B-C-D-E-F-G-H-I-L-M-O-P-R-S-T-U-V
B
Bear
Someone who believes the prices/market will decline.
Bear Market
A market in which prices decline sharply against a background of
widespread pessimism (opposite of Bull Market).
Bid
The price that a buyer is prepared to purchase at; the price offered
for a currency.
Bid/Ask Spread
See spread
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. See More on Bretton Woods.
Bull
Someone who believes the prices/market will rise.
Bull Market
A market characterised by rising prices.
Broker
An agent who handles investors' orders to buy and sell currency.
For this service, a commission is charged which, depending upon
the broker and the amount of the transaction, may or may not be
negotiated.
C
Cable
Dealers slang for the Sterling/US Dollar exchange rate.
Call Rate
The overnight interbank interest rate.
Cash Market
The market for the purchase and sale of physical currencies.
Convertible Currency
Currency which can be freely exchanged for other currencies or
gold without special authorisation from the appropriate central
bank.
Counter party
The customer or bank with whom a foreign deal is made. The
term is also used in interest and currency swaps markets to
refer to
a participant in a swap exchange.
Cross Rate
An exchange rate between two currencies, usually constructed
from the individual exchange rates of the two currencies, measured
against
the United States dollar.
Currency Risk
The risk of incurring losses resulting from an adverse change
in exchange rates.
Currency Swap
Contract which commits two counter-parties to exchange streams
of interest payments in different currencies for an agreed
period of time and to exchange principal amounts in different
currencies
at a pre-agreed exchange rate at maturity.
Currency Option
Option contract which gives the right to buy or sell a currency
with another currency at a specified exchange rate during a
specified period.
Currency Swaption
OTC Option to enter into a currency swap contract.
Currency Warrant
OTC Option; long-dated (more than one year) currency option.
D
Day
Trading
Refers to opening and closing the same position or positions
within one day's trading.
Dollar Rate
When a variable amount of a foreign currency is quoted
against one US Dollar, regardless of where the dealer is
located or
in what currency he is requesting a quote. The exception
is the Sterling/US
Dollar rate (cable) which is quoted as variable amount
of US Dollars to one Sterling.
E
EMS
Abbreviation for European Monetary System, an agreement
between member nations of the European Union to maintain
an alignment
between the exchange rates of their respective currencies.
European Monetary Union
The principal goal of the EMU is to establish a single
European currency called the Euro, which will officially
replace the
national currencies of the member EU countries in 2002.
Currently, the Euro
exists only as a banking currency and for paper financial
transactions and foreign exchange. The current members
of the EMU are Germany,
France, Belgium, Luxembourg, Austria, Finland, Ireland,
the Netherlands, Italy, Spain and Portugal.
Exchange Rate Risk
See Currency Risk.
F
Federal Reserve (Fed)
The Central Bank of the United States.
Fixed Exchange Rate
Official rate set by monetary authorities for one or
more currencies. In practice, even fixed exchange
rates are
allowed to fluctuate
between definite upper and lower bands, leading to
intervention.
Flat / Square
To be neither long nor short is the same as to be
flat or square. One would have a flat book if he
has no positions
or if all
the positions cancel each other out.
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.
One example
of a floating rate interest is a standard mortgage.
Foreign Exchange Swap
Transaction which involves the actual exchange of
two currencies (principal amount only) on a specific
date
at a rate agreed
at the time of the conclusion of the contract (short
leg), at a date
further in the future at a rate agreed at the time
of the contract (the long leg).
Foreign Exchange (or Forex or FX)
The simultaneous buying of one currency and selling
of another in an over-the-counter market. Most major
FX
is quoted against
the US Dollar.
Forward
A deal that will commence at an agreed date in the
future. Forward trades in FX are usually expressed
as a margin
above (premium)
or below (discount) the spot rate. To obtain the
actual forward FX price, one adds the margin to the
spot rate.
The rate will
reflect what the FX rate has to be at the forward
date so that if funds
were re-exchanged at that rate there would be no
profit or loss (i.e. a neutral trade). The rate is
calculated
from the
relevant
deposit rates in the 2 underlying currencies and
the spot FX rate. Unlike in the futures market, forward
trading
can be
customized
according to the needs of the two parties and involves
more flexibility. Also, there is no centralized exchange.
Fundamental Analysis
Thorough analysis of economic and political data
with the goal of determining future movements in
a financial
market.
G
GTC
"
Good Till Cancelled". An order left with a Dealer
to buy or sell at a fixed price. The order remains
in place until it
is cancelled
by the client.
H
Hedging
The practice of undertaking one investment activity
in order to protect against loss in another,
e.g. selling
short to nullify
a previous purchase, or buying long to offset
a previous short sale. While hedges reduce potential losses,
they also tend
to reduce
potential profits.
High/Low
Usually the highest traded price and the lowest
traded price for the underlying instrument
for the current
trading day.
I
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.
L
Limit Order
An order to buy at or below a specified price
or to sell at or above a specified price.
Long Position
A market position where the Client has
bought a currency he previously did
not hold own.
Normally expressed
in base currency
terms, e.g.,
long Dollars (short D.Marks).
M
Margin
Customers must deposit funds as collateral
to cover any potential losses from
adverse movements
in prices.
Margin Call
A demand for additional funds. A
requirement by a clearing house that
a clearing member
(or by a brokerage
firm
that a client) brings
margin deposits up to a required
minimu m level to cover an adverse
movement
in price
in the
market.
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.
Maturity
Date for settlement.
O
Offer
The price, or rate, that a willing
seller is prepared to sell at.
One Cancels Other Order (O.C.O.
Order)
A contingent order where the
execution of one part of the
order automatically
cancels
the other
part.
Open Position
Any deal which has not been settled
by physical payment or reversed
by an equal
and opposite
deal for the
same value date.
Over The Counter (OTC)
Used to describe any transaction
that is not conducted over an
exchange.
Overnight Trading
Refers to a purchase or sale
between the hours of 9.00 pm
and 8.00 am.
on the following
day.
P
Pip (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
The uncertainty in return
on an investment due to
the possibility
that a government
might take
actions
which
are detrimental
to the investor's interests.
R
Resistance
A price level at which you
would expect selling
to take place.
Risk Capital
The amount of money that
an individual can afford
to invest, which,
if lost would not
affect their
lifestyle.
Rollover
Where the settlement
of a deal is rolled
forward to
another
value date
based on
the interest rate
differential of
the two currencies.
S
Settlement
Actual physical exchange
of one currency for
another.
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.
Spot
A transaction that
occurs immediately,
but the
funds will usually
change hands within
two days
after deal
is struck.
Spread
The difference between
the bid and offer
(ask) prices;
used
to measure
market
liquidity. Narrower
spreads
usually signify
high
liquidity.
Stop Loss Order
An order to buy or
sell at the market
when a
particular
price
is reached,
either above
or
below the price
that prevailed
when the
order was given.
Support Levels
A price level at
which you would
expect buying
to take
place.
T
Technical
Analysis
An effort to forecast
future market
activity by analyzing
market data
such as charts,
price trends,
and volume.
Tomorrow to Next
Simultaneous
buying and selling
of a
currency
for delivery
the following
day
and selling
for the next
day or vice
versa.
Two-Way Price
Rates for which
both a bid and
offer are
quoted.
U
US Prime
Rate
The rate at which
US banks will
lend to their
prime
corporate
customers.
V
Value
Date
Settlement
date of a
spot or
forward
deal.
Variation
Margin
An additional
margin requirement
that
a broker
will need
from
a client
due to market
fluctuation.
Volatility
A statistical
measure of
a market
or a
security's
price movements
over time
and is calculated
by using
standard
deviation.
Associated
with high
volatility
is a
high degree
of risk. |