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Home > Learn FX Trading > Forex Glossary

Forex Glossary


The following offers brief explanation of the most popular terms used in the currency market today.
 

| A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z |
 

A
Aggregate (Risk) Total exposure a bank has with a customer for both spot and forward contracts.
Aggregate Demand Total demand for goods and services in the economy. Aggregate demand includes private and public sector demand for goods and services within the country, and the demand of consumers and firms in other countries for goods and services.
Aggregate Supply Total supply of goods and services in the economy (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.
American Option An option which may be exercised on any valid business date throughout the life of the option. A European option can only be exercised on a specific date.
Appreciation Describes a currency strengthening in response to market demand as opposed to increasing in value as a result of official action.
Arbitrage A risk-free type of trading where the same instrument is bought and sold simultaneously in two different markets in order to cash in on the difference between the markets.
Around Used in quoting forward “premium/discount”.
Ask Price The price at which the currency or instrument is offered. Ask is the lowest price acceptable to the buyer.
Asset The right to receive from a counterparty an amount of currency either in regards to a balance sheet asset (e.g. a loan), or at a specified future date in regards to an unmatched Forward or spot deal.
Association Cambiste International The international society of foreign exchange dealers consisting of national "Forex clubs" affiliated on a worldwide basis.
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.
At Par Forward Spread When the forward price is equivalent to the spot price.
At the Price Stop-Loss Order A stop-loss order that must be executed at the requested level regardless of market conditions.
At-the-Money An option whose strike/exercise price is equal to or near the current market price of the underlying instrument.
Auction Sale of an item to the highest bidder. (1) A method commonly used in exchange control regimes for the allocation of foreign exchange. (2) A method for allocating government paper, such as US Treasury Bills. Small investors are given preferential access to the bills. The average issuing price is then computed on the basis of the competitive bids accepted. In some circumstances, such as government auctions, it is the yield rather than the price which is bid.
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”.

B

  
Back Office Settlement and related processes.
Back to Back (1) Transaction where all the obligations and liabilities in one transaction are mirrored in a second transaction. (2) Transaction where a loan is made in one currency in one country against a loan in another country in another currency.
Balance of Payments A systematic record of the economic transactions during a given period for a country. (1) The term is often used to mean either: (i) balance of payments on “current account”; or (ii) the current account plus certain long term capital movements. (2) The combination of the trade balance, current balance, capital account and invisible balance, which together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital transfers, and or decline in currency values.
Balance of Trade The value of exports less imports. Invisibles are normally excluded, which is why balance of trade is also referred to as mercantile or physical trade. Figures can be quoted as FoB/FaS , customs cleared, or FoB export.
Band The range in which a currency is permitted to move. A system used in the ERM.
Bank Line Line of credit granted by a bank to a customer, also known as a "line".
Bank Notes Bank notes are paper issued by the central or issuing bank. They are legal tender, but are not usually considered to be part of the FX market. However bank notes can be converted, in some counties, into FX. Bank notes are normally priced at a premium to the current spot rate for a currency.
Bank Rate The rate at which a central bank is prepared to lend money to its domestic banking system.
Banking Day See trading day and value date.
Barrier Option A family of path dependent options whose pay-off pattern and survival to the expiration date depend not only on the final price of the underlying currency, but also on whether or not the underlying currency breaks a predetermined price level at any time during the life of the option. See Down and Out call/put, Down and in call/put, Up and out call/put, Up and in call/put.
Base Currency The currency in which the operating results of the bank or institution are reported.
Base Rate A term used in the UK for the rate used by banks to calculate the interest rate to borrowers. Top quality borrowers will pay a small amount over base.
Basis The difference between the cash price and futures price.
Basis Convergence The process whereby the basis tends towards zero as the contract expiry approaches.
Basis Point One per cent of one per cent.
Basis Price The price expressed in terns of yield maturity or annual rate of return.
Basis Trading Taking opposite positions in the cash and futures market with the intention of profiting from favorable movements in the basis.
Basket A group of currencies normally used to manage the exchange rate of another currency, sometimes referred to as a unit of account.
Bear A person (investor) who believes that prices will decline.
Bear Market A market in which prices decline sharply against a background of widespread pessimism (opposite of Bull Market).
Bear Put Spread A spread designed to exploit falling exchange rates by purchasing a put option with a high exercise price and selling one with a low exercise price.
Bid Price The price at which a buyer has offered to purchase the currency or instrument. Bid is the highest price that the buyer is offering for the particular currency at the moment; the difference between the ask price and the bid price is the spread. Together, the two prices constitute a quotation. The bid-ask spread is stated as a percentage cost of transacting in the foreign.
Big Figure Refers normally to the first three digits of an exchange rate that dealers treat as understood in quoting. For example, a quote of "30/40" on dollar mark could indicate a price of 1.5530/40BIS: Bank of International Settlement.
Bilateral Clearing A system used where foreign currency is limited. In such a system, payments are usually routed through the central banks, and sometimes require that the trade balance is equaled every year.
Binary Options A binary “call” (or “step up”) is like a standard European call option except that the pay off at expiry is fixed at one unit of the counter currency when the call expires in the money.
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. It is widely used in the currency markets.
Booked The recording of a transaction outside the country where the transaction is itself negotiated.
Boris Slang for Russian trading.
Break Even Point The price of a financial instrument at which the option buyer recovers the premium, meaning that either a loss or gain is made. In the case of a call option, the break even point is the exercise price plus the premium.
Break Out In the options market, undoing a conversion or a reversal to restore the option buyer's original position.
Bretton-Woods The site of the 1944 conference which led to the establishment of the post war foreign exchange system that remained intact until the early 1970s. The conference also resulted in the formation of the IMF. The fixed exchange rate system established at Bretton-Woods allowed 1% fluctuations of a given currency to gold or the dollar.
Broken Dates or Period Deals that are undertaken for value dates that are not standard periods e.g. 1 month. The standard periods are 1 week, 2 weeks, 1, 2, 3, 6 and 12 months. Terms also used are odd dates, or cock dates, broken dates or broken period.
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.
Brokerage Commission charged by a broker.
Broker-Dealer See Dealer.
BUBA Bundesbank, the central bank of Germany.
Bull A person (investor) who believes that prices will rise.
Bull (call or put) Spread An option position composed of both long and short options of the same type, either calls or puts, designed to be profitable in a declining market. An option with a lower strike price is bought and one with a higher strike price is sold.
Bull Market A market characterized by rising prices.
Bulldogs Sterling bonds issued in the UK by foreign institutions.
Bullion A term for gold bars, not coin.
Bundesbank Central bank of Germany.
Butterfly Spread (1) A futures butterfly spread is a spread trade in which multiple futures months are traded simultaneously at a differential. The trade basically consists of two futures spread transactions with either three or four different futures months at one differential. (2) An options butterfly spread is a combination of a bear and bull spread trade in which multiple options months and strike prices are traded simultaneously at a differential. The trade basically consists of two options spread transactions with either three or four different options months and strikes at one differential.
Buyer/Taker The purchaser of an option, whether a call or put option. The buyer may also be referred to as the option holder. Option buyers receive the right, but not the obligation, to enter a futures/securities market position.
Buying Rate Rate at which the market and a market maker in particular are willing to buy the currency. Sometimes called bid rate.
Buying The Spread To buy the nearby contract and simultaneously sell the deferred contract. Also referred to as a bull spread.

C

  
Cable A term used in the foreign exchange market for the US Dollar/British Pound rate.
Cable Transfer Telegraphic transfer of funds from one centre to another. Now synonymous with interbank electronic fund transfer.
Calendar Spread An option position comprising the purchase and sale of two option contracts of the same type with different expiration dates at the same exercise price.
Call An option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period.
Call Option A call option confers the right but not the obligation to buy stock, shares or futures at a specified price.
Cambiste French term for foreign exchange dealer.
Capital Account Juxtaposition of the long and short term capital imports and exports of a country.
Carry The interest cost of financing securities or other financial instruments held.
Carry-Over Charge A finance charge associated with the storing of commodities (or foreign exchange contracts) from one delivery date to another.
Cash Normally refers to an exchange transaction contracted for settlement on the day the deal is struck. This term is mainly used in the North American markets and those countries that rely on these markets for foreign exchange services because of time zone preferences i.e. Latin America. In Europe and Asia, cash transactions are often referred to as “value same day” deals.
Cash and Carry The buying of an asset today and selling of a future contract on the asset. A reverse cash and carry is possible by selling an asset and buying a future.
Cash Delivery Same day settlement.
Cash Settlement A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.
CBOE Chicago Board Options Exchange.
CBOT or CBT Chicago Board of Trade.
CD Certificate of Deposit.
Central Bank A central bank provides financial and banking services for a country's government and commercial banks. It implements the government's monetary policy as well by changing interest rates. It is normally the issuing bank and controls bank licensing, and any foreign exchange control regime.
Central Rate Exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.
Certificate of Deposit (CD) 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. CDs vary in size with maturities ranging from a few weeks to several years. CDs may normally be redeemed before maturity only by sale on the secondary market, but may also be redeemed back to issuing bank through payment of a penalty.
CFTC The Commodity Futures Trading Commission, the US Federal regulatory agency for futures traded on commodity markets, including financial futures.
CHAPS Clearing House Automated Payment System.
Chartist An individual who studies graphs and charts of historic data to find trends and predict trend reversals. These include the observance of certain patterns and characteristics of the charts to derive resistance levels, head and shoulders patterns, and double bottom or double top patterns which are thought to indicate trend reversals.
CHIPS The New York clearing house clearing system. (Clearing House Interbank Payment System). Most euro transactions are cleared and settled through this system.
CIBOR Copenhagen Interbank Rate, the rate at which the banks lend the Danish Krone on an unsecured basis. The rate is calculated daily by the Denmark’s Nationalbank (the Danish Central Bank), based on rules set out by the Danish Banker's Association.
Clearing The process of setting a number of items against one another and making fund transfers only on the net balance as part of the settlement process.
Closed Position A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.
Closing Purchase Transaction The purchase of an option identical to one already sold to liquidate a position.
CME Chicago Mercantile Exchange Cock Dates (see broken dates).
Coincident Indicator An economic indicator that generally moves in line with the general business cycle such as industrial production.
Comex Commodity Exchange of New York.
Commission The fee that a broker may charge clients for dealing on their behalf.
Compound Option An option on an option, the dates and price of such option being fixed.
Comptant French term for spot settlement in foreign exchange.
Confirmation A memorandum to the other party describing all the relevant details of the transaction.
Consumer Price Index Monthly measure of the change in the prices of a defined basket of consumer goods including food, clothing, and transport. Countries vary in their approach to rents and mortgages. Rising CPI is normally associated with expectations of higher short term interest rates and may therefore be supportive for a currency in the short term. Nevertheless, a longer term inflation problem will eventually undermine confidence in the currency and weakness will follow.
Contract An agreement to buy or sell a specified amount of a particular currency or option during a specified month in the future (See Futures contract).
Contract Expiration Date The date on which a currency must be delivered to fulfill the terms of the contract. For options, the last day on which the option holder can exercise his right to buy or sell the underlying instrument or currency.
Contract Month The month in which a futures contract matures or becomes deliverable if not liquidated or traded out before the date specified.
Correspondent Bank The bank that regularly performs services on behalf of a foreign bank that has no branch in the relevant centre, e.g. to facilitate the transfer of funds. In the US, this often occurs domestically due to interstate banking restrictions.
Cost of Carry The interest rate parity, where the forward price is determined by the cost of borrowing money in order to hold the position.
Cost of Living Index Broadly equivalent to Retail Price Index or Consumer price.
Counter Value Where a person buys a currency against the dollar, it is the dollar value of the transaction.
Counterparty The other side to a deal (customer, or bank) with which a foreign exchange deal is executed.
Counterparty Risks Foreign Currency Inter-bank Exchange (FOREX) instruments are Positions (Buy and/or Sell) between the Client and its Counterparty and, unlike exchange-traded foreign exchange instruments which are, in effect, guaranteed by a clearing organization affiliated with the exchange on which the instruments are traded, are not guaranteed by a clearing organization. Thus, when the Customer purchases an OTC foreign exchange instrument, it relies on the Counterparty from which it has purchased the instrument to fulfill the contract. Failure of a Counterparty to fulfill a Position could result in losses of any prior payment made pursuant to the Positions, as well as the loss of the expected benefit of the transaction.
Country Risk Factors that affect currency trading unique to the specific country including political, regulatory, legal and holiday risks.
Coupon (1) On bearer stocks, the detachable part of the hide behind nominee status. Certificate exchangeable for dividends. (2) Denotes the rate of interest on a fixed interest security.
Coupon Value The annual rate of interest of a bond.
Cours du Change (French) Exchange rate.
Cours Libre (French) Free exchange rate.
Cours Officiel (French) Official exchange rate.
Court French for "short" as in “une position courte”.
Courtier (French) Broker.
Cover (1) To take out a forward foreign exchange contract. (2) To close out a short position by buying currency or securities which have been sold.
Covered Call A term used in the foreign exchange market for the US Dollar/British Pound rate.
Covered Call Write A strategy of writing call options against a long position in the underlying asset. A covered put write being based on a short position in the asset.
Covered Interest Rate Arbitrage An arbitrage approach which consists of borrowing currency A, exchanging it for currency B, investing currency B for the duration of the loan, and, after taking off the forward cover on maturity, showing a profit on the entire set of deals. It is based on the theorem of interest rate parity (one of the key theoretical economic relationships), which says that the return on a hedged foreign investment will just equal the domestic interest rate on investments of identical risk. When the covered interest rate differential between the two money markets is zero, there is no arbitrage incentive to move funds from one market to another.
Covered Margin The interest rate margin between two instruments denominated in different currencies after taking into account of the cost of forward cover.
CPI Consumer Price Index. Monthly measure of the change in the prices of a defined basket of consumer goods including food, clothing, and transport. Countries vary in their approach to rents and mortgages.
CPSS Committee on Payment and Settlement Systems.
Crawling Peg (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.
Credit Lombard See Lombard rate.
Credit Risk The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised for delivery.
Cross Deal A foreign exchange deal entered into involving two currencies, neither of which is the base currency.
Cross Hedge A technique using financial futures to hedge different but related cash instruments based on the view that the price movements between the instruments move in concert.
Cross Rate . An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, as most currencies are quoted against the dollar.
Crossed Market The situation which exists when a broker's bid is higher than the lowest offer of another broker
Cross-Trade A cross-trade transaction is a transaction in which either the buy-broker and the sell-broker are the same, or the buy-broker and the sell-broker belong to the same firm.
Currency The type of money that a country uses. It can be traded for other currencies on the foreign exchange market, so each currency has a value relative to another.
Currency Basket Various weightings of other currencies grouped together in relation to a basket currency (e.g. ECU or SDR). Sometimes used by currencies to fix their rate, often on a trade weighted basket.
Currency Swaps See swaps.
Current Account The net balance of a country's international payments arising from exports and imports together with unilateral transfers such as aid and migrant remittances. It excludes capital flows.
Current Balance The value of all exports (goods plus services), less all imports of a country over a specific period of time, equal to the sum of trade and invisible balances plus net receipts of interest, profits and dividends from abroad.
Cycle The set of expiration dates applicable to different classes of options.
 

D

  
Day Order An order that if not executed on the specific day, is automatically cancelled.
Day Trader Speculators who take positions that are liquidated prior to the close of the same trading day.
Day Trading A Day-Trading deal is a currency exchange deal which renews automatically every night at 22:00 (GMT time) starting the day the deal was made and until it ends. The deal ends in one of the following events: 1. Termination initiated by the trader. 2. The day trading rate has reached the Stop-Loss rate (or Take-Profit rate) you predefined. 3. The deal end date. As long as the deal is open, it is charged a renewal fee every night at 22:00 (GMT time).
Daylight Exposure Limit See intra-day position.
Deal Date The date on which a transaction is agreed upon.
Deal Ticket The primary method of recording the basic information relating to a transaction.
Dealer An individual or firm acting as a principal, rather than as an agent, in the purchase and/or sale of securities. Dealers trade for their own account and risk, in contrast to brokers, who do trade only on behalf of their clients.
Dealing Board The panel of communications equipment forming part of a dealer's desk.
Declaration Date The latest day or time by which the buyer of an option must intimate to the seller his willingness or unwillingness to exercise the option.
Deficit Shortfall in the balance of trade, balance of payments, or government budgets.
Deflator Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate.
Delivery The settlement of a transaction by receipt, or tender of a financial instrument or currency.
Delivery Date The date of maturity of the contract, when the final settlement of transaction is made by exchanging the currencies. This date is more commonly known as the value date.
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 currency represented by a futures contract may be delivered in fulfillment of the contract.
Delivery Risk A term to describe when counterparty is not able to complete his side of the deal. This risk is very high in the case of over the counter transactions where there is no exchange which can stand as a guarantee to the trade between the two parties to the contract.
Delta The change in the value of the option premium made fully paid by the capitalization of reserves, and given relative to the instantaneous change in the value of the underlying instrument, expressed as a coefficient.
Delta Hedging A method used by option writers to hedge the 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.
Deport (French) Discount.
Deposit Dealings Money Market operations.
Depreciation Describes a currency weakening in response to market demand as opposed to increasing in value as a result of official action.
Derivatives A broad term relating to risk management instruments such as futures, options, swaps, etc.. The contract value moves in relation to the underlying instrument or currency. The issue of derivatives and their control following large losses by banks and corporations has been the subject of much debate.
Desk Term referring to a group dealing with a specific currency or currencies.
Details All the information required to finalize a foreign exchange transaction, i.e. name, rate, dates and point of delivery.
Devaluation Deliberate downward adjustment of a currency against its fixed parities or bands, which is normally accompanied by formal announcement.
Devisen, Devises Foreign exchange in German and French respectively.
Devisenkassamarkt German for spot exchange market.
Devisenterminmarkt German for forward exchange market.
Diagonal (bull or bear) 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 Quotation Quoting in fixed units of foreign currency against variable amounts of the domestic currency.
Discount (1) See also “forward rate”. Less than the spot price. Example: forward discount. Forward rate is lower than spot rate. (2) An option that is trading for less than its intrinsic value.
Discount Rate The rate at which a bill is discounted. Specifically it refers to the rate at which a central bank is prepared to discount certain bills for financial institutions as a means of easing their liquidity, and is more accurately referred to as the official discount rate.
Disposable Income Earnings after tax.
Domestic Rates The interest rates applicable to deposits domiciled in the country of origin. Values may vary from Eurodeposits due to taxation and varying market practices.
Durable Goods Orders Durable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order.

E

  
Easing Modest decline in price.
Economic Exposure Reflects the impact of foreign exchange changes on the future competitive position of a company in the sense of the impact it can have on the future cash flows of the company.
Economic Indicator A statistic which indicates current economic growth rates and trends such as retail sales and employment.
ECU - European Currency Unit A basket of the member currencies. As a composite unit, the ECU consists of all the European Community currencies, which are individually weighted. It was created by the European Monetary System with the eventual goal of replacing the individual European member currencies.
Effective Exchange Rate An attempt to summarize the effects on a country's trade balance of its currency's changes against other currencies.
EFT Electronic Funds Transfer.
Either Way Market In the Euro Interbank deposit market where both bid and offer rates for a particular period are the same.
EMS European Monetary System.
EMU European Monetary Union.
End/End Indicates that both the spot and forward maturity, or two forward maturities in a swap transaction, fall due on the last business day of appropriate calendar months.
EOE European Options Exchange.
Epsilon The change in the price of an option associated with a 1% change in implied volatility (technically the first derivative of the option price with respect to volatility). Also referred to as eta, vega, omega and kappa.
ERM Exchange Rate Mechanism.
Euro Clear A computerized settlement and depository system for safe custody, delivery of, and payment for Eurobonds.
Eurobonds A long-term loan issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.
Eurocurrency A currency domiciled outside its country of origin normally held by non-residents.
Eurodollars US dollars deposited in a bank (US or non US) located outside the USA.
Eurofranc Swiss Franc (formerly also Belgian Francs) traded on the Eurocurrency market. Normally Swiss Francs are the more common currency.
Euromark Deutschmarks traded on the Eurocurrency market.
European Option An option that can be exercised only on its expiration date rather than before that date.
European Union The group formerly known as the European Community.
Exchange Control A system of controlling inflows and outflows of foreign exchange. Exchange Control devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges.
Exchange Rate Risk The potential loss that could be incurred from an adverse movement in exchange rates.
Exercise Limit A limit on the number of options contracts a holder may exercise within a specific period.
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 See Strike price.
Exercise Value For a call option, this is the amount by which the strike price is below the underlying investment; for a put option, it is the amount by which the strike price is above the underlying investment.
Exotic A less broadly traded currency.
Expiration Date (1) Options - the last date after which the option can no longer be exercised. (2) Bonds - the date on which a bond matures.
Expiration Month The month in which an option expires.
Expiry Date The last day on which the holder of an option can exercise his right to buy or sell the underlying security.
Expiry Date The last date on which an option can be bought or sold.
Exposure The total amount of money loaned to a borrower or country. Banks set rules to prevent overexposure to any single borrower. In trading operations, it is the potential for running a profit or loss from fluctuations in market prices.

F

  
Fast Market Rapid movement in a market caused by strong interest by buyers and/or sellers. In such circumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported.
Fed The United States Federal Reserve. Federal Deposit Insurance Corporation Membership is compulsory for Federal Reserve members. The corporation had deep involvement in the Savings and Loans crisis of the late 80s.
Fed Fund Rate The interest rate on Fed funds. This is a closely watched short term interest rate as it signals the Feds view as to the state of the money supply.
Fed Funds Cash balances held by banks with their local Federal Reserve Bank. The normal transaction with these funds is an interbank sale of a Fed fund deposit for one business day. Straight deals are where the funds are traded overnight on an unsecured basis.
FEDAI Foreign Exchange Dealers Association of India is an association of all dealers in foreign exchange which sets the ground rules for fixation of commissions and other charges and also determines the rules and regulations relating to day-to-day transactions in foreign exchange in India. The FEDAI has recognized 38 currencies for dealing.
Federal National Mortgage Association A privately owned, but US government sponsored, corporation that trades in residential mortgages. Its activities are funded by the sale of instruments commonly known as Fannie Maes.
Federal Open Market Committee See FOMC.
Federal Reserve Board The board of the Federal Reserve System, appointed by the US President for 14 year terms. One member of the board is appointed chairman every four years.
Federal Reserve System The central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board. Membership in the Fed is compulsory for banks chartered by the Comptroller of Currency, and optional for state chartered banks.
Financial Future A futures contract based on a financial instrument.
Fine Rate (1) A quote with a narrow spread. (2) The most favorable rate charged to a high quality borrower.
Firm Quotation The price given in response to a request for a rate at which the quoting party is willing to execute a deal for a reasonable amount, for spot settlement. Screen quotes are indicative. Quotes on matching systems are normally firm depending on the system’s requirement to reconfirm rate prior to completing matching.
Fiscal Policy Use of taxation as a tool in implementing monetary policy.
Fixed Dates The monthly calendar dates similar to the spot. There are two exceptions. For detailed description see value dates.
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 by the central bank.
Fixing A method of determining rates by normally finding a rate that balances buyers to sellers. Such a process occurs either once or twice daily at defined times. Used by some currencies, particularly for establishing tourist rates . The system is also used in the London Bullion market.
Flat/Square Where a client has not traded in that currency, or where an earlier deal is reversed thereby creating a neutral (flat) position. For example, you bought $500,000 then sold $500,000 = FLAT .
Flexible Exchange Rate Exchange rates with a fixed parity against one or more currencies with frequent revaluation. A form of managed float.
Float (1) See Floating exchange rate. (2) Cash in hand or in the course of being transferred between banks. (3) The Federal Reserve Float exists because checks sent to the Federal Reserve Banks are sometimes credited in advance of the depositing bank loosing the reserve.
Floating Exchange Rate When the value of a currency is decided by the market forces dictating the supply and demand of that particular currency.
Floor (1) An agreement with a counterparty that sets a lower limit to interest rates for the floor buyer for a stated time. (2) A term for an exchanges trading area (cf. screen based trading), normally the trading area is referred to as a pit in the commodities and futures markets.
FOMC Federal Open Market Committee, the committee that sets money supply targets in the US, which tend to be implemented through Fed Fund interest rates etc.
Foreign Exchange The purchase or sale of a currency against the sale or purchase of another.
Foreign Position A position in which one party agrees to purchase from or sell to the other party an agreed amount of foreign currency.
Forex An abbreviation of foreign exchange.
Forex Deal The purchase or sale of a currency against the sale or purchase of another currency. The maximum time for a deal is defined when the deal opens. The deal can be closed at any moment until the expiry date and time. For technical reasons, a deal cannot be closed in its first 3 minutes.
Forward Contract Sometimes used as synonym for “forward deal” or “future”. More specifically, it referes to arrangements with the same effect as a forward deal between a bank and a customer.
Forward Cover Taking Forward contracts intended to protect against movements in the exchange rate.
Forward Deal A deal with a value date greater than the spot value date.
Forward / Forward A forward / forward deal is one where both legs of the deal have value dates greater than the current spot value date.
Forward Margins Discounts or premiums between spot rate and the forward rate for a currency. Normally quoted in points.
Forward Maturities Trading days on which day contracts can be transacted later than the spot date.
Forward Operations Foreign exchange transactions for which the fulfillment of the mutual delivery obligations is made on a date later than the second business day after the transaction was concluded.
Forward Outright A commitment to buy or sell a currency for delivery on a specified future date or period. The price is quoted as the spot rate minus or plus the forward points for the chosen period.
Forward Points The interest rate differential between two currencies expressed in exchange rate points. The forward points are added to or subtracted from the spot rate to give the forward or outright rate, depending on whether the currency is at a forward premium or discount.
Forward Rate The rate at which a foreign exchange contract is struck today for settlement at a specified future date, which is decided at the time of entering into the contract. The decision to subtract or add points is determined by the differential between the deposit rates for both currencies concerned in the transaction. The base currency with the higher interest rate is said to be at a discount to the lower interest rate quoted currency in the forward market. Therefore the forward points are subtracted from the spot rate. Similarly, the base currency with the lower interest rate is said to be at a premium, and the forward points are added to the spot rate to obtain the forward rate.
Forward Rate Agreements The FRA is an agreement between two parties that determines the interest rate that will apply to a notional future loan or deposit of an agreement.
Free Reserves Total reserves held by a bank less the reserves required by the authority.
Front Office The activities carried out by the dealer, normal trading activities.
Fundamental Analysis Analysis based on economic and political factors.
Fundamentals The macro economic factors that are accepted as forming the foundation for the relative value of a currency. These include inflation, growth, trade balance, government deficit, and interest rates.
Funds A term for USD/CAD/Fungibles Instruments that are equivalent, substitutable and interchangeable in law. May apply to certain exchange traded currency contracts offered on a number of exchanges.
Futures Contract A contract traded on a futures exchange that requires the delivery of a specified quality and quantity of a commodity, currency or financial instruments within a specified future month, if not liquidated before the contract matures.
Futures Exchange-Traded Contracts They are firm agreements to deliver (or take delivery of) a standardized amount of something on a certain date at a predetermined price. Futures exist in currencies, money market deposits, bonds, shares and commodities. They are traded on an exchange with the clearing corporation guaranteeing the contract and moreover the trade is done on a mark to market basis.
FX Foreign Exchange.

G

  
G10 G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.
G5 The Group of Five. The five leading industrial countries: US, Germany, Japan, France, UK.
G7 The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.
Gamma The rate at which a delta changes over time, or for one unit change in the price of the underlying asset.
Gap A mismatch between maturities and cash flows in a bank, or individual dealer’s position book. Gap exposure is effectively interest rate exposure.
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.
GNP Deflator Removes inflation from the GNP figure. Usually expressed as a percentage and based on an index figure.
GNP Gap The difference between the actual real GNP and the potential real GNP. If the gap is negative an economy is overheated.
Going Long The purchase of a stock or commodity for investment or speculation.
Going Short The selling of a currency or instrument not owned by the seller.
Gold Standard The original system for supporting the value of currency issued. Accordingly, the monetary system backs its currency with a reserve of gold, and allows currency holders to convert their currency into gold. This system was in vogue before 1973 when the fixed exchange rates were prevalent.
Gross Before deduction of tax.
Gross Domestic Product Total value of a country's output, income or expenditure produced within the country's physical borders. GDP is the broadest measure of aggregate economic activity available. Reported quarterly, GDP growth is widely followed as the primary indicator of the strength of economic activity. GDP represents the total value of a country’s production during the period and consists of the purchases of domestically produced goods and services by individuals, businesses, foreigners and governments.
Gross National Product (GNP) Gross domestic product plus “factor income from abroad” - income earned from investment or work abroad.
GTC See “Good until cancelled”.
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. Different than normal practice, the order does not expire at the end of the trading day, although normally terminates at the end of the trading month.
 

H

  
Hard Currency A currency whose value is expected to remain stable or increase in terms of other currencies.
Head and Shoulders A pattern in price trends which chartists consider indicative of a price trend reversal. In this pattern, the price has risen for some time, and at the peak of the left shoulder, profit taking has caused the price to drop or level. The price then rises steeply again to the head before more profit taking causes the price to drop to around the same level as the shoulder. A further modest rise or level will indicate that a further major fall is imminent. The breach of the neckline is the indication to sell.
Hedge The purchase or sale of options or futures contracts as a temporary substitute for a transaction to be made at a later date. Usually it involves opposite positions in the cash, futures or options markets.
Hedging A hedging transaction is one whose main aim is to protect an asset or liability against a fluctuation in the foreign exchange rate, rather than profit from the exchange rate fluctuations.
HIBOR Hong Kong Inter-bank Offered Rate.
Historical Volatility The annualized standard deviation of percentage changes in futures prices over a specific period. It is an indication of past volatility in the marketplace.
Hit the Bid Acceptance of purchasing at the offer, or selling at the bid.
Holder Same as buyer.
Housing Starts Housing starts are a measure of the number of residential units on which construction has begun each month.
Hyperinflation Very high and self-sustaining inflation levels. One definition is the period from which inflation exceeds 50%, until it drops below that level for 12 months.
 

I

  
ICCH International Commodities Clearing House Limited, a clearing house based in London operating worldwide for many futures markets.
IFEMA International Foreign Exchange Master Agreement.
IMF International Monetary Fund, established in 1946 to provide international liquidity on a short and medium term, and to encourage liberalization of exchange rates. The IMF helps its members to tide over the balance of payments problems by supplying the necessary loans.
IMM International Monetary Market, part of the Chicago Mercantile Exchange that lists a number of currency and financial futures.
Implied Rates The interest rate determined by calculating the difference between spot and forward rates.
Implied Volatility A measurement of the market's expected price range of the underlying currency futures based on the traded option premiums.
Implied Volatility Skews The implied volatility variances for different strikes of an option.
In the Money A call option is in the money when the strike price is less than the current price of the underlying instrument. A put is when the strike price is greater.
Inconvertible Currency Currency which cannot be exchanged for other currencies either because it is forbidden by the foreign exchange regulations or the currency experiences extreme volatility that it is not perceived to be a safe haven for parking the funds.
Indicative Quote A market-maker's price which is not firm.
Indirect quote See reciprocal currency.
Industrial Production Index A coincident indicator measuring physical output of manufacturing, mining and utilities.
Inflation Continued rise in the general price level in conjunction with a related drop in purchasing power. Sometimes referred to as an excessive movement in such price levels.
Info Quote Rate given for information purposes only.
Initial Margin The deposit required by the Broker before a client can trade/transact a particular deal in order to have some cushion in the event of default by the party.
Interbank Rates The Forex rates large international banks quote to other large international banks. Normally the public and other businesses do not have access to these rates.
Interest Rate Floor An agreement which provides the buyer of the floor with a minimum interest rate for future lending requirements.
Interest Rate Options An agreement permitting a party to obtain a particular interest rate, issued both OTC and by exchanges.
Interest Rate Risk The potential for losses arising from changes in interest rates.
Interest Rate Swaps An agreement to exchange interest rate exposures from floating to fixed or vice versa. There is no swap of the principal. The principal amount is notional as at the end of the tenure only cash flows related with the interest payments (whether payment or receipt) are exchanged.
Intervention Action by a central bank to affect the value of its currency by entering the market. In India the intervention by Reserve Bank of India is confined to the events of extreme volatility.
In-the-Money A call option is in-the-money if the price of the underlying instrument is higher than the exercise/strike price. A put option is in-the-money if the price of the underlying instrument is below the exercise/strike price.
Intra Day Limit Limit set by bank management on the size of each dealer's Intra Day Position.
Intra Day Position Open positions run by a dealer within the day. Usually squared by the close.
Intrinsic Value The amount by which an option is “in-the-money”. The intrinsic value is the difference between the exercise/strike price and the price of the underlying security.
IOM Index and Options Market part of the Chicago Mercantile Exchange.
IPI Industrial Production Index. A coincident indicator measuring physical output of manufacturing, mining and utilities.
ISDA (International Securities Dealers Association) Organization that foreign currency exchange banks have formed to regulate inter-bank markets and exchanges.
 

J

  
J Curve A term describing the expected effect of devaluation on a country's trade balance. It is expected that import bills will rise before export orders and receipts increase.
 

K

  
Key Currency Small countries, which are highly dependent on exports, orient their currencies to their major trading partners, the constituents of a currency basket.
Kiwi Slang for the New Zealand dollar.
Knock In A process where a barrier option (European) becomes active as the underlying spot price is in-the-money.
Knock Out Has a corresponding meaning to “Knock In” (see above), although the option may permanently cease to exist.
 

L

  
Last Trading Day The day on which trading ceases for an expiring contract.
Lay Off To carry out a transaction in the market to offset a previous transaction and return to a square position.
LDC Less developed countries, often used with respect to a secondary debt market.
Leading Indicators Statistics that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders.
Leads and Lags The effect on foreign trade payments of an anticipated move in the exchange rate, normally devaluation. The importers speed up the payment for the imports, and exporters delay receiving payment for the exports.
Leverage In options terminology, this expresses the disproportionately large change in the premium in terms of the relative price movement of the underlying instrument.
Liability In terms of foreign exchange: the obligation to deliver to counterparty an amount of currency, either in regards to a balance sheet holding at a specified future date, or in regards to an un-matured forward or spot transaction.
LIBID The London Interbank Bid Rate. The rate charged by one bank to another for a deposit.
LIBOR The London Interbank Offered Rate, the rate charged by one bank to another for lending money.
LIBOR (London Interbank Offer Rate) British Bankers' Association average of interbank offered rates for dollar deposits in the London market based on quotations at 16 major banks. Effective rate for contracts entered into two days from date appearing.
LIFFE London International Financial Futures Exchange.
Limit (1)The maximum price fluctuation permitted by an exchange from the previous session's settlement price for a given contract. (2) In international banking the limit a bank is willing to lend in a country. (3) The amount that one bank is prepared to trade with another. (4) The amount that a dealer is permitted to trade in a given currency.
Limit Down The maximum price decline from the previous trading day's settlement price 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 Order – Reserved
Day Trading Deal		 An order to perform a Day-Trading deal at a rate pre-defined by the customer, when and if such rate comes up in real market time. The Limit rate is superior to the existing rate at the time of reservation. The reservation order lasts for a period defined by the customer, and is associated by the necessary collaterals to facilitate the potential Day Trading deal when, and if, activated under the pre-defined terms.
Limit Up The maximum price advance from the previous trading day's settlement price permitted in one trading session.
Limited Convertibility When residents of a country are prohibited from buying other currencies even though non-residents may be completely free to buy or sell the national currency, and foreign institutional investors have the liberty to buy and sell shares on the stock exchange of that country.
Lines An arrangement by which a bank agrees to lend to the line holder during some specified period any amount up to the full amount of the line.
Liquidation Any transaction that offsets or closes out a previously established position.
Liquidity The ability of a market to accept large transactions without having any major impact on interest rates.
Lombard Rate One of the key commercial interest rates, normally referring to Germany although such rates exist in France, Belgium, and Switzerland. An interest rate for a loan against the security of pledged paper.
Long A market position where the Client has bought a currency not previously owned. For example: long Dollars.
Long Hedge The purchase of futures contracts for price protection purposes, as a defensive position against an increase in cash prices or falling interest rates.
 

M

  
M0 Cash in circulation. Only used by the UK.
M1 Cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities.
M2 Includes demand deposits, time deposits and money market mutual funds excluding large CDs.
M3 In the UK, it is M1 plus public and private sector time deposits and sight deposits held by the public sector.
M4 In the US, it is M2 plus negotiable CDs.
Maintenance Margin The minimum margin which an investor must keep on deposit in a margin account at all times in regards to each open contract.
Make a Market A dealer is said to make a market when he quotes both the bid and offer prices at which he stands ready to buy and sell.
Managed Float When the monetary authorities intervene regularly in the market to stabilize the rates or to push the exchange rate in a required direction. It is also called the “dirty float”, as in India.
Margin Collateral that the holder of a position in securities, options, Forex or futures contracts, has to deposit to cover the credit risk of his counterparty. Other definitions to MARGIN, used in other areas are: (1) Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward. (2) For options, the sum required as collateral from the writer of an option. (3) For futures, a deposit made to the clearing house on establishing a futures position account. (4) The percentage reserve required by the US Federal Reserve to make an initial credit transaction.
Margin Call A demand for additional funds to cover positions. A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse future price movements.
Marginal Risk The possibility that a customer goes bankrupt after entering into a forward contract. In such an event, the issuer must close the commitment, running the risk of having to pay the marginal movement on the contract.
Mark-to-Market The profits and/or losses are tallied at the end of the session according to the closing prices of the security, and the account is "marked to the market" daily. The party will be called upon to make good the losses if there has been an adverse movement in the prices, and it can book the profits in the event there has been a favorable movement in the prices.
Mark Up Premium.
Market Amount The minimum amount conventionally dealt for between banks.
Market Maker A market maker is a person or firm authorized to create and maintain a market in an instrument.
Market Order An order to buy or sell a financial instrument immediately at the best possible price.
Market Value Market value of a Forex position at any time is the amount of the domestic currency that could be purchased at the then market rate in exchange for the amount of foreign currency to be delivered under the Forex Contract.
MATIF Marche a Terme International de France.
Maturity Date for settlement of the transaction which is decided at the time of entering into the contract.
Maturity Date (1) The last trading day of a futures contract. (2) Date on which a bond matures, at which time the face value will be returned to the purchaser. Sometimes the maturity date is not one specified date, but a range of dates during which the bond may be repaid.
Micro Economics The study of economic activity as it applies to individual firms or well defined small groups of individuals or economic sectors.
Mid Office The control of the trading activity including position keeping.
Mid-Price or Middle Rate The price half-way between the two prices, or the average of both buying and selling prices offered by the market makers.
Milliard European term for 1,000 million.
Mine Expression used to indicate that the contacting party is willing to buy at the rate offered by the quoting bank.
Minimum Price Fluctuation The smallest increment of market price movement possible in a given futures contract.
Minimum Reserve