A
Adjustable Peg - An exchange rate system where a country's exchange rate is fixed or pegged to another country's currency. The official pegged rate may be changed form time to time.
ADX - Average Directional Index. ADX gauges the strenght of a trend and not dirrection. ADX operates on a scale of 0 to 100. The higher the oscillator the stronger the trend.
Ask (offer) Price Ask is the market selling price. This is the price that a trader can buy the base currency. In the quotation, it is always shown on the right side of the quotation, for instance in this quote 1.2527-1.2532, 1.2532 is the offer.
B
Balance of Trade - The value of a country's exports minus its imports.
Bar Chart - A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar.
Base Currency The first currency in a currency pair. If someone is discussing the EUR/USD pair, the EUR is the base. The exchange rate shows how much the base currency is worth as measured against the second currency in the pair. For instance, if the USD/CHF rate equals 1.5215, then one USD is worth CHF1.5215.
Bear Market - A market distinguished by declining prices.
Bid Price Bid is the market buying price. This is the price that a trader can sell the base currency. It is shown in the left side of the quotation, for example in this quote: 1.2527-1.2532, 1.2527 is the bid.
Big Figure Quote A quote without the last two digits. Examples: USD/JPY rate of 121.05/121.10, the big figure is 121. EUR/USD rate of 0.9225/0.9230, the big figure is 0.92. Interbank traders will often not state the big figure as they assume that the other trader already knows what it is.
Book - In a professional trading environment, a 'book' is the summary of a trader's or desks total positions.
Broker - An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a 'dealer' commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.
Bretton Woods Agreement of 1944 - An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.
C
Cable Trader slang for the British pound
Candlestick Chart - A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
Carry Trade A longer term trading style that focuses on profiting on the interest rate differential between countries.
Cash Settled The closing out of a currency contract with the exchange of cash based upon the difference in the value of when the position was opened and closed, rather than the physical delivery of the currency.
COT Commitment of traders report published by the Commodity Futures.
Trading Commission (CFTC ) Counter Currency - The second currency in a currency pair.
Cross Rate An exchange rate between two non-U.S. currencies.
Currency Pair The two currencies that make up a foreign exchange rate, for example, USD/JPY.
D
Day Trader - Speculators who take positions in commodities which are then liquidated prior to the close of the same trading day.
Dealer - An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Deficit - A negative balance of trade or payments.
Delivery - An FX trade where both sides make and take actual delivery of the currencies traded.
Depreciation - A fall in the value of a currency due to market forces.
Derivative - A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument.
Devaluation - The deliberate downward adjustment of a currency's price, normally by official announcement.
Dollar Value The amount of USD which would be generated by the conversion of the relevant Foreign Currency into U.S. dollars.
E
ECB European central bank
Economic Indicator - A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.
Elliott Wave A technical discipline used to predict market movements that were discovered by R.N. Elliott in the 1930s, the theory states that markets move in a series of waves. Impulse waves subdivide into five waves (labeled 1,2,3,4,5) and corrective waves subdivide into three waves (labeled A,B,C).
Equity The amount in a customers account calculated as if all the opened positions will liquidate at the current market quotes.
Euro Zone The 12 countries of Europe that have combined their currencies into a single currency, the Euro. They have separate sovereignties but a combined central bank, the ECB.
F
FX/Forex The foreign exchange market.
Fed The United States Federal Reserve.
Fibonacci A number sequence named after an Italian mathematician. The ratios derived from this number sequence can be used in the Forex market to project support and resistance.
Floating Profit (Loss) Unrealized profit (loss) in an open position.
Foreign Exchange Contract A contract for the purchase or sale of a foreign currency.
Foreign Exchange Rate The price between two currencies that is determined by supply and demand.
Free Margin Available funds in the customers account not being used to support existing positions, which can be used to open new positions.
Fundamental Analysis Analysis based on economics and politics.
G
H
I
Initial Margin Requirement The minimum capital required to establish a new position.
Inflation - An economic condition whereby prices for consumer goods rise, eroding purchasing power.
Interbank Rates - The Foreign Exchange rates at which large international banks quote other large international banks.
Intervention - Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.
J
K
Kappa - A measure of the sensitivity of the price of an option to a change in its implied volatility.
Kiwi Trader slang for the New Zealand dollar.
L
Leverage The ratio of the amount represented by the Forex contract compared to the required security deposit (margin).
Limit order An order to buy or sell a currency pair at a specified price. A limit order to buy will be executed when the ask price equals or is less than the price specified in the limit order. A limit order to sell will be executed when the bid price equals or is greater than the price specified in the limit order.
Long Position When the base currency in the pair is bought. When you buy the base, you sell the counter.
Loss Loss incurred as a result of a Forex transaction.
Lot A unit to measure the amount of a Forex deal. Many dealers trade in multiples of 100,000 units of the base currency.
M
Margin The amount of cash or other collateral (T-bills) that the dealer requires a Customer to deposit in the customers account in connection with the customers open positions.
Margin Call A demand for the deposit of additional margin as described in the dealers customer agreement.
Market Maker - A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.
Mark to Market The process of recalculating the value of open positions in an account, assuming all open positions were liquidated.
Market Order An order to buy or sell at the current market price. An order to buy is at the ask price; an order to sell is at the bid price.
Market Rate/Quote The current quote of a currency pair.
N
O
Open Position An open trade that has not been offset and closed by an equal and opposite trade.
Order An instruction by a customer to the dealer to attempt to execute a trade for the customers account.
P
Pip The smallest unit of price for a foreign currency pair; for example, for USD/CHF one point (or pip) equals .0001 Swiss Francs and for USD/JPY one pip equals 0.01 Japanese Yen.
Profit/Loss The actual gain or loss resulting from closed positions.
Q
Quote A bid and offer in a currency pair.
R
Resistance Level This is the price at which a currency pair goes up to, but does not go above. At the resistance level, the upward movement turns into a downward movement as there becomes more selling than buying.
Rollover The process involved to maintain an open position past the regular settlement date. The cost of this process is measured by the interest rate differential between the two currencies.
S
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 Selling a currency in which you anticipate a decline in value. At a lower price, you cover your short by buying it back. When the base currency is sold, the second currency in the pair is purchased.
Spot Contract A contract where settlement is in two business days.
Spot Market The cash market in which commodities, securities or currencies are to be delivered within a few days.
Spot Price - The current market price. Settlement of spot transactions usually occurs within two business days.
Spread The difference between the ask (offer) and bid price in a quote.
Square - Purchase and sales are in balance and thus the dealer has no open position.
Sterling - Slang for the British Pound.
Stop Loss Order - 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 a traders.
Support Level The price level at which a pair goes down to, but does not fall below. At the support level, reversals are expected as there becomes more buying than selling.
T
Technical Analysis The study of historical price movement with the goal of forecasting future price direction.
Technical Correction An adjustment to a price not based on market sentiment or fundamentals but technical analysis.
Tick - A minimum change in price, up or down.
U
Unrealized Gain/Loss The theoretical gain or loss on open positions valued at current prices. Unrealized gains/losses become profits/losses when position is liquidated.
Used Margin The value in the customers account required for current open positions.
V
W
Whipsaw - Slang for a condition of a high volatile market where a sharp price movement is quickly followed by a sharp reversal. Often seen following significant unexpected economic news.
World Bank - A bank made up of members of the International Monetary Fund (IMF) whose aim is to assist in the development of member states by making loans where private capital is not available.
X
Y
Yield Curve - The graph showing changes in yield on instruments depending on time of maturity. The most common mention of the yield curve is in relation to 2-yr and 10-yr US Treasury bonds. Some economist use this measure to gauge whether the U.S. economy is heading into a recession.
Z
Copyright © 2007 Northshore Marketing Solutions, Inc. | All Rights Reserved