in a currency (0.0001 of a unit)
PLAZA ACCORD
The 1985 Plaza Hotel agreement by the G5 to lower the dollar
POINT
Minimum fluctuation or smallest increment of price movement; One percent on an interest rate
PORTFOLIO
A collection of investments, real and/or financial
POSITION
The net of the total commitments in a given currency
POWER OF ATTORNEY
A written authorization allowing a person to perform certain acts on behalf of another, such as moving of assets between accounts or trading for a person's benefit
PREFERRED SHARES
Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders
PRESENT VALUE
The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future
PRICE GAP
Gaps occur when opening price movements create a blank spot on the chart. This occurs when the high of the day is below the low of the previous day or when the low of the day is above the high of the previous day
PRIMARY DEALER
Usually refers to the select list of securities firms that are authorized to deal in new issues of government bonds
PRODUCER PRICE INDEX
PPI; An inflationary indicator published by the U.S. Bureau of Labor Statistics to evaluate wholesale price levels in the economy
PROGRAM TRADING
Trades based on signals from computer programs, usually entered directly from the trader's computer and executed automatically
PREMIUM
The amount by which a forward rate exceeds a spot rate; the margin paid above the normal price level
PRICE EARNINGS RATIO
See P/E above
PROFIT TAKING
The action taken by investors to sell when prices are rising or to purchase when prices are declining in order to secure gains
PUT OPTION
Gives the right but not the obligation to sell currencies or instruments at the option exercise price within a predetermined time period
QUANTITATIVE RESEARCH
Use of advanced econometric and mathematical valuation models to identify the firms with the best possible prospective
QUOTE
The price quoted for information purposes but not to deal
QUOTA
The amount of sales needed to reach a company's sales goal; an amount set by the government to limit imports or exports
RALLY
A substantial rise in the market price following a decline
RANGE
The high and low transaction prices of a currency, security or commodity during a given period
RATE
The price of one currency in terms of another
RATING
An evaluation of credit quality of a company's debt issue by a rating agency. Investors and analysts use ratings to assess the riskiness of an investment
RATIO SPREAD
Buying a specific quantity of options and selling a larger quantity of out of the money options
RATIO CALENDAR SPREAD
Selling more near-term options than longer maturity options at the same strike price
REACTION
A reversal of the prevailing trend in price movement. The term is most often used to describe a decline after a period of rising prices
REAL
Inflation-adjusted model of Gross Domestic Product
REAL GDP
An investor who has sold a currency or an instrument without having covered it
REAL TIME
REAL TIME
RECESSION
A period of general economic decline; specifically a decline in GDP for two or more consecutive quarters
REINVESTMENT RATE
The rate at which interest earned on a loan can be reinvested. The rate may not attract the same level of interest as the principal amount
REPO
A contract in which the seller of fixed income securities such as Treasury Bills agrees to buy them back at a specified time and price
REPO RATE
See Repo
RESERVES
Funds set aside for emergencies or other future needs; Official reserves are to ensure that a government can meet near term obligations
RESERVE REQUIREMENT
The ratio of reserves to deposits, expressed as a fraction, prescribed by national banking authorities
RESISTANCE POINT
A price recognized by technical analysts as a price which is likely to result in a rebound but if broken through is likely to result in a significant price movement
RETAIL PRICE INDEX
RPI; an inflationary indicator that measures the change in the cost of a fixed basket of retail goods
RETAIL SALES
A monthly measurement of all goods sold by retailers based on a sampling of retail stores of different types and sizes; often a measure of consumer confidence
RETURN ON EQUITY
Indicator of profitability. Determined by dividing net income for the past 12 months by common stockholder equity
RETURN ON INVESTMENT
A figure of merit used to help make capital investment decisions. ROI is calculated by considering the annual benefit divided by the investment amount
REUTER DEALING
A system for screen-based trading between banks in operation since the early 1980s
REVERSAL
Change in the general trend of the market
REVALUATION
A change, usually an increase, in a country's fixed exchange rate as a result of official action
RISK MANAGEMENT
The process of analyzing exposure to risk and determining how to best handle such exposure
RISK REVERSAL
A combination of purchasing put options with the sale of call options. The put limits downside, while the call limits the upside
ROLLOVER
A completed transaction involving both a purchase and a subsequent sale, or a sale followed by a liquidating purchase
ROUND TURN
RUNNING A POSITION: Keeping open positions in the hope of a speculative gain
SAME DAY TRANSACTION
A transaction that matures on the day the transaction takes place
SCALPING
A strategy of buying at the bid and selling at the offer as soon as possible
SDR
Special Drawing Right; an artificial currency unit based upon several national currencies. SDR serves as the official monetary unit of the IMF, and acts as a supplemental reserve for national banking systems
SECONDARY MARKET
The market in which securities are traded after they are initially offered in the primary market
SELLING RATE
Rate that a bank is willing to sell foreign currency
SERIES
All options of the same class which share a common strike price and expiration date
SETTLEMENT DATE
The date by which an executed transaction must be settled; in currencies it is 2 days while stocks is 3 days
SETTLEMENT PRICE
The official closing price for a future set by the clearing house at the end of each trading day
SHARES
Certificates or book entries representing ownership in a corporation or similar entity
SHORT POSITION
An investor who has sold a currency or an instrument without having covered it
SHORT COVERING
Buying to unwind a short position
SHORT-TERM INTEREST RATES
Normally the 90-day rate
SLIPPAGE
The difference between estimated transactions costs and actual transactions costs. The difference usually represents revisions to price difference or spread and commission costs
SOFFEX
Swiss Options and Financial Futures Exchange, a fully automated and integrated trading and clearing system
SPOT
Refers to a transaction for immediate delivery; spot currency transactions have a value date of 2 business days
SPOT NEXT
The overnight swap from the spot date to the next business day
SPOT MONTH
The contract month closest to delivery
SPOT PRICE
The price that a currency is currently trading in the spot market
SPOT WEEK
A standard period of one-week swap measured from the current value date of the currency spot rate
SPREAD
The difference between the bid and ask price of a currency; the difference between the price of two related futures contracts
SQUARE
The buy and sell positions are in balance; no open positions
SQUAWK BOX
A speaker connected to a phone often used in broker trading desks
SQUEEZE
A term referring to certain normal amounts and maturities for dealing
STANDARD
Government obligations with maturities more than one year but less than ten years
STANDARD AND POORS
A US firm engaged in assessing the financial health of borrowers. The firm also has generated certain stock indices i.e. S & P 500
STERILIZATION
Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the FX market
STERLING
British pound, otherwise known as Cable
STOP LOSS ORDER
A market order to buy or sell a certain quantity of a certain currency or security if a specified price (the stop price) is touched
STERLING
British pound, otherwise known as Cable
STRADDLE
The simultaneous purchase/sale of both call and put options for the same currency, exercise/strike price and expiry date
STAGFLATION
Recession or low growth in conjunction with high inflation rates
STRAP
A combination of two calls and one put
SUPPORT LEVELS
When an exchange rate depreciates or appreciates to a level where technical analysis techniques suggest that the currency will rebound or not go below
SWAP PRICE
A price as a differential between two dates of the swap
SWAP
An exchange of streams of payments over time according to specified terms
SWAPTION
An option to enter into a swap contract
SWIFT
Society for World-wide Interbank Telecommunications is a Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions
SWISSY
Market slang for Swiss Franc
SYNTHETICS
The artificial creation of an asset using combinations of other assets; In options, a long call option and a short put option amounts to a synthetic long, or a long put option and a short call option amounts to a synthetic short
T-BILL
Treasury Bill; Short-term obligations of a Government issued for periods of one year or less
TECHNICAL ANALYSIS
The study of price action in markets through the use of charts and quantitative techniques to attempt to forecast price trends
TECHNICAL CORRECTION
An adjustment to the price of an instrument that is based on technical factors rather than market sentiment
TENDER
The process of inviting parties to submit a formal offer for the supply or purchase of goods and services, followed by evaluation of offers and selecting a successful bidder
TENOR
A Maturity of an option or a loan
THEORETICAL VALUE
Mathematically determined value of a derivative instrument as dictated by a pricing model such as the Black-Scholes model
THETA
A measure of the sensitivity of the price of an option to a change in its time to expiry
THIN MARKET
A market in which trading volume is low and in which consequently bid and ask quotes are wide due to lack of liquidity of the instrument
TICKET
The primary method of recording the basic information of a transaction
TIME VALUE
The portion of the option premium that is attributable to the amount of time remaining until the expiration of the option contract. Time value is whatever value the option has in addition to its intrinsic value. The longer the time remaining until expiration, the higher the time value
TOP DOWN APPROACH
A method of security selection that starts with asset allocation and works systematically through sector and industry allocation to individual security selection
TOMORROW NEXT
Simultaneous buying of a currency for delivery the following day and selling for the spot day or vice versa
TRADE
An oral or electronic transaction involving one party buying or selling a currency, security, or derivative from another party
TRADE BALANCE
The sum of the money gained by a given economy by selling exports, minus the cost of buying imports; part of the balance of payments
TRADE DATE
The date on which a trade occurs
TRADE DEFICIT/SURPLUS
The difference between the value of imports and exports
TRADE ABLE AMOUNT
The smallest transaction size acceptable
TRADE TICKET
The primary method of recording the basic information of a transaction
TRANSACTION DATE
The date on which a trade occurs
TRANSACTION
An executed order to buy or sell an instrument; could be an entry or a liquidation trade
TREASURER
The corporate officer responsible for designing and implementing a firm's financing and investing activities
TREASURY BILLS
Short-term obligations of a Government issued for periods of one year or less. Treasury bills do not carry a rate of interest and are issued at a discount on the par value. Treasury bills are repaid at par on the due date
TREASURY BONDS
Government obligations with maturities of ten years or more
TREASURY NOTES
Government obligations with maturities more than one year but less than ten years
TREASURY STOCK
Outstanding stock that has been sold and subsequently repurchased by the issuing firm. Treasury stock does not carry voting rights or an ability to collect dividends, and is not used in earnings per share calculations
TURNOVER
The total money value of currency contracts traded is calculated by multiplying size by the number of contracts traded
TWO-WAY QUOTATION
When a dealer quotes both buying and selling rates for foreign exchange transactions
UNCOVERED
A position not covered by an offsetting position
UNCOVERED CALL
A short call option position in which the writer does not own the underlying product represented by the option contracts
UNDER-VALUATION
An exchange rate is normally considered to be undervalued when it is below its purchasing power parity
UNDER WRITER
A firm, usually an investment bank, that buys an issue of securities from a company and resells it to investors
UNDER WRITING
Acting as the underwriter in the issue of new securities for a firm
UNEMPLOYMENT RATE
The percentage of the people classified as unemployed as compared to the total labor force
UNILATERAL TRANSFERS
Items in the current account of the balance of payments of a country that correspond to gifts from foreigners or pension payments to foreign residents who once worked in the particular country
UP TICK
A transaction executed at a price greater than the previous transaction
VALUATION
Determination of the value of a company's stock based on earnings and the market value of assets
VALUE DATE
For exchange contracts it is the day on which the two contracting parties exchange the currencies which are being bought or sold. For a spot transaction it is two business banking days forward in the country of the bank providing quotations which determine the spot value date. The only exception to this general rule is the spot day in the quoting centre coinciding with a banking holiday in the country(ies) of the foreign currency(ies). The value date then moves forward a day
VALUE SPOT
Spot normally settles after two working days
VALUE TODAY
Transaction executed for same day settlement; sometimes also referred to as "cash transaction"
VANILLA
A simple option whose terms and conditions do not include any provisions other than exercise style, expiry and strike
VARIATION MARGIN
Profits or losses on open positions in futures and options contracts which are paid or collected daily
VEGA
Expresses the price change of an option for a one per cent change in the implied volatility
VERTICAL (BEAR OR BULL) SPREAD
The sale of an option with a high exercise price and the purchase (in the case of a bull) or the sale (in the case of a bear) of an option with a lower exercise price. Both options will have the same expiration date
VOLATILITY
A measure of the fluctuations in the underlying instrument over a given time period. It is expressed as a percentage and computed as the annualized standard deviation of percentage change in daily price. High values usually mean high risk
VOLATILITY RISK
Profits or The risk in the value of options portfolios due to the unpredictable changes in the volatility of the underlying asset
WALL STREET
Generic term for the securities industry firms that buy, sell, and underwrite securities
WARRANT
A security entitling the holder to buy a proportionate amount of stock at some specified future date at a specified price, usually one higher than current market price. Warrants are traded as securities whose price reflects the value of the underlying stock
WHOLESALE PRICE INDEX
It measures changes in prices in the manufacturing and distribution sector of the economy and tends to lead the consumer price index by 60 to 90 days. The index is often quoted separately for food and industrial products
WORKING CAPITAL
The difference between current assets and current liabilities
WORKING DAY
A day when the banks in a currency's principal financial center are open for business
WORLD BANK
A bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available
YARD
Slang for milliard, one thousand million
YEAR TO DATE
YTD; The period beginning at the start of the calendar year up to the current date
YIELD CURVE
A graph that shows changes in yield on instruments depending on time to maturity. A positive sloping curve has lower interest rates at the shorter maturities and higher at the longer maturities. A negative sloping curve has higher interest rates at the shorter maturities
ZERO COUPON BOND
A bond that pays no interest and is sold at a discount to its face value, with the full face value paid to the bondholder at maturity
ZERO INVESTMENT PORTFOLIO
A portfolio of zero net value established by buying and shorting component securities, usually in the context of an arbitrage strategy