FOREX (FOReign EXchange market) is an international foreign exchange market, where money is sold and bought freely. In its present condition FOREX was launched in the 1970s, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from supply and demand.As far as the freedom from any external control and free competition are concerned, FOREX is a perfect market. It is also the biggest liquid financial market. According to various assessments, money masses in the market constitute from 1 to 1.5 trillion US dollars a day. (It is impossible to determine an absolutely exact number because trading is not centralized on an exchange.) Transactions are conducted all over the world via telecommunications 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. Practically in every time zone (that is, in Frankfurt-on-Main, London, New York, Tokyo, Hong Kong, etc.) there are dealers who will quote currencies.FOREX is a more objective market, because if some of its participants would like to change prices, for some manipulative purpose, they would have to operate with tens of billions dollars. That is why any influence by a single participants in the market is practically out of the question. The superior liquidity allows the traders to open and/or close positions within a few seconds. The time of keeping a position is arbitrary and has no limits: from several seconds to many years. It depends only on your trading strategies. Although the daily fluctuations of currencies are rather insignificant, you may use the credit lines, that are accessible even to currency speculators with small capitals ($ 1,000 - 5,000), where the profit may be impressive. (You can learn more about it in the section: The main principles of trading.)The idea of marginal trading stems from the fact that in FOREX speculative interests can be satisfied without a real money supply. This decreases overhead expenses for transferring money and gives an opportunity to open positions with a small account in US dollars, buying and selling a lot of other currencies. That is, on can conduct transactions very quickly, getting a big profit, when the exchange rates go up or down. Many speculative transactions in the international financial markets are made on the principles of marginal trading.Margin trading is trading with a borrowed capital. Marginal trading in an exchange market uses lots. 1 lot equals approximately $100,000, but to open it it is necessary to have only from 0.5% to 4% of the sum.For example, you have analyzed the situation in the market and come to the conclusion that the pound will go up against the dollar. You open 1 lot for buying the pound (GBP) with the margin 1% (1:1000 leverage) at the price of 1.49889 and wait for the exchange rate to go up. Some time later your expectations become true. You close the position at 1.5050 and earn 61 pips (about $ 405). For the calculation of 1 pip click here.Everyday fluctuations of currencies constitute about 100 to 150 pips, giving FX traders an opportunity to make money on these changes.In FOREX, it's not obligatory to buy some currency first in order to sell it later. It's possible to open positions for buying and selling any currency without actually having it. Usually Internet-brokers establish the minimum deposit such as $ 2000, for working in the FOREX market, and grant a leverage of 1:100. That is, opening the position at $100,000, a trader invests $1,000 and receives $99.000 as a credit. The major currencies traded in FOREX, are Euro (EUR), Japanese yen (JPY), British Pound (GBP), and Swiss Franc (CHF). All of them are traded against the US dollar (USD).In order to assess the situation in the market a trader has to be able to use fundamental and/or technical analysis, as well as to make decisions in the constantly changing current of information about political and economic character. Most small and medium players in financial markets use technical analysis. Technical analysis presupposes that all the information about the market and its further fluctuations is contained in the price chain. Any factor, that has some influence on the price, be it economic, political or psychological, has already been considered by the market and included in the price. The initial data for a technical analysis are prices: the highest and the lowest prices, the price of opening and closing within a certain period of time, and the volume of transactions.A technical analysis is founded on three suppositions:Movement of the market considers everything;Movement of prices is purposeful;History repeats itself. That is, technical analysis is a statistical and mathematical analysis of previous quotes and a prognosis of coming prices.A number of technical indicators have been installed into the PRO-CHARTS trading system. Analyzing the indicators one can come to the conclusion about further movements of the quoted currencies. For a more detailed description of the indicators, analyzing price charts and volumes of trading, click here.Fundamental analysis is an analysis of current situations in the country of the currency, such as its economy, political events, and rumors. The country's economy depends on the rate of inflation and unemployment, on the interest rate of its Central Bank, and on tax policy. Political stability also influences the exchange rate. Policy of the Central Bank has a special role, as concentrated interventions or refusal from them greatly influence the exchange rate.At the same time one should not consider fundamental analysis just as an analysis of the economic situation in the country itself. A far bigger role in the FOREX market belongs to the expectations of the market participants and their assessment of these expectations. Various prognoses and bulletins, issued by the participants, have a strong influence on the expectations. Very often an effect of the so-called self-filfilling prophecy occurs when market players raise or lower the exchange rates according to the prognosis. But a deep and thorough fundamental analysis is available only for big banks with a staff of professional analysts and constant access to a wide field of information.In spite of these different approaches, both forms of analyses complement one another. Traders who act on the basis of a fundamental analysis, have to consider some technical characteristics of the market (the main rates of support, such as resistance and resale), and supporters of the technical approach to the market must track the main news (interest rates, important political events).
Monday, January 29, 2007
Forex Market Drivers
How Interest Rate Increases Drive Currency SpikesA common way to think about U.S. interest rates is how much it's going to cost to borrow money, whether for our mortgages or how much we'll earn on our bond and money market investments. Currency traders think bigger. Interest rate policy is actually a key driver of currency prices and a great "starter" strategy for new currency traders.
Fundamentally, if a country raises its interest rates, the currency of that country will strengthen because the higher interest rates attract more foreign investors. When foreign investors invest in U.S. treasuries, they must sell their own currency and buy U.S. Dollars in order to purchase the bonds.If you believe U.S. interest rates will continue to rise, you could express that view by going long U.S. Dollars.
If you believe that the Fed has finished raising rates for the time being, you could capitalize on that view by buying a currency with a higher interest rate, or at least the prospect of relatively higher rates. For example, U.S. rates may be higher than those of Euroland now but the prospect of higher rates in Euroland, albeit still lower than the U.S., may drive investors to purchase Euros.
Capitalize on Rising Gold Prices with Currencies It's not hard to understand why we've experienced a run-up in gold prices lately. In the US, we're dealing with the threat of inflation and a lot of geo-political tension. Historically, gold is a country-neutral alternative to the U.S. dollar. So given the inverse relationship between gold and the U.S. Dollar, currency traders can take advantage of volatility in gold prices in innovative ways.
For example, if gold breaks an important price level, one would expect gold to move higher in coming periods. With this in mind, forex traders would look to sell dollars and buy Euros, for example, as a proxy for higher gold prices. Moreover, higher gold prices frequently have a positive impact on the currencies of major gold producers. For example, Australia is the world's third largest exporter of gold, and Canada is the world's third largest producer of gold. Therefore, if you believe the price of gold will continue to rise you could establish long positions in Australian Dollar or the Canadian Dollar - or even position to be long those currencies against other major countries like the UK or Japan.
Translating Rising Oil Prices to Profitable Currency MovesEquity investors already know that higher oil prices negatively impact the stock prices of companies that are highly dependent on oil such as airlines, since more expensive oil means higher expenses and lower profits for those companies.
In much the same way, a country's dependency on oil determines how its currency will be impacted by a change in oil prices. The US's massive foreign dependence on oil makes the US dollar more sensitive to oil prices than other countries. Therefore, any sharp increase in oil prices is typically dollar-negative.
If you believe the price of oil will continue to increase for the near term, you could express that viewpoint in the currency markets by once again favoring commodity-based economies like Australia and Canada or selling other energy-dependent countries like Japan.
Fundamentally, if a country raises its interest rates, the currency of that country will strengthen because the higher interest rates attract more foreign investors. When foreign investors invest in U.S. treasuries, they must sell their own currency and buy U.S. Dollars in order to purchase the bonds.If you believe U.S. interest rates will continue to rise, you could express that view by going long U.S. Dollars.
If you believe that the Fed has finished raising rates for the time being, you could capitalize on that view by buying a currency with a higher interest rate, or at least the prospect of relatively higher rates. For example, U.S. rates may be higher than those of Euroland now but the prospect of higher rates in Euroland, albeit still lower than the U.S., may drive investors to purchase Euros.
Capitalize on Rising Gold Prices with Currencies It's not hard to understand why we've experienced a run-up in gold prices lately. In the US, we're dealing with the threat of inflation and a lot of geo-political tension. Historically, gold is a country-neutral alternative to the U.S. dollar. So given the inverse relationship between gold and the U.S. Dollar, currency traders can take advantage of volatility in gold prices in innovative ways.
For example, if gold breaks an important price level, one would expect gold to move higher in coming periods. With this in mind, forex traders would look to sell dollars and buy Euros, for example, as a proxy for higher gold prices. Moreover, higher gold prices frequently have a positive impact on the currencies of major gold producers. For example, Australia is the world's third largest exporter of gold, and Canada is the world's third largest producer of gold. Therefore, if you believe the price of gold will continue to rise you could establish long positions in Australian Dollar or the Canadian Dollar - or even position to be long those currencies against other major countries like the UK or Japan.
Translating Rising Oil Prices to Profitable Currency MovesEquity investors already know that higher oil prices negatively impact the stock prices of companies that are highly dependent on oil such as airlines, since more expensive oil means higher expenses and lower profits for those companies.
In much the same way, a country's dependency on oil determines how its currency will be impacted by a change in oil prices. The US's massive foreign dependence on oil makes the US dollar more sensitive to oil prices than other countries. Therefore, any sharp increase in oil prices is typically dollar-negative.
If you believe the price of oil will continue to increase for the near term, you could express that viewpoint in the currency markets by once again favoring commodity-based economies like Australia and Canada or selling other energy-dependent countries like Japan.
ntroduction to Technical Analysis
Technical analysis is a method of forecasting price movements by looking at purely market-generated data. Price data from a particular market is most commonly the type of information analyzed by a technician, though most will also keep a close watch on volume and open interest in futures contracts. The bottom line when utilizing any type of analytical method, technical or otherwise, is to stick to the basics, which are methodologies with a proven track record over a long period. After finding a trading system that works for you, the more esoteric fields of study can then be incorporated into your trading toolbox.
The examination of past price movements to forcast future price movementsAlmost every trader uses some form of technical analysis. Even the most reverent follower of market fundamentals is likely to glance at price charts before executing a trade. At their most basic level, these charts help traders determine ideal entry and exit points for a trade. They provide a visual representation of the historical price action of whatever is being studied. As such, traders can look at a chart and know if they are buying at a fair price (based on the price history of a particular market), selling at a cyclical top or perhaps throwing their capital into a choppy, sideways market. These are just a few market conditions that charts identify for a trader. Depending on their level of sophistication, charts can also help much more advanced studies of the markets.
On the surface, it might appear that technicians ignore the fundamentals of the market while surrounding themselves with charts and data tables. However, a technical trader will tell you that all of the fundamentals are already represented in the price. They are not so much concerned that a natural disaster or an awful inflation number caused a recent spike in prices as much as how that price action fits into a pattern or trend. And much more to the point, how that pattern can be used to predict future prices.
Technical analysis assumes that:
* All market fundamentals are depicted in the actual market data. So the actual market fundamentals and various factors, such as the differing opinions, hopes, fears, and moods of market participants, need not be studied.
* History repeats itself and therefore markets move in fairly predictable, or at least quantifiable, patterns. These patterns, generated by price movement, are called signals. The goal in technical analysis is to uncover the signals given off in a current market by examining past market signals. * Prices move in trends. Technicians typically do not believe that price fluctuations are random and unpredictable. Prices can move in one of three directions, up, down or sideways. Once a trend in any of these directions is established, it usually will continue for some period.
The building blocks of any technical analysis system include price charts, volume charts, and a host of other mathematical representations of market patterns and behaviors. Most often called studies, these mathematical manipulations of various types of market data are used to determine the strength and sustainability of a particular trend. So, rather than simply relying on price charts to forecast future market values, technicians will also use a variety of other technical tools before entering a trade.
As in all other aspects of trading, be very disciplined when using technical analysis. Too often, a trader will fail to sell or buy into a market even after it has reached a price that his or her technical studies identified as an entry or exit point. This is because it is hard to screen out the fundamental realities that led to the price movement in the first place.
As an example, let's assume you are long USD vs. euro and have established your stop/loss 30 pips away from your entry point. However, if some unforeseen factor is responsible for pushing the USD through your stop/loss level you might be inclined to hold this position just a bit longer in the hopes that it turns back into a winner. It is very hard to make the decision to cut your losses and even harder to resist the temptation to book profits too early on a winning trade. This is called leaving money on the table. A common mistake is to ride a loser too long in the hopes it comes back and to cut a winner way too early. If you use technical analysis to establish entry and exit levels, be very disciplined in following through on your original trading plan.
Price charts
Chart patternsThere are a variety of charts that show price action. The most common are bar charts. Each bar will represent one period of time and that period can be anything from one minute to one month to several years. These charts will show distinct price patterns that develop over time.
Candlestick patternsLike bar charts patterns, candlestick patterns can be used to forecast the market. Because of their colored bodies, candlesticks provide greater visual detail in their chart patterns than bar charts.
Point & figure patternsPoint and figure patterns are essentially the same patterns found in bar charts but Xs and Os are used to market changes in price direction. In addition, point and figure charts make no use of time scales to indicate the particular day associated with certain price action.
Technical Indicators
Here are a few of the more common types of indicators used in technical analysis:
Trend indicatorsTrend is a term used to describe the persistence of price movement in one direction over time. Trends move in three directions: up, down and sideways. Trend indicators smooth variable price data to create a composite of market direction. (Example: Moving Averages, Trend lines)
Strength indicatorsMarket strength describes the intensity of market opinion with reference to a price by examining the market positions taken by various market participants. Volume or open interest are the basic ingredients of this indicator. Their signals are coincident or leading the market. (Example: Volume)
Volatility indicatorsVolatility is a general term used to describe the magnitude, or size, of day-to-day price fluctuations independent of their direction. Generally, changes in volatility tend to lead changes in prices. (Example: Bollinger Bands)
Cycle indicatorsA cycle is a term to indicate repeating patterns of market movement, specific to recurrent events, such as seasons, elections, etc. Many markets have a tendency to move in cyclical patterns. Cycle indicators determine the timing of a particular market patterns. (Example: Elliott Wave)
Support/resistance indicatorsSupport and resistance describes the price levels where markets repeatedly rise or fall and then reverse. This phenomenon is attributed to basic supply and demand. (Example: Trend Lines)
Momentum indicatorsMomentum is a general term used to describe the speed at which prices move over a given time period. Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum is highest at the beginning of a trend and lowest at trend turning points. Any divergence of directions in price and momentum is a warning of weakness; if price extremes occur with weak momentum, it signals an end of movement in that direction. If momentum is trending strongly and prices are flat, it signals a potential change in price direction. (Example: Stochastic, MACD, RSI)
The examination of past price movements to forcast future price movementsAlmost every trader uses some form of technical analysis. Even the most reverent follower of market fundamentals is likely to glance at price charts before executing a trade. At their most basic level, these charts help traders determine ideal entry and exit points for a trade. They provide a visual representation of the historical price action of whatever is being studied. As such, traders can look at a chart and know if they are buying at a fair price (based on the price history of a particular market), selling at a cyclical top or perhaps throwing their capital into a choppy, sideways market. These are just a few market conditions that charts identify for a trader. Depending on their level of sophistication, charts can also help much more advanced studies of the markets.
On the surface, it might appear that technicians ignore the fundamentals of the market while surrounding themselves with charts and data tables. However, a technical trader will tell you that all of the fundamentals are already represented in the price. They are not so much concerned that a natural disaster or an awful inflation number caused a recent spike in prices as much as how that price action fits into a pattern or trend. And much more to the point, how that pattern can be used to predict future prices.
Technical analysis assumes that:
* All market fundamentals are depicted in the actual market data. So the actual market fundamentals and various factors, such as the differing opinions, hopes, fears, and moods of market participants, need not be studied.
* History repeats itself and therefore markets move in fairly predictable, or at least quantifiable, patterns. These patterns, generated by price movement, are called signals. The goal in technical analysis is to uncover the signals given off in a current market by examining past market signals. * Prices move in trends. Technicians typically do not believe that price fluctuations are random and unpredictable. Prices can move in one of three directions, up, down or sideways. Once a trend in any of these directions is established, it usually will continue for some period.
The building blocks of any technical analysis system include price charts, volume charts, and a host of other mathematical representations of market patterns and behaviors. Most often called studies, these mathematical manipulations of various types of market data are used to determine the strength and sustainability of a particular trend. So, rather than simply relying on price charts to forecast future market values, technicians will also use a variety of other technical tools before entering a trade.
As in all other aspects of trading, be very disciplined when using technical analysis. Too often, a trader will fail to sell or buy into a market even after it has reached a price that his or her technical studies identified as an entry or exit point. This is because it is hard to screen out the fundamental realities that led to the price movement in the first place.
As an example, let's assume you are long USD vs. euro and have established your stop/loss 30 pips away from your entry point. However, if some unforeseen factor is responsible for pushing the USD through your stop/loss level you might be inclined to hold this position just a bit longer in the hopes that it turns back into a winner. It is very hard to make the decision to cut your losses and even harder to resist the temptation to book profits too early on a winning trade. This is called leaving money on the table. A common mistake is to ride a loser too long in the hopes it comes back and to cut a winner way too early. If you use technical analysis to establish entry and exit levels, be very disciplined in following through on your original trading plan.
Price charts
Chart patternsThere are a variety of charts that show price action. The most common are bar charts. Each bar will represent one period of time and that period can be anything from one minute to one month to several years. These charts will show distinct price patterns that develop over time.
Candlestick patternsLike bar charts patterns, candlestick patterns can be used to forecast the market. Because of their colored bodies, candlesticks provide greater visual detail in their chart patterns than bar charts.
Point & figure patternsPoint and figure patterns are essentially the same patterns found in bar charts but Xs and Os are used to market changes in price direction. In addition, point and figure charts make no use of time scales to indicate the particular day associated with certain price action.
Technical Indicators
Here are a few of the more common types of indicators used in technical analysis:
Trend indicatorsTrend is a term used to describe the persistence of price movement in one direction over time. Trends move in three directions: up, down and sideways. Trend indicators smooth variable price data to create a composite of market direction. (Example: Moving Averages, Trend lines)
Strength indicatorsMarket strength describes the intensity of market opinion with reference to a price by examining the market positions taken by various market participants. Volume or open interest are the basic ingredients of this indicator. Their signals are coincident or leading the market. (Example: Volume)
Volatility indicatorsVolatility is a general term used to describe the magnitude, or size, of day-to-day price fluctuations independent of their direction. Generally, changes in volatility tend to lead changes in prices. (Example: Bollinger Bands)
Cycle indicatorsA cycle is a term to indicate repeating patterns of market movement, specific to recurrent events, such as seasons, elections, etc. Many markets have a tendency to move in cyclical patterns. Cycle indicators determine the timing of a particular market patterns. (Example: Elliott Wave)
Support/resistance indicatorsSupport and resistance describes the price levels where markets repeatedly rise or fall and then reverse. This phenomenon is attributed to basic supply and demand. (Example: Trend Lines)
Momentum indicatorsMomentum is a general term used to describe the speed at which prices move over a given time period. Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum is highest at the beginning of a trend and lowest at trend turning points. Any divergence of directions in price and momentum is a warning of weakness; if price extremes occur with weak momentum, it signals an end of movement in that direction. If momentum is trending strongly and prices are flat, it signals a potential change in price direction. (Example: Stochastic, MACD, RSI)
Introduction to the Forex Market
The Foreign Exchange market, also referred to as the "Forex" or "FX" market is the largest financial market in the world, with a daily average turnover of US$1.9 trillion — 30 times larger than the combined volume of all U.S. equity markets.
"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).
The daily turnover of the forex market is 30 times larger than the US equity marketsThere are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.
For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.
The FX market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.
"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).
The daily turnover of the forex market is 30 times larger than the US equity marketsThere are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.
For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.
The FX market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.
Win or Lose
In every futures contract there is a buyer and a seller. The seller takes the short position and the buyer takes the long position. The futures contract specifies a buying price, a quantity and a delivery date. Speculators hope to profit by the daily fluctuations in the futures market by buying long (from the buyer) if they expect prices to rise, or by buying short (from the seller) if they expect prices to fall. Futures accounts are settled every day.
At the end of the contract period, the contract itself is settled. The final contract buyer can now take delivery of his truckload of whatevers. Of course, he may opt to just start the process all over again by writing up a contract to deliver his whatevers on a certain date at a certain price.
At the end of the contract period, the contract itself is settled. The final contract buyer can now take delivery of his truckload of whatevers. Of course, he may opt to just start the process all over again by writing up a contract to deliver his whatevers on a certain date at a certain price.
Forex Resources
The live forex charts can be used to track ten currency pairs in real time and click on forex rates for a pop-up window of ten currency pairs with live rates for the EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD, EUR/JPY, EUR/GBP and EUR/CHF, including the daily highs and lows from 17:00 EST. For a selection of free ebooks, trial offers, calculators and tutorials, visit free downloads. For a current snapshot of the foreign exchange market, use the market monitor to display time zones for several key markets, as well as live forex rates, a sentiment indicator and an economic calendar in a detachable window. Use the online money management calculator to calculate the correct position size for your trade based on your risk profile. Browse the selection of forex books on offer in forex books which includes special sections on technical analysis and general trading. There is a great number of forex related resources to be found in the categorised forex directory to help you find a particular niche or service.
About Forex
To buy foreign goods or services, or to invest in other countries, companies and individuals may need to first buy the currency of the country with which they are doing business. Generally, exporters prefer to be paid in their country's currency or in U.S. dollars, which are accepted all over the world.
The foreign exchange market, or the "FX" market, is where the buying and selling of different currencies takes place. The price of one currency in terms of another is called an exchange rate.
The market itself is actually a worldwide network of traders, connected by telephone lines and computer screens there is no central headquarters. There are three main centers of trading, which handle the majority of all FX transactions United Kingdom, United States, and Japan .
The foreign exchange market, or the "FX" market, is where the buying and selling of different currencies takes place. The price of one currency in terms of another is called an exchange rate.
The market itself is actually a worldwide network of traders, connected by telephone lines and computer screens there is no central headquarters. There are three main centers of trading, which handle the majority of all FX transactions United Kingdom, United States, and Japan .
Forex Glossary
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.
Actualize
The underlying assets or instruments which are traded in the cash market.
Adjustable Peg
An exchange rate system where a country's exchange rate is "pegged" (i.e. fixed) in relation to another currency. The official rate may be changed from time to time.
Adjustment
Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or.
Agent Bank
A bank acting for a foreign bank.
In the Euro market - the agent bank is the one appointed by the other banks in the syndicate to handle the administration of the loan.
Aggregate Demand
Total demand for goods and services in the economy. It includes private and public sector demand for goods and services within the country and the demand of consumers and and firms in other countries for good and services.
Aggregate Risk
Total amount of exposure a bank has with a customer for both spot and forward contracts.
Aggregate Supply
Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.
Agio
Difference in the value between currencies. Also used to describe percentage charges for conversion from paper money into cash, or from a weak into a strong currency.
Aggressor
A trader dealing on an existing price in the market.
Appreciation
A currency is said to 'appreciate' when it strengthens in price in response to market demand.
Describes a currency strengthening in response to market demand rather than by official action.
Arbitrage
Profiting from differences in the price of a single currency pair that is traded on more than one market.
Arbitrage Channel
The range of prices within which there will be no possibility to arbitrage between the cash and futures market.
Around
Used in quoting forward "premium/discount". "Five-five around" would mean five points on either side of the present spot value.
Ask Price
Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quote - e.g. EUR/USD 1.1965 / 68 - means that one euro can be bought for 1.1968 US dollars.
Asset
An item having commercial or exchange value.
Asset Location
Dividing instrument funds among markets to achieve diversification or maximum return.
At Best
An instruction given to a dealer to buy or sell at the best rate that is currently available in the market.
At or Better
An order to deal at a specific rate or better.
Authorized Dealer
A financial institution or bank authorized to deal in foreign exchange.
Average Rate Option
A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an "Asian option".
Back Office
The office location, or department, where the processing of financial transactions takes place.
Balance of Trade
The value of a country's exports minus its imports.
Bank Notes
Paper issued by the central bank, redeemable as money and considered to be full legal tender.
Bank Rate
The rate at which a central bank is prepared to lend money to its domestic banking system.
Bar Chart
A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which show the following information - the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the opening price and the horizontal line on the right of bar shows the closing price.
Base Currency
In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency.
Bear Market
An extended period of general price decline in an individual security, an asset, or a market.
Bid Price
is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote - e.g. EUR/USD 1.1923 / 68 - means that one euro can be sold for 1.1923 US dollars.
Bid/Ask Spread
is the difference between the bid price and the ask price in any currency quotation. The spread represents the broker's fee, and varies from broker to broker.
Big Figure
The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 108.05/10 the big figure is 108. EUR/USD price of .8325/28 the big figure is .83
Bretton Woods
The site of the conference which in 1944 led to the establishment of the post war foreign exchange system that remained intact until the early 1970s. The conference resulted in the formation of the IMF. The system fixed currencies in a fixed exchange rate system with 1% fluctuations of the currency to gold or the dollar.
Broker
An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries.
Bull Market
A market which is on a consistent upward trend.
Bundesbank
Central Bank of Germany.
Buy On Margin
The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.
Buy Limit Order
An order to execute a transaction at a specified price (the limit) or lower.
Candlestick Chart
A chart that displays the daily trading price range (open, high, low and close). A form of Japanese charting that has become popular in the West. A narrow line (shadow) shows the day's price range. A wider body marks the area between the open and the close. If the close is above the open, the body is white (not filled); if the close is below the open, the body is black (filled).
Central Bank
A bank, administered by a national government, which regulates the behavior of financial institutions within its borders and carries out monetary policy.
Chartist
A person who attempts to predict prices by analyzing past price movements as recorded on a chart.
Closing a Position
The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of the position.
Commission
The fee that a broker may charge clients for dealing on their behalf.
Cross Currency
A currency pair that does not include US dollars - e.g. EUR/GBP.
Currency
Money issued by a government. Coins and paper money. It is a form of money used as a unit of exchange within a country.
Currency Pair
Two currencies involved in a Forex transaction - e.g. EUR/USD.
Currency Risk
The risk that shifts in foreign exchange rates may undermine the dollar or any other foreign currency value of overseas investments.
Day Trade
A trade opened and closed on the same trading day.
Day Trading
Refers to a style or type of trading where trade positions are opened and closed during the same day.
Day Trader
A trader who buys and sells on the basis of small short-term price movements.
Dealer
An individual or firm that buys and sells assets from their portfolio, acting as a principal or counterpart to a transaction.
Depreciation
A fall in the value of a currency due to market forces.
Desk
Term referring to a group dealing with a specific currency or currencies.
Devalution
The act by a government to reduce the external value of its currency.
Direct Quotation
Quoting in fixed units of foreign currency against variable amounts of the domestic currency.
Discretionary Account
An account in which the customer permits a trading institution to act on the customer's behalf in buying and selling currency pairs. The institution has discretion as to the choice of currency pairs, prices, and timing-subject to any limitations specified in the agreement.
Economic Indicator
A statistical report issued by governments or academic institutions indicating economic conditions within a country.
Euro (EUR)
The single currency of the European Economic and Monetary Union (EMU) introduced in January 1999. This is the amalgamation of the following currencies, after Jan. 1, 2002 these currencies will be considered legacy currencies. Germany Deutsche Marks, Italy Lira, Austria Schillings, France Franc, Belgium Francs, Netherlands (Dutch) Guilders, Finland Markka, Portugal Escudo, Greece Drachmas, Ireland Punt, Luxembourg Francs, Spanish Pesetas.
European Central Bank (ECU)
The Central Bank for the new European Monetary Union.
Execution
The Process of completing an order or deal.
First In First Out (FIFO)
refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.
Foreign Exchange (Forex, FX)
Simultaneously buying one currency and selling another.
Fundamental Analysis
Analysis of political and economic conditions that can affect currency prices.
Leverage or Margin
The ratio of the value of a transaction to the required deposit. A common margin for Forex trading is 100:1 - you can trade currency worth 100 times the amount of your deposit.
Limit Order
An order to buy or sell when the price reaches a specified level.
Lot
The size of a Forex transaction. Standard lots are worth about 100,000 US dollars.
Major Currency
The euro, German mark, Swiss franc, British pound, and the Japanese yen are the major currencies.
Minor Currency
The Canadian dollar, the Australian dollar, and the New Zealand dollar are the minor currencies.
Offer (Ask)
The rate at which a dealer is willing to sell a currency.
Offsetting transaction
A trade with which serves to cancel or offset some or all of the market risk of an open position.
One Cancels the Other (OCO)
Two orders placed simultaneously with instructions to cancel the second order on execution of the first.
A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.
Open Order
An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders.
Open Position
An active trade that has not been closed.
An active trade with corresponding unrealized Profit and Loss, which has not been offset by an equal and opposite deal.
Order
A customer's instructions to buy or sell currencies.
Over the Counter (OTC)
Used to describe any transaction that is not conducted over an exchange.
Overnight Position
Trader's long or short position in a currency at the end of a trading day.
Pips or Points
The smallest unit a currency can be traded in.
The smallest unit of price for any foreign currency. Digits added to or subtracted from the fourth decimal place, i.e. 0.0001.
Political Risk
Exposure to changes in governmental policy which will have an adverse effect on an investor's position.
Price
The price at which the underlying currency can be bought or sold.
Price Transparency
The ability of all market participants to "see" or deal at the same price.
Describes quotes to which every market participant has equal access.
Principle Value
The original amount invested by the client.
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 Currency
The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.
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
Price at which a currency can be purchased or sold against another currency.
The price of one currency in terms of another, typically used for dealing purposes.
Resistance
Price level at which technical analysts note persistent selling of a currency.
A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
Revaluation
Daily calculation of potential profits or losses on open positions based on the difference between the settlement price of the previous trading day and the current trading day.
An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of "Devaluation".
Risk (Forex Risk)
The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced.
Exposure to uncertain change, most often used with a negative connotation of adverse change.
Risk Management
The employment of financial analysis and use of trading techniques to reduce and/or control exposure to financial risk.
Rollover (Roll-Over)
The process of extending the settlement value date on an open position forward to the next valid value date.
Settlement
The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.
Short Position
An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.
Spot Market
Market where people buy and sell actual financial instruments (currencies) for two-day delivery.
Spot Price
The current market price of a currency that normally settles in 2 business days (1 day for Dollar/Canada).
The current market price. Settlement of spot transactions usually occurs within two business days.
Spread
This point or pip difference between the bid and ask price of a currency pair.
Square
Purchase and sales are in balance and thus the dealer has no open position.
Squawk Box
A speaker connected to a phone often used in broker trading desks.
Squeeze
Action by a central bank to reduce supply in order to increase the price of money.
The difference between the bid and offer prices.
Stable Market
An active market which can absorb large sale or purchases of currency without major moves.
Standard
A term referring to certain normal amounts and maturities for dealing.
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 (The Pound - GBP)
Another term for the British currency, "The Pound".
Stop
An order to buy or to sell a currency when the currency's price reaches or passes a specified level.
Stop Loss Order
Order to buy or sell when a given price is reached or passed to liquidate part or all of an existing position.
Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor's position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.
Support Levels
A price at which a currency or the currency market will receive considerable buying pressure.
A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of "resistance".
Swap
A transaction which moves the maturity date of an open position to a future date.
The simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another. A swap can be a swap against a forward. In essence, swapping is somewhat similar to borrowing one currency and lending another for the same period. However, any rate of return or cost of funds is expressed in the price differential between the two sides of the transaction.
Swap Price
A price as a differential between two dates of the swap.
Swiss
Market slang for Swiss Franc.
Take Profit Order
A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on said position.
Technical Analysis
Analysis of historical market data to predict future movements in the market.
Technical Correction
An adjustment to price not based on market sentiment but technical factors such as volume and charting.
Thin Market
A market in which trading volume is low and in which consequently bid and ask quotes are wide and the liquidity of the instrument traded is low.
Thursday/Friday Dollars
A US foreign exchange technicality. If a foreign bank buys dollars on Tuesday for Thursday delivery. If the bank leaves the funds overnight and transfers them on Friday by means of a clearing house cheque then clearance is not until Monday, the next working day. Higher interest rates for this period are thus available.
Tick
The smallest possible change in a price, either up or down.
Today/Tomorrow
Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa. Also referred to as overnight.
Tomorrow Next (Tom Next)
Simultaneous buying of a currency for delivery the following day and selling for the spot day or vice versa.
Trade Date
The date on which a trade occurs.
Tradeable Amount
Smallest transaction size acceptable.
Transaction
The buying or selling of currencies resulting from the execution of an order.
Transaction Cost
The cost of a Forex transaction - typically the spread between bid and ask prices.
Transaction Date
The date on which a trade occurs.
Turnover
The total volume of all executed transactions in a given time period.
Two Tier Market
A dual exchange rate system where normally only one rate is open to market pressure, e.g. South Africa.
Two-Way Price
A quote in the foreign exchange market that indicates a bid and an offer.
Two-Way Quotation
When a dealer quotes both buying and selling rates for foreign exchange transactions.
Uncovered
Open position.
Under-Valuation
An exchange rate is normally considered to be undervalued when it is below its purchasing power parity.
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 at a price higher than the preceding quote.
A transaction executed at a price greater than the previous transaction.
Uptick Rule
In the US, a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.
US Prime Rate
The interest rate at which US banks will lend to their prime corporate customers.
US Treasury
The United States Department of the Treasury is the government department responsible for issuing all Treasury bonds, notes, and bills.
Value Data
The maturity date of the currency for settlement, usually two business days (one day for Canada) after the trade has occurred.
Value Date
The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Value Date is also known as "maturity" date.
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
Normally settlement for two working days from today. See value date.
Variation Margin
Funds, which are required to bring the equity in an account back up to the initial margin level, calculated on a day-to-day basis.
Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.
Volatility (VOL)
Statistical measure of the change in price of a financial currency pair over a given time period.
A statistical measure of a market's price movements over time.
A measure of the amount by which an asset price is expected to fluctuate over a given period.
Vostro Account
A local currency account maintained with a bank by another bank. The term is normally applied to the counterparty's account from which funds may be paid into or withdrawn, as a result of a transaction.
Wash Trade
A matched deal which produces neither a gain nor a loss.
Whipsaw
Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Withholding Tax
Income tax withheld from employees' wages and paid directly to the government by the employer.
Working Day
A day on which the banks in a currency's principal financial centre are open for business. For FX transactions, a working day only occurs if the bank in both financial centre's are open for business (all relevant currency centers in the case of a cross are open).
Yard
A slang word used in the currency industry meaning "billion".
X
A Nasdaq stock symbol specifying that it is a mutual fund.
Z-Score
A statistical measure that quantifies the distance (measured in standard deviations) a data point is from the mean of a data set. In a more financial sense, Z-score is the output from a credit-strength test that gauges the likelihood of bankruptcy.
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.
Actualize
The underlying assets or instruments which are traded in the cash market.
Adjustable Peg
An exchange rate system where a country's exchange rate is "pegged" (i.e. fixed) in relation to another currency. The official rate may be changed from time to time.
Adjustment
Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or.
Agent Bank
A bank acting for a foreign bank.
In the Euro market - the agent bank is the one appointed by the other banks in the syndicate to handle the administration of the loan.
Aggregate Demand
Total demand for goods and services in the economy. It includes private and public sector demand for goods and services within the country and the demand of consumers and and firms in other countries for good and services.
Aggregate Risk
Total amount of exposure a bank has with a customer for both spot and forward contracts.
Aggregate Supply
Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.
Agio
Difference in the value between currencies. Also used to describe percentage charges for conversion from paper money into cash, or from a weak into a strong currency.
Aggressor
A trader dealing on an existing price in the market.
Appreciation
A currency is said to 'appreciate' when it strengthens in price in response to market demand.
Describes a currency strengthening in response to market demand rather than by official action.
Arbitrage
Profiting from differences in the price of a single currency pair that is traded on more than one market.
Arbitrage Channel
The range of prices within which there will be no possibility to arbitrage between the cash and futures market.
Around
Used in quoting forward "premium/discount". "Five-five around" would mean five points on either side of the present spot value.
Ask Price
Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quote - e.g. EUR/USD 1.1965 / 68 - means that one euro can be bought for 1.1968 US dollars.
Asset
An item having commercial or exchange value.
Asset Location
Dividing instrument funds among markets to achieve diversification or maximum return.
At Best
An instruction given to a dealer to buy or sell at the best rate that is currently available in the market.
At or Better
An order to deal at a specific rate or better.
Authorized Dealer
A financial institution or bank authorized to deal in foreign exchange.
Average Rate Option
A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an "Asian option".
Back Office
The office location, or department, where the processing of financial transactions takes place.
Balance of Trade
The value of a country's exports minus its imports.
Bank Notes
Paper issued by the central bank, redeemable as money and considered to be full legal tender.
Bank Rate
The rate at which a central bank is prepared to lend money to its domestic banking system.
Bar Chart
A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which show the following information - the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the opening price and the horizontal line on the right of bar shows the closing price.
Base Currency
In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency.
Bear Market
An extended period of general price decline in an individual security, an asset, or a market.
Bid Price
is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote - e.g. EUR/USD 1.1923 / 68 - means that one euro can be sold for 1.1923 US dollars.
Bid/Ask Spread
is the difference between the bid price and the ask price in any currency quotation. The spread represents the broker's fee, and varies from broker to broker.
Big Figure
The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 108.05/10 the big figure is 108. EUR/USD price of .8325/28 the big figure is .83
Bretton Woods
The site of the conference which in 1944 led to the establishment of the post war foreign exchange system that remained intact until the early 1970s. The conference resulted in the formation of the IMF. The system fixed currencies in a fixed exchange rate system with 1% fluctuations of the currency to gold or the dollar.
Broker
An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries.
Bull Market
A market which is on a consistent upward trend.
Bundesbank
Central Bank of Germany.
Buy On Margin
The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.
Buy Limit Order
An order to execute a transaction at a specified price (the limit) or lower.
Candlestick Chart
A chart that displays the daily trading price range (open, high, low and close). A form of Japanese charting that has become popular in the West. A narrow line (shadow) shows the day's price range. A wider body marks the area between the open and the close. If the close is above the open, the body is white (not filled); if the close is below the open, the body is black (filled).
Central Bank
A bank, administered by a national government, which regulates the behavior of financial institutions within its borders and carries out monetary policy.
Chartist
A person who attempts to predict prices by analyzing past price movements as recorded on a chart.
Closing a Position
The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of the position.
Commission
The fee that a broker may charge clients for dealing on their behalf.
Cross Currency
A currency pair that does not include US dollars - e.g. EUR/GBP.
Currency
Money issued by a government. Coins and paper money. It is a form of money used as a unit of exchange within a country.
Currency Pair
Two currencies involved in a Forex transaction - e.g. EUR/USD.
Currency Risk
The risk that shifts in foreign exchange rates may undermine the dollar or any other foreign currency value of overseas investments.
Day Trade
A trade opened and closed on the same trading day.
Day Trading
Refers to a style or type of trading where trade positions are opened and closed during the same day.
Day Trader
A trader who buys and sells on the basis of small short-term price movements.
Dealer
An individual or firm that buys and sells assets from their portfolio, acting as a principal or counterpart to a transaction.
Depreciation
A fall in the value of a currency due to market forces.
Desk
Term referring to a group dealing with a specific currency or currencies.
Devalution
The act by a government to reduce the external value of its currency.
Direct Quotation
Quoting in fixed units of foreign currency against variable amounts of the domestic currency.
Discretionary Account
An account in which the customer permits a trading institution to act on the customer's behalf in buying and selling currency pairs. The institution has discretion as to the choice of currency pairs, prices, and timing-subject to any limitations specified in the agreement.
Economic Indicator
A statistical report issued by governments or academic institutions indicating economic conditions within a country.
Euro (EUR)
The single currency of the European Economic and Monetary Union (EMU) introduced in January 1999. This is the amalgamation of the following currencies, after Jan. 1, 2002 these currencies will be considered legacy currencies. Germany Deutsche Marks, Italy Lira, Austria Schillings, France Franc, Belgium Francs, Netherlands (Dutch) Guilders, Finland Markka, Portugal Escudo, Greece Drachmas, Ireland Punt, Luxembourg Francs, Spanish Pesetas.
European Central Bank (ECU)
The Central Bank for the new European Monetary Union.
Execution
The Process of completing an order or deal.
First In First Out (FIFO)
refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.
Foreign Exchange (Forex, FX)
Simultaneously buying one currency and selling another.
Fundamental Analysis
Analysis of political and economic conditions that can affect currency prices.
Leverage or Margin
The ratio of the value of a transaction to the required deposit. A common margin for Forex trading is 100:1 - you can trade currency worth 100 times the amount of your deposit.
Limit Order
An order to buy or sell when the price reaches a specified level.
Lot
The size of a Forex transaction. Standard lots are worth about 100,000 US dollars.
Major Currency
The euro, German mark, Swiss franc, British pound, and the Japanese yen are the major currencies.
Minor Currency
The Canadian dollar, the Australian dollar, and the New Zealand dollar are the minor currencies.
Offer (Ask)
The rate at which a dealer is willing to sell a currency.
Offsetting transaction
A trade with which serves to cancel or offset some or all of the market risk of an open position.
One Cancels the Other (OCO)
Two orders placed simultaneously with instructions to cancel the second order on execution of the first.
A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.
Open Order
An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders.
Open Position
An active trade that has not been closed.
An active trade with corresponding unrealized Profit and Loss, which has not been offset by an equal and opposite deal.
Order
A customer's instructions to buy or sell currencies.
Over the Counter (OTC)
Used to describe any transaction that is not conducted over an exchange.
Overnight Position
Trader's long or short position in a currency at the end of a trading day.
Pips or Points
The smallest unit a currency can be traded in.
The smallest unit of price for any foreign currency. Digits added to or subtracted from the fourth decimal place, i.e. 0.0001.
Political Risk
Exposure to changes in governmental policy which will have an adverse effect on an investor's position.
Price
The price at which the underlying currency can be bought or sold.
Price Transparency
The ability of all market participants to "see" or deal at the same price.
Describes quotes to which every market participant has equal access.
Principle Value
The original amount invested by the client.
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 Currency
The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.
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
Price at which a currency can be purchased or sold against another currency.
The price of one currency in terms of another, typically used for dealing purposes.
Resistance
Price level at which technical analysts note persistent selling of a currency.
A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
Revaluation
Daily calculation of potential profits or losses on open positions based on the difference between the settlement price of the previous trading day and the current trading day.
An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of "Devaluation".
Risk (Forex Risk)
The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced.
Exposure to uncertain change, most often used with a negative connotation of adverse change.
Risk Management
The employment of financial analysis and use of trading techniques to reduce and/or control exposure to financial risk.
Rollover (Roll-Over)
The process of extending the settlement value date on an open position forward to the next valid value date.
Settlement
The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.
Short Position
An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.
Spot Market
Market where people buy and sell actual financial instruments (currencies) for two-day delivery.
Spot Price
The current market price of a currency that normally settles in 2 business days (1 day for Dollar/Canada).
The current market price. Settlement of spot transactions usually occurs within two business days.
Spread
This point or pip difference between the bid and ask price of a currency pair.
Square
Purchase and sales are in balance and thus the dealer has no open position.
Squawk Box
A speaker connected to a phone often used in broker trading desks.
Squeeze
Action by a central bank to reduce supply in order to increase the price of money.
The difference between the bid and offer prices.
Stable Market
An active market which can absorb large sale or purchases of currency without major moves.
Standard
A term referring to certain normal amounts and maturities for dealing.
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 (The Pound - GBP)
Another term for the British currency, "The Pound".
Stop
An order to buy or to sell a currency when the currency's price reaches or passes a specified level.
Stop Loss Order
Order to buy or sell when a given price is reached or passed to liquidate part or all of an existing position.
Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor's position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.
Support Levels
A price at which a currency or the currency market will receive considerable buying pressure.
A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of "resistance".
Swap
A transaction which moves the maturity date of an open position to a future date.
The simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another. A swap can be a swap against a forward. In essence, swapping is somewhat similar to borrowing one currency and lending another for the same period. However, any rate of return or cost of funds is expressed in the price differential between the two sides of the transaction.
Swap Price
A price as a differential between two dates of the swap.
Swiss
Market slang for Swiss Franc.
Take Profit Order
A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on said position.
Technical Analysis
Analysis of historical market data to predict future movements in the market.
Technical Correction
An adjustment to price not based on market sentiment but technical factors such as volume and charting.
Thin Market
A market in which trading volume is low and in which consequently bid and ask quotes are wide and the liquidity of the instrument traded is low.
Thursday/Friday Dollars
A US foreign exchange technicality. If a foreign bank buys dollars on Tuesday for Thursday delivery. If the bank leaves the funds overnight and transfers them on Friday by means of a clearing house cheque then clearance is not until Monday, the next working day. Higher interest rates for this period are thus available.
Tick
The smallest possible change in a price, either up or down.
Today/Tomorrow
Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa. Also referred to as overnight.
Tomorrow Next (Tom Next)
Simultaneous buying of a currency for delivery the following day and selling for the spot day or vice versa.
Trade Date
The date on which a trade occurs.
Tradeable Amount
Smallest transaction size acceptable.
Transaction
The buying or selling of currencies resulting from the execution of an order.
Transaction Cost
The cost of a Forex transaction - typically the spread between bid and ask prices.
Transaction Date
The date on which a trade occurs.
Turnover
The total volume of all executed transactions in a given time period.
Two Tier Market
A dual exchange rate system where normally only one rate is open to market pressure, e.g. South Africa.
Two-Way Price
A quote in the foreign exchange market that indicates a bid and an offer.
Two-Way Quotation
When a dealer quotes both buying and selling rates for foreign exchange transactions.
Uncovered
Open position.
Under-Valuation
An exchange rate is normally considered to be undervalued when it is below its purchasing power parity.
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 at a price higher than the preceding quote.
A transaction executed at a price greater than the previous transaction.
Uptick Rule
In the US, a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.
US Prime Rate
The interest rate at which US banks will lend to their prime corporate customers.
US Treasury
The United States Department of the Treasury is the government department responsible for issuing all Treasury bonds, notes, and bills.
Value Data
The maturity date of the currency for settlement, usually two business days (one day for Canada) after the trade has occurred.
Value Date
The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Value Date is also known as "maturity" date.
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
Normally settlement for two working days from today. See value date.
Variation Margin
Funds, which are required to bring the equity in an account back up to the initial margin level, calculated on a day-to-day basis.
Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.
Volatility (VOL)
Statistical measure of the change in price of a financial currency pair over a given time period.
A statistical measure of a market's price movements over time.
A measure of the amount by which an asset price is expected to fluctuate over a given period.
Vostro Account
A local currency account maintained with a bank by another bank. The term is normally applied to the counterparty's account from which funds may be paid into or withdrawn, as a result of a transaction.
Wash Trade
A matched deal which produces neither a gain nor a loss.
Whipsaw
Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Withholding Tax
Income tax withheld from employees' wages and paid directly to the government by the employer.
Working Day
A day on which the banks in a currency's principal financial centre are open for business. For FX transactions, a working day only occurs if the bank in both financial centre's are open for business (all relevant currency centers in the case of a cross are open).
Yard
A slang word used in the currency industry meaning "billion".
X
A Nasdaq stock symbol specifying that it is a mutual fund.
Z-Score
A statistical measure that quantifies the distance (measured in standard deviations) a data point is from the mean of a data set. In a more financial sense, Z-score is the output from a credit-strength test that gauges the likelihood of bankruptcy.
Subscribe to:
Posts (Atom)