- Absolute Return Fund
An investment fund that attempts to deliver positive returns, in both rising and falling markets.
- Actively Managed Fund
A Fund where the manager has the discretion to look for opportunities to buy and sell assets, within the funds charter, to increase its performance.(Opposite of Passively Managed Fund)
- Adjustable Peg (See Peg)
An exchange rate policy adopted by certain countries wherein the national currency is largely pegged or fixed to a major currency such as the U.S. dollar, and may be readjusted from time to time within a narrow band in order to to improve the country’s competitive trade position. The CNY (Chinese Yuan) has an adjustable peg to the US dollar and is allowed to float within a given range around a daily fixing, governed by the central Bank
The Australian Financial Markets Association. The industry association representing Australia’s wholesale banking and financial markets.
- Agent Bank
A domestic bank acting on behalf of a foreign bank
- Aggregate Risk
A bank’s total exposure to FX contracts, comprising both spot and forward contracts with a single customer or a single currency.
- American-Style Option
An option contract that may be exercised at any time before it expires.
Application Programming Interface
- API Trading
Trading that is conducted through an Application Programming Interface (API), a computer model enables the user to build their own automated trading functionality into their software systems.
The strengthening of one currency relative to another
Taking advantage of short term price discrepancies in an asset that is traded on more than one market/platform. It occurs when the bid in one location is momentarily higher than the offer in another location, or vice versa, and allows the sharp trader to book a quick, risk free profit.
The Australian Prudential Regulation Authority. The prudential regulator of banks, insurance companies and superannuation funds, credit unions, building societies and friendly societies
- Asian Option
An option that pays off according to the average price of the underlying asset over a period of time, rather than the price at maturity.
- Ascending Channel
An ascending formation that has parallel trend-lines that connect at the tops and the bottoms of a chart configuration sloping in an upward fashion. The price action makes higher highs and higher lows. The ascending channel line and the trend-line form borders on an uptrend. This is a bullish pattern.
- Ascending Triangle
A price pattern moving in a sideways direction but one where the resistance line is flat, signalling several highs at the same price, while the lower support line is rising (ie making higher lows) and eventually meets the top resistance line. This is generally a bullish pattern.
The Australian Securities and Investments Commission. The corporate, markets and financial services regulator
The price at which sellers are willing to sell a currency, also known as the ‘offer’. It is the price at which a customer can buy a currency pair. Also referred to as the ‘offer,’ ‘ask price,’ or ‘ask rate.’
- Ask Rate
An item that has value. i.e. Stock, Bonds, Commodities, Real Estate, FX
- Asset Allocation
The division of funds amongst different investment instruments in order to reduce risk through diversification.
- Asset Class
Generally separated into Stocks, Fixed Interest, Cash, Real Estate, Commodities or collectibles. FX is in an asset class of its own, given the Currency exposure when buying an overseas assets (ie Shares)
- At Best
An instruction given to a dealer to buy or sell at the best rate that can be obtained (as opposed to a limit order which can only be executed to a particular level).
Short code for the Australian Dollar
The abbreviation for the Australian dollar against the US Dollar (AUD/USD) currency pair. The currency pair tells the trader how many U.S. dollars (the quote currency) are needed to purchase/sell one Australian dollar (the base currency).
Dealer slang for the AUD/USD
Austraclear is the sole Central Securities Depository (CSD) of Debt Securities in Australia.
- Authorized Dealer
Depending on the regulatory body, a dealer authorized to deal in foreign exchange.
- Automated Trading
Also known as algorithmic trading or black-box trading, this is the use of an electronic platform for entering trading orders, with an algorithm deciding on aspects of the order such as the timing, price, or quantity of the order, or in many cases initiating the order without human intervention.
- Average Directional Index (ADX)
A technical indicator and part of the Directional Movement Indicator system developed by J. Welles Wilder, the ADX line is based on the spread between the +DI and -DI lines from that same system.
- Average True Range (ATR)
A technical indicator that measures an instrument’s volatility. High ATR values indicate high volatility and may be an indication of panic selling or panic buying. Low ATR readings indicate sideways movement by the instrument
- Average Winning Trade
This is the average size of winning trades and is used to assess trading performance.
- Back Office
The department where the processing of payments relating to financial transactions takes place.
- Balance of Trade
A country’s Dollar value of its exports minus its imports over a period of time.
In countries where the currency is pegged, the range in which the rates are permitted to fluctuate is known as the band. The currency is generally fixed at a mid rate on a daily basis by that country’s central bank and is allowed to move within the band.
- Bank of England
The Central Bank of the United Kingdom.
- Bank of Japan
The Central Bank of Japan.
- Bank Rate
The rate at which a central bank is prepared to lend money to its domestic banking system. Otherwise known as the Minimum Lending Rate (UK), Fed Funds Rate (US) Cash Rate (RBA), Official Cash Rate (OCR)(NZ)
- Banking Day
Days of the week when commercial banks are open for business in the country of the particular currency traded.
- Bar Charts
A popular format for studying the price action of currency pairs. These normally carry specific information such as Open, High, Low, Close (OHLC).
- Base Currency
In the Forex Market terms, currencies are quoted as currency pair: This pair is made up of the base currency and the quoted currency. The base currency is the currency against which an exchange rate is generally quoted in a given country. Example: AUD/USD. In this case the currency pair is quoted in terms of X US Dollars per 1.00 Australian dollar. i.e. a rate of AUD/USD of 0.9985 equates to 1 Australian Dollar having a value of US$0.9985,(or 99.85 US Cents)
- Basis Point
For most currency pairs this is the 5thdecimal point of a price. (For US$/JPY it is the 3rd decimal place) (see Pip/Point)
A trader who believes prices will fall.
- Bear Market
An extended period of general price decline in an individual security, asset, or market.
- Ben Bernanke
Chairman of the Federal Reserve Bank of the United States of America. Appointed on 1 Feb 2006
The price at which an investor can place an order to buy a currency pair; the quoted price where an investor can sell a currency pair. This is also known as the ‘bid price’.
- Bid/Ask Spread
The difference in terms of basis points between the bid and offer (ask) price.
- 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 1.3125/28 the big figure is 1.31
See Also: Bank of England
See also: Bank of Japan
The total number of currency positions that a dealer may be running at any one time, in any one currency pair or investment portfolio.
- 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
Brazil, Russia, India, China. A collective term for the developing global economies.
An intermediary who acts as an agent by executing orders to buy and sell currencies and related instruments on behalf of banks, corporate or individual clients, either for a commission or on a spread. Brokers do not act as a principal by trading on their own account, but merely stand as go between by pairing a buyer with a seller at a given price for a given amount. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries and a large number of electronic execution only platforms operating in the FX market.
1. A company that makes its income through charging brokerage
2. The fee that a broking company charges the participants by putting the buyers and seller together to transact a deal.
A trader who believes that prices will rise.
- Bull Market
A market which is on a consistent upward trend.
Central Bank of Germany.
- Business Day
See also: Banking Day
- Buy Limit Order
An order to execute a transaction at a specified price (the limit) or lower.
- Buy On Margin
In a geared market such as the Forex market, a client is required to place some cash as a percentage of the overall amount being traded. The margin represents the clients own funds, as opposed to the geared (borrowed) amount.
Dealer Slang for Sterling
- Call Option
The buyer of a call option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying) or currency from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or “writer”) is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right. Think of this as an insurance premium, paid to cover against certain outcomes.
- Candlestick Charts
Candlesticks use the same data available for a standard bar chart but incorporates a body to represent the difference between the opening and closing price, and will either be green (representing a higher close than the open), or red (representing a lower close than the open). White/Black Candles may also be seen. The shape and colour of the candle can be used in conjunction with previous candles, to gauge current market sentiment and potentially the future direction of the commodity for the given timeframe.
- Capital at Risk
The Capital that a trader chooses to place at risk on a given trade.
- Carry Currencies
High interest rate currencies (see Carry Trade).
- Carry Positive
A carry trade where a trader will buy (go long) the high interest currency and sell (go short) the low interest currency. Excluding the volatility of the currency pair, this strategy is profitable based on the interest rate differentials of the two currencies. It can be highly dangerous as the market only trades this position from one side, resulting in the possibility in sharp negative exchange rate moves.
- Carry Trade
A carry trade is where a trader will buy (go long) a high interest yielding currency and sell (go short) the low interest currency. The carry represents the interest rate differential between the two currencies and represents the cost of keeping a position open from one trading day to the next. Each currency has a different interest rate associated with it, and a trader will earn interest on the currency on which he is long, and will pay away interest on the currency of which he is short.
- Cash on Deposit
Funds deposited in a trading account.
- Central Bank
A bank, administered by a national government, which regulates the behaviour of financial markets and institutions within its borders and carries out monetary policy through the implementation of monetary policy.
- Central Bank Intervention
A Central Bank may, from time to time, intervene in open market operations to buy or sell its own currency, if it thinks that the currency is either too strong or too weak and it wishes to reverse its course.
see Contracts for Difference
- Charting Software
A computer-based charting tool that can assist traders by analysing the price action of a particular currency pairs. Various Indicators can be added to the chart in order to give the trader assistance in attempting to pick the future movement of the currency pair. Many brokers/platforms provide the charting package as a free service, upon opening an account.
A person who attempts to predict future price movement in a financial product by analysing historic price movements as recorded on a chart.
- Clearing House Interbank Payment System
An international wire system used by major banks for US$ cross border and domestic payments.
- Closed Position
A transaction that offsets the exact number of units in a previously held, open position. For instance if a trader is long US$ 1 million against the Yen, he will close his position by selling US$1 million, which would in turn, crystallise a profit or a loss, in Yen terms. The trader is said now to be “square”. i.e. to have no position or a “closed position”.
- Closing a Position
The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of an existing position. (see Closing a Position)
- Closing Market Rate
The rate at which a position can be closed based on the market price at end of the day.
Chicago Mercantile Exchange.
The fee that a broker may charge clients for dealing on their behalf by finding a counterpary with an equal and opposite interest. See also: Broker/Brokerage
- Commodities Exchange
An exchange where various commodities and derivatives products are traded, including financial instruments, metals, energy derivatives and “softs” such as wheat, barley, sugar, maize, cotton, cocoa, pork bellies, etc
- Commodity Futures Trading Commission
The United States regulatory agency for Commodity Futures Trading (www.cftc.gov).
- Commodity Index
See CRB Commodity Index
Written acknowledgment of a trade, listing important details such as the date, the size of the transaction, the price, the commission, and the amount of money involved. Each counterparty confirms its side of a trade with the other participant. If a broker is involved, they too will send a confirmation to each counterparty involved in the deal.
- Consumer Price Index (CPI)
A month to month economic indicator which gauges changes in the cost of living by measuring price changes in a common basket of goods and services that most people use, such as food/petrol etc. Otherwise known as the Rate of Inflation
- Contracts for Difference (CFD)
These are leveraged instruments that enable an investor to gain exposure to shares, indices and commodities. Traders can take long or short positions in both rising and falling markets. All open positions are exposed to potential margin calls.
- Conversion Rate
The value of one currency exchanged for another currency – the exchange rate.
- Convertible Currency
A currency that can be exchanged for another without special permission from a government of government agency.
A statistical term that refers to a relationship between two apparently independent financial products. For instance the AUD$ is often closely correlated to the level of the price of the S+P 500 index, and can be used to predict future price patterns as one leads/lags the other.
- Correspondent Bank
A bank that regularly performs services for another bank, that has no branch in the relevant country. For instance a German bank might provide services such as holding bank accounts for an Australian bank who has no German branch e.g. to facilitate the transfer of funds.
A participant on one side of a financial transaction
The other party in a forex deal. In online spot forex, the counterparty is the market maker.
- Country Risk
Due to certain economic, political, and geographical factors, some countries are more stable than others. The more unstable the country, the weaker the currency is likely to be. In terms of trading foreign exchange, this refers to the stability of the currency and the creditworthiness of its bonds.
(1) To take out a forward foreign exchange contract. (2) To close out an existing position
See Consumer Price Index
- CRB Commodity Index
The CRB Commodity Index is an arithmetic average of 19 different commodity futures prices and is a recognised benchmark of the direction of commodity prices.
The exchange rate between 2 currencies where neither of the currencies are USD. i.e Aud/Jpy, Eur/Gbp.
- Currency Code
Currency codes are specified by ISO 4217. Generally these are made up of the country’s two-character country code, and the first character of the national currency name i.e. USD: United states Dollar. GBP: Great British Pound. There are exceptions such as EUR; Euro.
Money issued by a national government in terms of coins and paper money. It is a form of money used as a unit of exchange within a country
- Currency Pair
The Forex market trades the movement of one currency against another. The 2 currencies involved in any transaction make up the currency pair.
Deutsche Aktien Xchange, Germany’s primary stock index
- Day Order
A buy or sell order, placed by a trader, which will expire automatically at the end of the trading day on which it is entered.
- Day Trade
A trade that is opened and closed on the same trading day and does not result in an overnight rollover. See also: Day Trader
- Day Trader
A trader who tries to profit from short-term price fluctuations, often taking and closing a position within the same trade day, sometimes many times over.
- Day Trading
The trading style of a Day Trader. See also: Day Trade/Scalping
- Deal Blotter
A list of all the deals that were done in a trading day
- Deal Date
The date a transaction is entered (as opposed to the spot date.)
- Deal Slip
See Deal Ticket
- Deal Ticket
A record of the basic details of a transaction that a dealer keeps, as opposed to the statements that customers receive ie Currency/Pair; Amount bought/Sold; Counterparty; Broker; Rate; Value Date.
Either an individual or a firm that buys and sells assets, with the view of making a profit, by acting as principal or counterparty in a particular transaction. The dealer may be trading either speculatively as the principal or on behalf of clients
- Dealing Desk
Used loosely as the place where dealers facilitate pricing and execute trades with other dealers, either directly or through a broker.
- Dealing Systems
Computer networks that link up banks to create the forex market. Examples of dealing systems are Reuter’s, EBS Dealing and Bloomberg terminals.
A term for breaching a contract
A long term contraction in the price of goods and services within an economy. A long term deflationary spiral may result in a decrease in prices due to reduced demand for goods and services, which in the longer term will result in lower levels of employment. Such a result means that with fewer employed workers earning wages, demand will decline even further, elongating the contracting economic cycle.
The date of maturity of a particular Forex contract. Generally this will be two days after the transaction is entered (ie Value “Spot”). In terms of online trading, physical delivery of the actual currencies is not carried out. In this case profits and losses attributed to the account balance. In terms of physical foreign exchange transactions, physical delivery will be executed on the value date of the given contract.
- Delivery Risk
Risk where counterparty to a fx trade is unable to fulfil (ie. deliver currency) their side of the deal. This could be for a multitude of reasons, including insolvency of the counterparty.
Measures the change in the price of the underlying asset to the corresponding change in the price of an option on the asset.
- Demo Account
Most brokers offer the use of a Demo Account. This is a practice account, where the client is given a sum of “play money” in order to practice without having to actually fund a “live” account. This is also a very useful tool when looking at new software. It not only allows a client to practice trading, but it also allows one to learn how the software operates, before the requirement of funding the live account.
When the value of a particular currency falls against its counterparty currencies.
- Depth of Market
The volume (liquidity) of buy/sell orders waiting to be transacted for a particular currency pair . i.e. An illiquid markets means that there are very few orders, heightening the possibility of volatility in the event of a large order being bought to makrket.
A financial contract or security whose value changes in relation to the fluctuating price of an underlying asset. For example, an option changes value according to the price of the asset that underlies it
The information that is required to facilitate a forex transaction. These will be the currency pair (ie EUR/USD), the rate (1.2435), time and date that the deal was executed, the value date (spot or forwards) and the size of the deal (both currencies). In the case of a physical transaction bank delivery details will also be required
Formerly the currency of Germany, since replaced by the Euro.
When the value of its currency is allowed by the presiding government of the country to weaken in relation to other currencies.
- Direct Quotation
A quote that reflects a floating rate of the domestic currency, per single unit of the foreign currency.
- Dirty Float
Exchange rate policy where the value of a currency is allowed to fluctuate within certain parameters, but the central bank will intervene as and when it feels necessary
A currency in which interest rates are higher than rates in the counterparty currency. (ie Aud/Usd. If Aud$ rates are at 4% and US$ rates are at 1%, this means that the Aud$ is trading at a discount to the US$.)
- Discount Spread
Currency forward points (calculated from the interest rates of the two currencies) that are subtracted from the spot rate in order to obtain a forward rate for a currency.
- Discretionary Account
An account where a client is prepared to deposit funds with an institution and to allow that institution to make trading decisions to buy and sell on the clients behalf. These institutions are generally fund managers and have computer generated trading programmes or experts in their field carrying out the trading decisions.
- Diversified Carry Basket
A diversified portfolio of high interest yielding positions that is distributed among different carry currencies, funded by borrowing a portfolio of low yielding currencies in order to limit losses in one particular carry trade position or currency.
See Momentum Divergence
Daily (Simple) Moving Average
Domestic RatesThe interest rates that apply to deposits or borrowing of a particular currency. These rates are similar to those offered within the foreign country to citizens who keep money in deposit accounts, generally dependent on the level of interest rates signalled by the Central Bank of the given country, through its implementation of monetary policy.
The size of a drop in the value of an account from its peak to its low. An account that fell from $10,000 to $5,000 would have experienced a 50% drawdown.
- Double Top
A price pattern on a chart that displays two prominent peaks at the same price level. It may well resemble the letter M. A failure to break through the previous high, followed by a failure and reversal would signal a double top had been put in place. The reverse price action would be a double bottom and would possibly resemble the letter W.
See US Dollar Index
Expert Adviser. A computer or algorithmic generated trading programme.
Refers to either:
1. A central bank lowering interest rates in order to spur borrowing and spending in a declining economic cycle.
2. A slight drift lower in the value of a currency against its counterparty currencies.
See European Central Bank
- ECB Conference
The top functionaries of the European Central Bank (ECB) hold regular meetings and press conferences in which they outline Central Bank decisions and concerns. See also: ECB
See Electronic Communication Network
- Economic Indicator
A statistic, often provided from government sources, that is used to gauge current economic conditions. See Consumer Price Index and Durable Goods Order as examples
See European Currency Unit
- Effective Exchange Rate
Explanation of a country’s currency value, based on its trade balance
Electronic Funds Transfer
- Either Way Market
Otherwise known as a choice market in which the bid and offer for a currency are the same price
- Electronic Communication Network
Forex ECN”s (Electronic Communications Network) provide access to an electronic trading network (platform) and offer continual streaming quotes from price makers, generally the large banks. The benefits of trading through such a system is the price transparency, fast processing and narrow spreads though the high liquidity available in the marketplace.
- Elliot Wave Principle
Elliott Wave Analysis is an approach to market analysis that is based on repetitive wave patterns and the Fibonacci number sequence. A perfect Elliott Wave pattern would show a five wave advance (impulsive), labelled waves 1,2,3,4 and 5, followed by a 3 wave decline (corrective) labelled A-B-C.
See European Monetary System
- (End of Day) Mark to Market
The value of all open positions in a dealer’s book based on the closing market rates. An end of day rate is recorded from which all profits and losses are valued and from where residual open overnight positions, included in the previous days profit/loss figures will be valued on the following day.
- Entity Trading Account
A corporate trading account that has designated a person to be responsible for its trading decisions
Stocks or Shares. Ownership interest in a corporation in the form of common stock or preferred stock.
Total assets minus total liabilities; also called net worth. See also: Asset
- Equity Curve
The value of a trading account charted over a particular period of time.
- Escrow Account
A segregated account where a clients funds are kept separate from a dealer’s operating own funds.
Short code for the Euro
Euro Interbank Offered Rate is the rate at which euro interbank term deposits within the euro zone are offered between the major banks. See also: LIBOR
The currency of the European Union currently comprising 17 member nations
A currency that is deposited in a financial institution located outside the currency’s country of origin. Not to be confused with the Euro
US dollars deposited in a bank outside the USA and not regulated by the US authorities.
- European Central Bank
Established in Frankfurt in 1998, the ECB is responsible for all monetary policy decisions that influence the Euro currency. Based on the Maastricht Treaty, the ECB’s main responsibility is to ensure price stability. To this end, it is authorized to issue the Euro and is responsible for setting interest rates for those countries that have converted to the Euro.
- European Commission
The executive body of the European Union, responsible for legislation, implementation of decisions, upholding the Union’s treaties and the day-to-day running of the EU.
- European Currency Unit
The predecessor of the Euro
- European Monetary System
Established in 1979, certain European countries linked their currencies together in order to minimise volatility and to prevent excessive fluctuations in value.
- European Option
An option whose holder can exercise it only at the expiry date (as opposed to an American-style Option)
- European Union (EU)
The economic and political confederation of 27 European countries joined together to promote economic, political, and social co-operation.
- Excess Margin Deposits
Funds deposited in a trading account beyond what is required for margin requirements
- Exchange Controls
Devices employed by a central bank to control the movement of a currency in the foreign exchange market .
- Exchange rate
The exchange rate between two currencies specifies how much one currency is worth in terms of the other. One currency is known as the base currency and the second currency is the quoted currency. The exchange rate is generally quoted as X units of the floated currency per single unit of the base currency. For example an exchange rate of AUD$/JPY of 85.15 ) means that 1$AUD (Base) will buy JPY (Quoted)85.15
To execute a trade is to complete a trade
- Exercise Price
See Strike Price
To close an existing position. In the case of a long position, the sale of the long currency. In a short position, the purchase of the short currency, resulting in a closed position
Minor (or lesser) traded currency pairs, as opposed to the major currencies. The BRIC currencies, South East Asian and LATAM currencies are considered exotics.
- Expert Adviser.
A computer or algorithmic generated trading programme.
- Expiration Date
The day on which a financial option contract matures
The net of all long and short positions for a particular currency or portfolio. Based on the traders’ positions for all currencies, the exposure will result in either loss or gain against the mark to market revaluation rate.
Factory OrdersAn economic indicator noting the change from one period to the next in orders for durable and nondurable goods. An increase in orders denotes an increase in demand and an upswing in the economic cycle, and vice versa in the case of a contraction in orders.
- Fast Market
A fast moving market, often following a news headline that often results in gaps in price due to a high concentration of either buyers or sellers and a lack of counterparties to trade with.
- Fed Fund Rate
The interest rate on which depository institutions such as banks trade balances of accounts held at the Federal Reserve Bank. This interest rate is closely monitored to gauge the Fed’s view on the economy. The accounts are held by member banks and are usually used for lending or borrowing from one another, often overnight.
- Fed Funds
Account balances held by banks at their local Fed Bank
- Fed Meetings
- Federal Deposit Insurance Corporation
The US regulatory agency that administers bank deposit insurance
- Federal Open Market Committee (FOMC)
Committee made up of Federal Reserve members who meet eight times a year to discuss current monetary policy and its effect on the present economy. The Committee will address any possible changes needed in the Interest Rate and will generally hold a Press Conference after the meeting to outline their views on the upcoming period for the economic outlook.
- Federal Reserve
The Central Bank of the United States
- Federal Reserve Board
The senior members of the Federal Reserve, each of whom is appointed by the US President. The chairman of the Board is currently Ben Bernanke, whose predecessor was Alan Greenspan. The chairman of the Fed Reserve Board serves a 4-year term, while the other members serve 14-year terms.
- Fiat Currency
A fiat currency system is one in which a currency value may rise or fall in response to supply and demand pressures.
- Fibonacci Numbers
The Fibonacci number sequence (1,1,2,3,5,8,13,21,34,55,89,144…..) is constructed by adding the prior two numbers together to arrive at the third (ie 1+1=2, 1+2=3 etc). The ratio of any number in the sequence to the next largest is 61.8%, which is a popular Fibonacci retracement number in financial markets. The inverse of this ratio, 38.2% is also a Fibonacci retracement number.
The completion of a client order to buy or sell a currency.
- Fill or Kill
An order that must be executed immediately if the prevailing market fits the criteria. If not, the order is to be immediately cancelled.
- Fill Price
The price at which a buy or sell order is executed.
- Firm Quote
When a client in the wholesale market requests a firm quote, the dealer (bank) will provide a bid and ask quote. This can be dealt on if the client wishes. Opposite of an Indicative Quote.
- Fiscal Policy
Government use of revenue through taxation policy in order to influence economic conditions
- Fixed Exchange Rate
An exchange rate policy whereby a central bank maintains an official rate for their currency.
Term describing a trading book with zero market exposure. See also: Square
- Flexible Exchange Rate
An exchange rate that is largely fixed, but may be revalued periodically, even daily by the authorities. ie The PBOC fixes the CNY on a daily basis to the US Dollar and allows it to trade in a narrow band around the fix rate.
- Floating Exchange Rate
An exchange rate whose value is determined entirely by the forces of supply and demand
see Federal Open Market Committee
- Foreign Exchange
The buying or selling one currency against another.
- Foreign Exchange Centres
These are the financial hubs where most of the worlds foreign exchange transactions have historically been carried out. The major centres are London, New York, Chicago, Singapore Hong Kong and Tokyo. Secondary centres include Frankfurt, Paris, Los Angeles, Sydney, Melbourne and Wellington, amongst others.
Acronym for Foreign Exchange
A transaction that settles at a date beyond the spot date (2 business days)
- Forward Contracts
A transaction that settles at a date beyond the spot date (2 business days). The buyer and seller are bound by the contract to settle on the specified date
- Forward Point
This is the differential, calculated in basis points, that are added to or subtracted from the spot rate to calculate the forward rate
- Forward Rates
An exchange rate that differs from the spot exchange rate and calculated by adding or subtracting the forward points to a specific date in the future.
- Fundamental Analysis
The study of economic factors (GDP, Trade Balance, Employment, Inflation etc) that can influence the price of a financial product such as a currency.
- Fundamental Trader
An investor who uses fundamental analysis as the basis for his trading.
- Funding Currencies
Low interest rate currencies. Such a currency can be borrowed by paying a low interest rate. This currency is then sold in exchange for a currency that provides a higher yield (Interest Rate).( ie borrow yen at 0%. Sell the Yen in exchange for Australian dollars with interest rtes at 4%. (This strategy works well only as long as the exchange rate is stable or if the AUD$ is appreciating in value against the Yen)
The obligation to exchange a good or instrument at a set price on a future date if the futures contract is held until maturity. The main difference between a Futures Contract and a FX Forward Contract is that Futures are typically traded through an exchange while Forwards are typically OTC.
An acronym for Foreign Exchange.
The seven leading industrialized countries. US, Germany, France, Italy, UK, Canada, Japan . See also: G8
G7 and Russia. See also: G7
The twenty leading industrialized countries.
measures the rate of change in the delta of an option with respect to changes in the underlying price of the asset
The abbreviation for UK Sterling against the U.S. dollar (GBP/USD) currency pair
A term related to margin trading where a trader is able to establish a position whose face value is greater than the money deposited in the trading account. This can be a two edged sword as the level of gearing will magnify the losses as well as the profits of the trader.
- Going Long
The purchase of one currency (generally the “base” currency) against the sale of another.
- Going Short
The sale of one currency (generally the “base” currency) against the purchase of another.
- Gold Standard
In the late 19th Century assurances were made by various countries to fix the prices of their domestic currencies to the price of a specified amount of gold. Different variations of the gold standard were used through the first half of the 20th Century, but in 1946 at Bretton Woods in the US, the Gold Standard created a system of fixed exchange rates that allowed governments to sell their gold to the United States treasury at a fixed rate of US$35oz. This arrangement was kept in use until August 15, 1971, by which time it was becoming unworkable when it was formerly abandoned by when President Richard Nixon.
- Golden Cross
In technical analysis, when two moving averages intersect and cross over, it is usually viewed as a sign that the financial product will continue to move in the same direction. A popular cross that is watched is the 50 Day MA crossing above/below the longer term 200DMA. This may signal the start of a trend higher/lower, respectively.
- Good Until Cancelled order (GTC)
A type of limit order that remains in effect until it is either executed (filled) or cancelled, as opposed to a day order, which expires if not executed by the end of the trading day. Greeks.
A term referring to the methods of measuring the sensitivities of the price of an option to a change in the price of the underlying asset. See Delta, Gamma, Vega, Theta, Rho
- Gross Domestic Product
GDP. The total value of a country’s goods and services produced within a given period
- Gross National Product
GDP plus all production and income from national interests, abroad.
- Hard Currency
A currency that investors have confidence in and may be used as a safe haven vehicle in times of economic stress. Examples could be the US Dollar or the Yen.
- Head and Shoulders
Head and shoulders are reversal patterns and are very easy to spot. At a market top, three prominent peaks are formed with the middle peak (or head) slightly higher than the other two peaks (shoulders). When the trend line (neckline) connecting the two intervening troughs is broken, the pattern is complete and the price target becomes the continuation lower of the distance from the top of the head to the neckline, starting from the break of the neckiline. A bottom pattern is a mirror image of a top and is called an inverse head and shoulders.
A method of insuring against adverse price movements in a commodity for the a producer or an end buyer of a commodity or instrument. This generally involves taking an offsetting position in the commodity through a derivative such as a futures contract.
- Hedge Fund
A private fund which usually invests on behalf of wealthy individuals, to whom a management and performance fee is generally charged . Because certain level of understanding and financial backing are involved before one can invest with a hedge fund, they are generally unregulated as it is assumed that the investors are knowledgeable and realize the speculative nature of the fund. There is generally a minimum investment size which would preclude most small investors from investing in the fund.
- Hit the Bid
This means crossing the spread and then selling at the bid price.
The buyer of a an asset or currency pair.
International Foreign Exchange Master Agreement, which reflects the agreed best practices for the foreign exchange market
International Monetary Market. See also: International Monetary Market.
See International Monetary Fund.
- Indicative Quote
A market maker’s price or level of a financial instrument . It is not a dealable (live) quote , but is for information purposes only. See also: Firm Quote
A rise in prices or a drop in the purchasing power of money. (See Consumer Price Index).
- Initial Margin
The initial deposit by a customer when opening a margin account.
- Initial Margin Requirement
When entering a position, the minimum amount that must be paid in cash.
- Interbank Market
A market in which financial institutions can trade. The term refers to short term money or foreign exchange markets that are only accessible to banks or wholesale financial institutions. There is no physical market place and transactions are done OTC. The transactions are generally conducted via a communication networks such as Bloomberg or Reuters.
- Intraday Trading
Positions that are opened and closed within the same trading day.
- Interest Rate Swap
A swap that exchanges the revenue generated by the two legs of an agreement. One party pays an agreed-upon fixed interest rate for the notional amount in exchange for the interest that the same amount earns for the duration of the agreement. A swap has two legs. One leg is related to a floating market return while the other leg is attached to an agreed-upon fixed rate.
- International Monetary Fund
International organization established in 1946 at Bretton Woods to provide international liquidity and loans to member countries.
- International Monetary Market
The futures trading arm of the Chicago Mercantile Exchange.
- International Organization for Standardization
The organization responsible for developing the standardized forex trading codes used by traders, such as EUR for Euros, AUD for the Australian Dollar or NZD for New Zealand Dollars.
See Central Bank Intervention.
- Intra Day Position
Positions that are opened and closed within the same trade day.
- Introducing Broker
A person or firm that introduces clients to a market maker. In return the IB will often receive a commission or a portion of the spread as payment.
- Japanese yen
The Currency of Japan.
- Janet Yellen
Chair of the Federal Reserve Bank of the USA
- Jean Claude Trichet
President of the European Central Bank, appointed November, 2003 until succeeded by Mario Draghi on 1.11.2011 .
A trader (also known as a Scalper)who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.
See Japanese Yen
- Key Day Reversal
In an uptrend, this one day pattern occurs when prices open at new highs, and then close below the previous day’s closing price. This reversal is generally a good indicator of the reversal of the trend and the beginning of a corrective phase. The opposite occurs in a downtrend, where the price opens lower and then closes higher, above the previous day’s closing price.. The greater the price-range on the key reversal day, the greater the odds that a reversal is taking place.
- Kill or Fill
An order to be either filled in its entirety or to be cancelled (killed). This type of order does not permit a partial fill.
Traders slang for the New Zealand Dollar. See also: NZD
- Ladder Option
An option that locks in gains as the underlying asset upon which the option is based reaches predetermined price levels. The levels resemble rungs of a ladder and the gains are locked in as the price of the underlying reaches them. This guarantees some profit, even if the price of the underlying asset retraces to lower levels prior to the expiry date of the option.
- Leading Indicators
Economic indicators used to predict future economic activity. Building Permits, Average Hours Worked and Consumer Sentiment are examples of leading Indicators. Equities and Equity Indices are also considered a leading indicator as they reflect the health and expectations of a company/economy.
- Left-Hand Side
Refers to the bid quote. This is the price at which customers who are either long a currency pair, or who want to sell to go short, are able to sell to the market maker.
Leverage is the same as gearing. With a Forex account it is possible to leverage the size of the account and to have a currency position of multiples of the actual account size. This can be a two edged sword as both losses and profits are magnified. The higher the level of gearing, the greater the risk involved.
See London Interbank Offered Rate – The rate that banks use when borrowing from one another.
London International Financial Futures Exchange
- Limit Order
An order to transact at a specified price or better. See Buy Limit Order and Sell Limit Order.
- Limit Price
The specified maximum/minimum price connected to a limit order.
- Line Chart
The simplest form of charting, a line chart plots a series of lines connecting the various price levels over a specified time period.
Term used to describe a market where there are plenty of buyers and sellers. This market depth generates good volume and is known as a liquid market.
To liquidate a position is to close an existing position. Liquidation of a position or portfolio is also what happens as a result of a margin call, when all current positions are closed to prevent further loss. This can be avoided by adding further funds to the account. At margin call, the value of the account is not sufficient to sustain the position size.
- London Interbank Offered Rate
The London Interbank Offered Rate (LIBOR) is a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank market).
To go long a currency means that you buy it. A long position is expressed in terms of the base currency. ie to buy Aud$ against US$ means “to be long Aud$”.
- Long Call
An option which gives its holder the right, but not the obligation, to buy the underlying asset.
- Long Put
An option which gives its holder the right, but not the obligation, to sell the underlying asset.
Money supply component which consists of all cash in circulation, plus all of the money held in cheque accounts and travellers cheques.
Money supply component which consists of M1 plus all of the money held in money market funds, savings accounts, and small Certificates of Deposits
Money supply component which consists of M2 plus all of the large Certificates of Deposits.
An MACD ( Moving Average Convergence/Divergence) indicator can be used to spot changes in the strength, direction, momentum and duration of a trend in a currency’s price action. The indicator is made up of 3 signal lines – the MACD line, the signal line (or average line), and the difference (or divergence).
Buy and sell signals are given when the two lines cross, resembling a dual moving-average crossover method. However, the MACD also fluctuates above and below a zero line, like an oscillator. Little can generally be gleaned from an MACD when it is oscillating around the zero (neutral) line. The indcator is most useful in generating appropriate buy or sell when the prices are either well below the zero line (oversold – signalling a possible buy trade), or when prices are well above the zero line (overbought – indicating a possible sell trade).
MACD’s are best used in conjunction with other indicators such as RSI,s or Stochastics and each can be used to act s confirmation signals of each others validity.
- Maintenance Margin
The minimum margin that must be available in an account to support all open trades.
- Make A Market
A dealer will “make a market” by providing a two-way quote a bid and offer spread for a currency pair at which they are prepared to buy or sell (the base currency).
- Managed Float
Exchange rate policy where a central bank might regularly intervene to stabilize or alter the direction of their currency.
The minimum deposit required to maintain an open position. For example, with an open position of $250,000 and a leverage of 50, the required minimum margin would be $5000 plus a balance as required by the broker.
- Margin Account
An account that allows leveraged buying and short selling. The leveraged size of the account means that the notional position can be geared up to multiples of the size of the balance of the account.
- Margin Call
A notification from the broker that more funds need to be deposited into an account because the value of the account has fallen below the minimum margin needed to cover the size of existing positions. The alternative to this is to close all or some of the positions.
- Mark Carney
Governor of the Bank of England
- Mario Draghi
President of the European Central Bank.
What the value of an open position would be if it were closed out at the prevailing market rates. All positions are valued either in real time or for reporting purposes, generally at the end of the trading day.
- Market Close
The Forex Market opens at 7.00am in New Zealand on a Monday and closes at 5.00pm New York on a Friday. For administrative purposes, most institutions use 5pm New York as the daily market close in order to differentiate between value dates, as well as mark delivery dates.
- Market Maker
A dealer (bank) who will “make a market” by providing a two-way quote of a bid and offer spread for a currency pair at which they are prepared to buy or sell (the base currency).
- Market Order
An order for immediate execution at the best available price, either to buy or to sell a particular currency.
- Market Rate
The current exchange rate for a currency pair.
- Market Risk
The risk that there may be an adverse move in a financial instrument that could result in a financial loss for an investor.
- Maturity date
The date on which payment/receipt of a financial obligation is due.
- Maximum Equity Drawdown
This is the maximum equity loss between the current account balance and the account high level. It is a good measure of the trading account volatility.
- Maximum Leverage
The biggest position that a margin deposit would cover. At a leverage of 50, one could enter a maximum leveraged position of $100,000 by depositing $2,000 worth of margin.
MetaTrader 4 is a highly popular online trading platform designed for financial institutions dealing with Forex, CFD, and Futures markets.
- MetaTrader 4 Mobile
MetaTrader 4 Mobile program is simply a portable version of the full trading terminal. This allows access to the platform and the technical analysis package from wherever the trader happens to be.
- Middle Rate, Mid rate.
The halfway level between the bid and ask quote offered by dealers.
- Mini Account
A trading account where traders can trade partial lot sizes. This is a good way for those learning to trade to build confidence and to gain an understanding of what is required to trade successfully.
A segment of a trading program that carries out a specific function. It may be used alone or in combination with other modules of the same program.
The tendency of a currency pair to continue moving in the same direction in which it is currently heading. These are often measured though oscillators such as an RSI or an MACD.
- Momentum Divergence
Divergence occurs when a financial asset or currency makes new price extreme, either higher or lower, but is not accompanied by a similar move in the particular momentum indicator. This information can be used to identify trend exhaustion and possibly a reversal in direction, prior to the price actually confirming the move. se MACD, RSI, Stochastic
An economic theory that suggests that money and monetary policy have a strong effect on the capacity and growth of an economy. Monetarists today tend to focus on the work of Milton Friedman, who promoted the view that a central bank policy should aim at keeping the supply and demand for money at equilibrium, as measured by growth in productivity and demand.
- Monetary Easing
This occurs when a Central Bank lowers interest rate or adds liquidity to the market place, perhaps through selling government bonds, in order to stimulate the economy.
- Monetary Policy
Central banks will influence the direction of the economy through monetary policy, by raising or lowering interest rates.
- Monetary Policy Committee
The Monetary Policy Committee (MPC) is a committee of the Bank of England that meets each month to discuss economic activity and the level of the official interest rate in the United Kingdom.
- Monetary Easing
This occurs when a Central Bank raises interest rate or removes liquidity from the market place, in order to reign in an overheating economy.
- Money Manager
An individual or a company who is responsible for managing the investment funds of another entity. The manager will receive payment, generally through a fixed management fee and possibly a percentage performance fee based on the investment returns that are made for the client.
Monthly (Simple) Moving Average
- Moving Average
An indicator used in technical analysis to show the average value of an assets price over a particular period. Moving averages are used to measure momentum and can assist traders to have a clearer view of a particular trend. Moving averages can be of any duration, and the shorter the term of the moving average, the more sensitive it is to price fluctuations. Moving averages of varying duration are generally used in combination with each other. ie. A trader may use a 100 and a 200 Day moving average in combination and will watch for when the 100 crosses above or below the 200 to provide a buying or selling opportunity.
MetaTrader 4 is a popular online trading platform used by traders to access the Forex, CFD and Futures markets. See also: MetaTrader 4
The currency symbol for the Mexican peso.
- Naked Put
A put sold by someone who is not short the underlying asset. A highly risky strategy, given that the seller is committed to selling the asset at the strike price and has now covered hedge to protect themselves.
- Narrow Market
A market that is trading in a quiet, narrow range, probably with little activity.
National Association of Securities Dealers Automated Quotation. The electronic quotation system in the US based on the Technology based Sector
Net Asset Value. The total value of an asset less liabilities. In terms of financial markets trading, NAV is the balance of all deposits, realised and unrealised profit/loss, and interest, minus withdrawals.
- Negative Sloping Yield Curve
A yield curve is a graph that plots the various yields (usually government bonds) beginning with short term rates on the left side of the graph and extending towards long term rates to the right. Negative sloping refers to the fact that on such a curve short term rates are actually higher than long term rates. This is contrary to normal yield curves as dictated by the time value of money.
- Net Interest Rate Differential
The difference in the interest rates associated with two currencies.
- Net Position
A Currency position that has not been offset by an opposite position.
Settlement method where only the difference (profit or loss) is settled at maturity of the contract.
- New Zealand dollar
The New Zealand dollar is the currency of New Zealand. (and also the Cook Islands, Niue, Tokelau, and the Pitcairn Islands)
Non-Farm Payrolls. An economic indicator, reported monthly on the first Friday of the month, representing the total number of paid U.S. workers, excluding farm employees, general government employees, private household employees, and employees of non-profit organisations that provide assistance to individuals. The NFP report also includes estimates of the average work week and average weekly earnings of all non-farm employees. This is a closely watch economic statistic, released in unison with the US Unemployment data.
The term used to describe market activity that detracts and may not match overall market sentiment. In general, the shorter the time frame, the more difficult it is to separate the meaningful market movements from the noise.
Currency symbol for the Norwegian Krone.
- Nostro Account:
A bank account of a domestic bank held in a foreign country by a foreign bank, where the domestic bank has no branches, denominated in the currency of that country. ie Nostro is Latin for “Our” A nostro account is our bank account of our money, held by a domestic bank of a foreign country, in that country.
New York Cotton Exchange.
New York Stock Exchange
NZD is the currency symbol for the New Zealand Dollar. See also: Kiwi
See also: One Cancels the Other Order
- Odd Lot
A non-standard transaction size. In the retail forex market, a standard lot is usually 100,000 units of a particular currency.
A business entity that may or may not be physically located in a country, but whose operations and regulation fall outside the country, primarily because it is incorporated elsewhere.
In Australia, anything that affects the markets, that does not occur in Australia, is generally said to have taken place “Offshore.”
Also known as the Ask Price, it is the price at which a seller is willing to sell, and at which a trader will have to buy.
- Offer Price
- Old Lady
Trader slang for the Bank of England.
- One Cancels the Other Order
When two orders that are submitted simultaneously, probably directly relating to each other, if either one is executed, the other one is automatically cancelled.
- Open Position
A position whether long or short that is subject to market fluctuations and thus profits or losses. See also: Closed Position
The right, but not the obligation, to buy (long call) or sell (long put) an underlying asset.
Instructions placed into the marketplace to buy or sell a financial product.
Technical analysis tools that provide buy and sell signals, characterized by a signal that oscillates between overbought and oversold levels.
- Out of the Money
An option term. When the strike price of a call option is higher than the market price of the underlying asset or, for a put, when the strike price is below the market price of the underlying asset, the option is said to be out of the money.
- Over the Counter (OTC)
Refers to trading that is not done over a formal exchange. Traditionally, most forex is traded “over the counter”, meaning traders enter into forex transactions with one another via the telephone or through an electronic device. The IMM is an exchange in Chicago where currency futures are traded.
In fundamental terms it means that the price of an asset or a currency has been pushed higher, to a level not necessarily supported by the underlying economic conditions.
Technical analysts use momentum indicators such as Stochastics or MACDs to measure overbought conditions and generally interpret such an environment as a sign that the price of the asset or currency is becoming overvalued and may experience a pullback
- Overheated Economy
An economy with high growth and rising inflation. High interest rate would be required to reign in borrowing and spending in order to reign in economic growth
Trades or orders that extend past the current trade day into the next.
- Overnight Limit
The maximum position, either net long or short, that a dealer can carry into the next value date.
In fundamental terms it means that the price of an asset or a currency has been pushed lower, to a level not necessarily supported by the underlying economic conditions.
Technical analysts use momentum indicators such as Stochastics or MACDs to measure oversold conditions and generally interpret such an environment as a sign that the price of the asset or currency is becoming undervalued and may experience a return to higher ground.
The account holder, the name under which an account is held.
When one unit of the base currency is worth 1 unit of the quoted currency. ie AUD1.00 = USD1.00
- Partial Lot
Some brokerages allow trading in partial lots, which are fractions of 100,000 units that normally make up a standard lot.
- Passively Managed Funds
A financial strategy in which an investor invests in accordance with a pre-determined strategy that does not entail any time sensitive forecasting. These funds may typically be index funds – that are built to track the movement of any given index, such as the ASX200. One of the advantages of these funds is that the fees are typically a lot lower than actively managed funds.
A system where a currency’s value is tied with that of another currency. For example, the Chinese Yuan is pegged to the value of the US dollar. Most pegs are allowed to deviate within a small band.
A continuation price pattern used in technical analysis that is similar to a flag pattern, but that the “flag” resembles a symmetrical triangle or “pennant”.
Refers to the dollar based currency income and reserves of oil producing nations.
Portugal, Italy, Ireland, Greece, Spain. A group of indebted countries in the EU
For most currency pairs this is the 4th decimal point of a price. (For US$/JPY it is the 2rd decimal place) It is the upward or downward price movements quoted in a particular currency pair. In EUR/USD, a movement of 0.0001 is a one pip move (for example, from 1.2301 to 1.2302 euro). In USD/JPY, a movement of 0.01 is one pip (for example, from 97.65 to 97.66 yen). – See Points
- Point & Figure Charts
Technical analysis charts that focus solely on price movement, without any consideration of time.
- Political Risk
Changes in government policy or to a wider extent, government instability that might have negative effects on the currency.
A trade that is still in effect. See Open Position and Closed Position.
1. A currency in which interest rates are lower than rates in the domestic currency; ie Aud/Usd. Aud rates at 4% and US$ rates at 1% means that the US$ is trading at a premium to the Aud$
2. The price of owning (buying) an option. The premium is the price that the buyer of an option pays to the seller of the option. (As with insurance, the premium buyer is buying cover against event risk. If the insured event occurs, the buyer has the right (but not the obligation) to make a claim against the seller.
- Premium Spread
Refers to the situation where the bid price of a forward spread rate is greater than the ask price.
The cost of purchasing a second currency (term) in terms of a first (base) currency.
- Price Transparency
The ability of all market participants to trade at the same price.
- Prime Rate
The interest rate at which banks will lend to their most valued customers.
- Principal Value
The original amount invested.
- Producer Price Index
An economic indicator that gauges the month-to-month price change that producers receive for their output.
- Profit Taking
Closing a position in order to realize a gain.
- Put Option
An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy the underlying security.
- Quantitative Analysis
A technique used to analyse the behaviour of a financial asset or portfolio of assets by employing a mathematical approach, using statistical modelling, measurement, and research.
- Quantitative Easing
Quantitative easing is a monetary tool used by central banks to encourage spending within an economy. One of the most well-known instances of quantitative easing remains the Bank of Japan’s attempts to fight domestic deflation in the early 2000s. Interest rates during this time were already close to zero and further cuts could not be implemented so the Bank flooded commercial banks with excess funds to promote lending and by extension, encourage spending.
When both a bid and ask price are provided for a currency pair.
- Quote Currency
The second currency of two in a currency pair. For the EUR/USD, USD is the quote currency. The exchange rate quoted is how many units of the quoted currency (USD) are exchangeable for one unit of the base currency (EUR).
A period where the price of a currency pair moves upward. Always spoken of in terms of the base currency, fixed at one unit of that currency.
The difference between the highest and lowest price of a currency pair during a given trading period.
Price at which a currency can be purchased or sold against another currency.
- Rate Differentials
The difference between the interest rates of two countries. The country with the higher interest rate will generally attract investment that will be financed by borrowing and then selling the lower rate currency in order to purchase the higher yielding currency. see Carry Trade
- Rate of Return
The percentage of money gained or lost on an investment relative to the amount of money invested.
- Ratio Spread
On option strategy that involves holding an unequal amount of long and short positions. Two short and one long is a popular ratio spread strategy.
See Reserve Bank of Australia
See Reserve Bank of New Zealand
When prices fall after a period of advance. Also known as a Correction
- Realized P/L
The profit or loss that is crystallised by closing a position.
- Regulated Market
A market in which a government agency monitors and regulates industry activity to protect investors.
The official supervisory body that subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system within which they operate. This may be handled by either a government or non-government organization.
- Relative Strength Indicator
- Reserve Bank of Australia
The Central Bank of Australia
- Reserve Bank of New Zealand
The Reserve Bank of New Zealand
A level or floor above which, for various reasons, it maybe difficult for a currency to rise, and at which sellers are expected to congregate.
- Resistance Point or Level
- Retail FX Market
Comprises a wide range of non-institutional traders, from large organizations to individual investors. In less than 10 years, a relatively small number of online currency brokers and market makers has exploded to a point where there are now thousands of brokers catering to many clients around the world.
- Retail Sector
The sale of services, goods, or commodities in directly to individual consumers. As opposed to the corporate or wholesale sector.
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.
- Revaluation Rate
A rate, possibly historical (as in the closing rate for the previous trading day), which is used to revalue a dealer’s position or book.
- Reversal Pattern
Price patterns on price charts that usually indicate that a trend reversal is taking place.
Measures sensitivity to a change in the relevant risk-free rate interest rate (Generally the current cash rate).
- Right Hand Side
Refers to the ask or offer price. This is the price at which traders are required to buy.
- Risk (Foreign Exchange 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. Otherwise known as Market Risk.
- Risk/Reward Ratio
The risk/reward ratio is the initial required payoff potential when placing a trade. The R/R should never be less than 1:1 (which equates to a 50/50 bet). Realistically the R/R should be 1:2 or even 1:3. ie If your trade plan on a particular trade has a 1:2 R/R , this means that you might be prepared to risk $100 in order to make $200. Always have an appropriate R/R in mind when placing a trade.
- RSI (Relative Strength Indicator)
A technical indicator, used to chart the current and historical strength or weakness of a currency/index/commodity based on the closing prices of a recent trading period The RSI is plotted on a vertical scale from 0 to 100. Values above 70 are considered to be overbought and values below 30, oversold. When prices are over 70 or below 30 and diverge from price action, a warning is given of a possible trend reversal.
- S/N Roll
See Spot/Next Roll.
- Same Day Transaction
A position that is opened and closed on the same day.
A deal may be done for same day delivery. This means that the deal matures today (same day) and the funds need to be placed in the bank account by the close of trade.
A legitimate method of currency trading. It can be done by individual traders (See Jobber) but is often based on quick momentum trades triggered by order flow reading setups.
- Sell Limit Order
An order to execute a transaction only at a specified price (the limit) or higher
- Sell Stop
An order with a sell limit placed below the current market price. These are used, either to cut out an existing “long position” at a limited loss or to initiate a short position at a specified level below the market. Once the price declines to the level that the stop loss order is placed, the sell order will be executed at the next available price.
- Selling Rate
Same as the Ask or Offer rate.
- Selling Short
Selling a currency pair that involves being short the base currency and long the quote currency, with the intent of buying the currency pair back at a later time when prices are lower, in order to make a profit.
The physical delivery of currencies made when a contract matures. In forex, this usually occurs two days after the trade (ie value spot). In practice, traders don’t generally take delivery but will roll their positions forward each day until the position is closed.
- Settlement Date
The date when physical delivery must take place. Generally in the currency market this would occur two days after the trade date (Spot Date). Many corporations will cover their needs to a forward date (ie beyond the spot date), in order to budget and hedge their FX exposure.
- Settlement Risk
Loss as a result of one’s counter-party being unable to settle. (Herstatt Risk)
Selling a currency pair that involves being short the base currency and long the quote currency, with the intent of buying the currency pair back at a later time when prices are lower, in order to make a profit.
- Short Call
An bearish option strategy that involves the short selling of an asset that obliges the seller to sell the underlying asset to the buyer if the price of the asset goes up, rather than down as the writer of the option had hoped. A dangerous strategy that entails unlimited losses if the price heads higher.
- Short Covering
Buying back an existing short position in order to have a square book (no position).
- Short Position
In foreign exchange, when a currency pair is sold, the position is said to be short. This means selling the base currency (short) while at the same time buying the quoted currency (long).
- Short Put
The sale of a Put Option which obliges the seller to buy the underlying asset from the buyer. This entails unlimited losses if the price heads lower.
- Short Squeeze
When the market is overweight with short positions and all of them look to cover (buy) at the same time (possibly following a news announcement). As this happens and the market pushes higher, further buyers are drawn into the market forcing an increasing amount of shorts to cover positions, creating a snowball effect.
When there is little interest in a particular currency, traders are said to be “sidelined”. ie they currently hold no position and are waiting for some movement in that currency pair.
One of bugbears of the forex market. Slippage is the experience of getting an order filled at a worse rate than a clients instructions required. This can and regularly does occur, particularly on stop/losses. It may happen for any given reason, but in most cases will occur either when there is an unexpected news announcement and the market “gaps” from one level to another, or else, when a weekend news event causes a market to open on a Monday at a different level from where it closed on the previous Friday. Slippage is part of the makeup of the FX market, and while brokers make every effort to avoid it happening it still occurs regularly and is impossible to eradicate. Brokers are not responsible for slippage, unless it is due to a breakdown in their own internal processes.
The Swiss National Bank – The Central Bank of Switzerland
- Society for World-wide Interbank Telecommunications
A member-owned cooperative through which the financial world conducts its business operations by providing a network that enables institutions worldwide to send and receive information about financial transactions in a secure, standardised and reliable environment. (see SWIFT Code)
- Soft Market
Where there are more sellers than buyers resulting in the potential for a move to lower levels.
- Sovereign Risk
Risk that a country will default on its debts.
The occurrence where an individual or corporation may use spare funds in order to attempt to make financial gain.. In the retail forex market, this involves opening an account with a reliable broker in order to attempt to gain from the movement in various currency pairs. A speculator will have no direct connection to the currency market through trade related issues and the involvement will be purely for financial gain
A large and rapid price movement in one direction which quickly reverses itself
Most currency contracts settle 2 days beyond the date of the transaction. This is known as the spot date.
- Spot Market
Most currency transactions take place for delivery in two business days time. This is known as the spot market
- Spot Price
The current market price of a currency traded in the spot market. See also: Spot Market
- Spot/Next Roll
The rollover of a position from the spot date (2 days forward) to the next business day
The difference between the bid and offer of a currency pair.
To have a square book reflects a zero balance in the currency and therefore no exposure to that currencies possible volatility.
- Stable Market
A market that has little volatility in price movement
Another name for the British Pound (GBP). See also: Cable
- Stochastic Oscillator
A type of oscillator used by chartists in their technical analysis. Each type is derived from a different equation and focuses on different aspects of price action. It follows the speed or the momentum of the price, rather than the price itself.
- Stock Broker
An agent in the buying and selling of stocks or other securities.
- Stop Loss Order
Order to buy or sell when a given price is reached or passed to
a) liquidate part or all of an existing position, crystallising a loss, or
b) To open a new position, if the trader perceives that further movement in the direction of the stop loss are likely.
A buy order for a currency price that is above the current market, or current price. It becomes a market order when the specified price is reached. Stop-buys are used by traders to cut losing short positions or to establish positions in markets which they perceive to be rising in value.
A sell order for a currency price that is below the current market, or current price. It becomes a market order when the specified price is reached. Stop-sells are used by traders to cut losing long positions or to establish positions in markets which they perceive to be falling in value.
An option strategy involving holding both a call and put with the same strike price and same expiry date. This option will allow you (for the cost of the premium) to benefit from a sharp move in either direction. If volatility is currently low (ie Premiums are cheap) and you feel that a sharp move is coming but you are not sure of the direction, then a straddle might be the correct strategy. If nothing happens within your time frame, you will lose the cost of the premium.
Similar to a straddle, except that the strangle will have different strike prices for the call and the put option. A strange will be cheaper than a straddle because the strike prices are further apart.
- Strike Price
The price at which an underlying asset can be bought or sold as specified in an option contract.
Some broker allow a client, who may be trading on behalf of other individuals or companies to segregate their accounts into various sub-accounts in order differentiate those individual accounts. Another reason for sub accounts may be for differentiating various trading strategies.
A level or floor beneath which, for various reasons, it maybe difficult for a currency to fall, and at which buyers are expected to congregate.
An agreement to purchase one currency at the spot rate (value spot) and to sell it at the forward rate (for the forward value date). The opposite is done with the 2nd currency. There are many uses for swaps, but which may include corporate cashflow requirements, hedging FX exposure or just for speculation.
See Society for Worldwide Interbank Telecommunications.
- SWIFT Code
An identification code for financial and non-financial institutions. The code is used when transferring money between banks, particularly for international wire transfers, and also for the exchange of other messages between banks.
Trader’s nickname for the Swiss Franc. See also: CHF
See Treasury Bills.
See Treasury Bonds.
See Treasury Notes.
See Tomorrow Next.
- T/N Roll
See Tomorrow Next.
- Take Profit Order
A customer’s instructions to either 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 the trade. This would entail a limit order that is placed either, above the market with a long position (ie a sell order), or below the market with a short position(ie a buy order). When the market reaches the given limit price, the position is closed and locks in a profit and reduces the exiting position size.
- Take the Offer
When a buyer “crosses the spread” and accepts the sellers price, the buyer is said to have “taken the offer”.
- Technical Analysis
The analysis of historical market data in order to predict future price movement and direction.
- Technical Correction
A price reversal based on technical factors such as a resistance or support level or an overbought or oversold situation, rather than market sentiment.
- Technical Indicators
Indicators that can be used to assist technical traders to form an opinion on future price movement of a financial product. They come in many forms, but some of the most popular are Moving Averages, Relative Strength Indicators, MACD’s, Stochastics and Bollinger bands. There are many others to choose from and most traders stick to 2 or 3 to help them with their decisions.
- Technical Side
The use of historical rates and charts to forecast future price movements in financial markets.
- Technical Trader
An investor who uses technical analysis to predict future price movements in financial markets.
- TED Spread
Measures the difference between the 3 month London Interbank Offered Rate (LIBOR) for Eurodollars and the 3 month U.S. T-bill interest rate. TED is an acronym of T-Bill and ED, the ticker symbol for the Eurodollar futures contract.
- The City
Located within greater London, UK. The City is one of the largest financial centres in the world with the highest global turnover of foreign exchange of any one location.
Measures the sensitivity of the value of the option to the passage of time. An option will suffer from increasing “time decay” as it approaches maturity.
- Thin Market
A market with a lack of buyers or sellers. A large order can typically have an exaggerated effect on a market’s volatility and the degree of movement
The smallest possible change in a price, either up or down.
Streaming display of the current or recent historical price of a tradable stock, commodity or currency pair.
Triangles are a chart formation used by Technical analysts and come in several different variations. Chartists will look for symmetrical, descending or ascending triangles and will generally assume that the prices will break out in the direction of the broader trend.
- Tier One
The Bank of International Settlements’ measure of a bank’s financial strength. Tier One is the highest grade of capital and consists primarily of common stock and disclosed reserves (retained earnings).
- Tom Next
See Tomorrow Next.
- Tomorrow Next (Tom/Next)
The process of rolling an open position forward each day in order to avoid having to give/take delivery (ie Value today) . The position is rolled from Tomorrow to the next day and will involve a credit (for being long the higher yielding currency/ short the lower yielding currency) or a cost (for being short the higher yielding currency/ long the lower yielding currency).
- Trade Date
The date on which a position is opened.
- Tradeable Amount
The smallest transaction size allowed. For many brokers the tradeable amount is the round lot, which is usually 1,000 but maybe up to 100,000 units of a particular currency, depending on the broker.
- Trading Margin Excess
Extra funds beyond the margin requirements for existing positions that can be used to enter new positions or increase existing positions.
- Trading Model
A electronic program that provides buy/sell recommendations for trading assets such as currencies.
- Trading Platforms
A software application used for trading forex, usually over the Internet, via computer, mobile phone or ipad etc.
- Trailing Stop Loss
A stop loss that it limits potential losses on an open position because instructions can be left to adjust the stop loss limit price closer to the market price when the market price moves in your favour.
Buying or selling a currency pair.
- Transaction Cost
The cost involved in doing business. In the case of the Forex market it is the cost involved in buying or selling a currency pair and would involve the spread and the commissions if any being charged.
- Transaction Date
The date on which a deal is transacted for a value date at some point in the future.
- Treasury Bills
US government short-term obligations with 13-, 26-, and 52-week maturities.
- Treasury Bonds
US government long-term obligations with 10-year or more maturities.
- Treasury Notes
US government medium-term obligations with 2- to 10-year maturities.
The overall direction of the market, whether up or down or sideways.
- Trend Lines
Lines plotted on a chart, based on historical data that are considered significant, and used to predict possible future market movement.
The total volume of all executed transactions in a given period of time.
- Two-Way Price
Generally required in the interbank market when a price maker is asked to give both the price at which he is prepared to buy and to sell a particular currency.
- Unconvertible Currency
A currency that cannot be exchanged for another because of the foreign exchange regulations imposed by the government of that country.
When a currency is below its purchasing power parity it is considered undervalued.
- Unrealized P/L
A hypothetical valuation of the current position and the resultant profit or loss if the position were to be liquidated at that moment. (see Mark to market)
- US Dollar
The currency of the United States of America.
- US Dollar Index (DXY)
This Index indicates the general international value of the US Dollar, by averaging the exchange rates between the USD and 6 of the world’s major currencies, including the Euro (57.6%), the Japanese yen (13.6%), the British pound (11.9%), Canadian dollar (9.1%), the Swedish krona (4.2%), and the Swiss France (3.6%). The US Dollar Index can be used by traders as a general indication for currency market direction.
The process of determining the value of an asset or company.
- Value Date
The settlement date for a currency contract, usually two business days, known as the spot date.
Measures the sensitivity to volatility of an option and is expressed as the amount of money that the option’s value will gain or lose as volatility rises or falls by 1%.
VIX is the ticker symbol for the Chicago Board Options Exchange Market Volatility Index. Often known as the “fear index”, it is a measure of the implied volatility of S&P 500 index options. The VIX moves in the opposite direction of the S+P. – If the S+P is moving higher and the market is comfortable, then the implied volatility will drop and the VIX will fall. The opposite is true when the S+P reverses to trade lower.
Measure of how much the price of a tradable asset, such as a currency, moves over a period of time.
- Vostro Account
An account of a foreign bank held at a domestic bank where the foreign bank has no branches. It is used for cash management purposes. Vostro means yours in Latin. See Nostro Account.
A certificate, usually issued along with a bond or preferred stock, entitling the holder to buy a specific number of securities at a specific price, which is usually above the current market price at the time of issuance, for a specific period of time.
- Wealth Creation Business
A professional service that includes a combination of investment advice, tax services, and estate planning, often referred to as Financial Planning.
Weekly (Simple) Moving Average
Refers to a highly volatile market, moving strongly in one direction before turning around and moving back again.
The sale of services, goods, or commodities in large quantities to corporations or individual clients, as opposed to “Retail” which caters for the smaller end of the market.
- Wire Transfer
Electronic transfer of funds from one bank to another.
- Working Day
When the banks in the country of origin for a particular currency are open for business. For currency pairs, where delivery is expected to take place, the banks of both countries involved in a particular currency pair need to be open in order to make the value (delivery) date workable. A holiday in one or other country would mean rolling over the delivery until the next good working day in both countries.
- World Trade Organization
A global organization of countries that trade with one another and set rules by which trading is conducted.
To write an option is to sell an option to a buyer.
The currency code for Oil (West Texas Intermediate), quoted in $US per barrel It is also known as Texas light sweet, and is s a type of crude oil used as a benchmark in oil pricing
See World Trade Organization.
XAGXAG is the short code for silver, denoting one troy ounce of silver.
XAU is short code for gold, denoting one troy ounce of gold.
Traders’ slang for a billion. A Yard of Yen equates to 1 billion Yen.
The return on an investment. The yield is usually calculated in percentage terms.
- Yield Curve
The relationship showing yields or interest rates across different contract lengths (3 month, 5 year, 30 years, etc…) for a similar debt contract.
Currency symbol for the South African Rand.
- Zero-Coupon Bond
A bond bought at a price lower than its face value. The face value is then repaid at the time of maturity. This type of instrument does not make periodic interest payments (coupon payments) to the investor.