A


Account Record of all transactions.
 
Account Balance Same as balance.
 
All or None A limit price order that instructs the broker to fill the whole order at the stated price or not at all.
 
Arbitrage Taking advantage of countervailing prices in different markets by the purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market to profit from small price differentials.
 
Ask Rate The lowest price at which a financial instrument is offered for sale (as in bid/ask spread).


B


Balance Amount of money in an account.
 
Base Currency The currency in which an investor or issuer maintains its book of accounts; the currency that other currencies are quoted against. In the forex market, the US Dollar is normally considered the “base” currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair.
 
Basis The difference between the spot price and the futures price.
 
Basis Point One hundredth of a percent.
 
Bear Market A market distinguished by a prolonged period of declining prices accompanied with widespread pessimism.
 
Bid The price that a buyer is prepared to purchase.
 
Bid/Ask Spread See spread.
 
Book In a professional trading environment, a book is the summary of a trader’s or a desk’s total positions.
 
Broker An individual, or firm, that acts as an intermediary, putting together buyers and sellers usually 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.
 
Bull An investor who believes that prices/the market will rise.
 
Bull Market A market distinguished by a prolonged period of rising prices. (Opposite of bear market).


C


Candlestick Charts A chart that indicates the trading ranges for the day as well as the opening and closing price. If the close price is lower than the open price, the rectangle is shaded or filled. If the open price is higher than the close price, the rectangle is not filled.
 
Capital Markets Markets for medium to long term investment (usually over 1 year). These tradable instruments are more international than the ‘money market’ (i.e. Government Bonds and Eurobonds).
 
Chartist An individual who uses charts and graphs and interprets historical data to find trends and predict future movements, as well as, aid in technical analysis.
 
Clearing The process of settling a trade.
 
Close a Position/
Position Squaring
To eliminate an investment from one’s portfolio by either buying back a short position or selling a long position.
 
Collateral In the context of margin financing, additional security pledged to support the margin financing.
 
Commission Fee broker charges for a transaction.
 
Confirmation A document exchanged by counterparts to a transaction that confirms the terms of said transaction.
 
Contagion The tendency of an economic crisis to spread from one market to another. In 1997, financial instability in Thailand caused high volatility in its domestic currency, the Baht, which triggered a contagion into other East Asian emerging currencies, and then to Latin America. It is now referred to as the Asian Contagion.
 
Contract/Unitor Lot The standard unit of trading on certain exchanges.
 
Convertible Currency A currency which can be exchanged freely for other currencies at market rates, or gold.
 
Cost of Carry The cost associated with borrowing money in order to maintain a position. It is based on the interest parity, which determines the forward price.
 
Counter party The participant, either a bank or customer, with whom the financial transaction is made.
 
Country Risk The risk associated with government intervention (does not include central bank intervention). Examples are legal and political events such as war, or civil unrest.
 
Cross Rates An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded.
 
Currency A country’s unit of exchange issued by their government or central bank whose value is the basis for trade.
 
Currency Risk The risk of incurring losses resulting from an adverse change in exchange rates.


D


Day Trading Opening and closing the same position or positions within the same trading session.
 
Dealer
One who acts as a principal or counterpart to a transaction; places the order to buy or sell.
 
Deficit A negative balance of trade (or payments); expenditures are greater than income/revenue.
 
Delivery An actual delivery where both sides transfer possession of the financial instrument traded.
 
Deposit The borrowing and lending of cash. The rate that money is borrowed/lent at is known as the deposit rate (or depo rate). Certificates of Deposit (CD’S) are also tradable instruments.
 
Derivatives Trades that are constructed or derived from another security (stock, bond, currency, or commodity). Derivatives can be both exchange and non-exchange traded (known as Over the Counter or OTC). Examples of derivative instruments include Options, Interest Rate Swaps, Forward Rate Agreements, Caps, Floors and Swap options.


E


End-Of-Day or Mark-to-Market
Traders account for their positions in two ways: accrual or mark-to-market. An accrual system accounts only for cash flows when they occur, hence, it only shows a profit or loss when realized. The mark-to-market method values the trader’s book at the end of each working day using the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start the next day with a net position.
 
Equity
It can be defined as ownership interest. In a brokerage account, equity equals the value of available cash balance add or minus any floating profit or loss for the position held.


F


Flat or Square
To be neither long nor short is the same as to be flat or square. One would have a flat book if he has no positions or if all the positions cancel each other out.
 
Foreign Exchange or
Forex or FX
The simultaneous buying of one currency and selling of another in an over-the-counter market. Most major FX is quoted against the US Dollar.
 
Forward A deal that will commence at an agreed date in the future. Forward trades in FX are usually expressed as a margin above (premium) or below (discount) the spot rate. To obtain the actual forward FX price, one adds the margin to the spot rate. The rate will reflect what the FX rate has to be at the forward date so that if funds were re-exchanged at that rate there would be no profit or loss (i.e. a neutral trade). The rate is calculated from the relevant deposit rates in the 2 underlying currencies and the spot FX rate. Unlike in the futures market, forward trading can be customized according to the needs of the two parties and involves more flexibility. Also, there is no centralized exchange.
 
Forward Points The pips added to or subtracted from the current exchange rate to calculate a forward price.
 
Fundamental Analysis Thorough analysis of economic and political data with the goal of determining future movements in a financial market.
 
Futures
A way of trading financial instruments, currencies or commodities for a specific price on a specific date in the future. Unlike options, futures give the obligation (not the option) to buy or sell instruments at a later date. They can be used to both protect and to speculate against the future value of the underlying product.


G


GTC Good-Till-Cancelled. An order left with a Dealer to buy or sell at a fixed price. The GTC will remain in place until executed or cancelled.
 


H


Hedge An investment position or combination of positions that reduces the volatility of your portfolio value. One can take an offsetting position in a related security. Instruments used are varied and include forwards, futures, options, and combinations of all of them.
 


I


Inflation An economic condition where there is an increase in the price of consumer goods, thereby eroding purchasing power.
 
Initial Margin The required initial deposit of collateral to enter into a position as a guarantee on future performance.
 
InterbankRates The Foreign Exchange rates at which large international banks quote other large international banks.


L


LIBOR
Stands for London Interbank Offer Rate. The interest rate that the largest international banks will lend to each other.
 
Limit Order An order to buy at or below a specified price or to sell at or above a specified price.
 
Liquid and Illiquid Markets The ability of a market to buy and sell at ease with no impact on price stability. A market is described as liquid if the spread between the bid and the offer is small. Another measure of liquidity is the presence of buyers and seller, with more players creating tighter spreads. Illiquid markets have few players, hence, wider dealing spreads.
 
Liquidation Any transaction that offsets or closes out a previously established position.
 
Long A position to purchase more of an instrument than is sold, hence, an appreciation in value if market prices increase.


M


Margin Customers must deposit funds as collateral to cover any potential losses from adverse movements in prices.
 
Margin Call A requirement from a broker or dealer for additional funds or other collateral to bring the margin up to a required level to guarantee performance on a position that has moved against the customer.
 
Mark-to-Market or End-of-Day
Traders account for their positions in two ways: accrual or mark-to-market. An accrual system accounts only for cash flows when they occur, hence, it only shows a profit or loss when realized. The mark-to-market method values the trader’s book at the end of each working day using the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start the next day with a net position.
 
Market Maker A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices.
 
Market Order An order to buy/sell at the best price available when the order reaches the market.
 
Market Risk
Risk relating to the market in general and cannot be diversified away by hedging or holding a variety of securities.
 
Maturity
The date a debt becomes due for payment.
 
Money Markets
Refers to investments that are short-term (i.e. under one year) and whose participants include banks and other financial institutions. Examples include Deposits, Certificates of Deposit, Repurchase Agreements, Overnight Index Swaps and Commercial Paper. Short-term investments are safe and highly liquid.


O


Off Balance Sheet Products such as Interest Rate Swaps and Forward Rate Agreements are examples of "off balance sheet" products. Also, financing from other sources other than equity and debt are listed.
 
Offer The price, or rate, that a willing seller is prepared to sell at.
 
Offsetting Transaction A trade that serves to cancel or offset some or all of the market risk of an open position.
 
One Cancels Other Order
or OCO Order

A contingent order where the execution of one part of the order automatically cancels the other part.
 
Open Order An order to buy or sell when a market moves to its designated price.
 
Open Position A deal not yet reversed or settled and the investor is subject to price movements.
 
Options
An agreement that allows the holder to have the option to buy/sell a specific security at a certain price within a certain time. Two types of options – call and put. A call is the right to buy while a put is the right to sell. One can write or buy call and put options.
 
Order
An order is an instruction, from a client to a broker to trade. An order can be placed at a specific price or at the market price. Also, it can be good until filled or until close of business.
 
Overnight A trade that remains open until the next business day.
 
OTC
Over The Counter

Used to describe any transaction that is not conducted over an exchange.


P


Pegging A form of price stabilization; typically used to stabilize a country’s currency by making it fixed to the exchange rate with another country.
 
Pip or Points The term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).
 
Position A position is a trading view expressed by buying or selling. It can refer to the amount of a financial instrument either owned or owed by an investor.
 
Premium In the currency markets, it is the amount of points added to the spot price to determine a forward or futures price.


Q


Quote An indicative market price; shows the highest bid and/or lowest ask price available on a security at any given time.
 


R


Rate The price of one currency in terms of another.
 
Resistance A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross above. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line.
 
Revaluation Rates The revaluation rates are the market rates used when a trader runs an end-of-day to establish profit and loss for the day.
 
Risk Exposure to uncertain change, the variability of returns significantly the likelihood of less-than-expected returns.
 
Revaluation Rates
Increase in the exchange rate of a currency as a result of official action.
 
Risk Management To hedge one’s risk they will employ financial analysis and trading techniques.
 
Rollover The settlement of a deal is rolled forward to another value date with the cost of this process based on the interest rate differential of the two currencies.


S


Settlement The finalizing of a transaction, the trade and the counterparts are entered into the books.
 
Short To go “short” is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit.
 
Spot A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck.
 
Stop Order
An order to buy/sell at an agreed price. One could also have a pre-arranged stop order, whereby an open position is automatically liquidated when a specified price is reached or passed.
 
Spot Price
The current market price. Spot transaction settlements usually occurs within two business days.
 
Spread The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity.
 
Support Levels A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross below. Recurring failure for the price to move below that point produces a pattern that can usually be shaped by a straight line.
 
Swaps A swap occurs when one currency is temporarily exchanged for another, then the currency is held and exchanged later after a fixed period of time. To calculate the swap take the interest rate differential between the two underlying currencies, thus it may be used for speculative purposes to exploit anticipated movement in the interest rates.


T


Technical Analysis An effort to forecast future market activity by analyzing market data such as charts, price trends, and volume.
 
Tick Minimum price move.
 
Ticker Shows current and/or recent history of a currency either in the format of a graph or table.
 
Transaction Cost

The cost associated with buying or selling of a financial instrument.

 
Transaction Date The date on which the trade occurs.
 
Turnover
The volume traded, or level of trading, over a specified period, usually daily or yearly.


U


US Prime Rate
The interest rate at which US banks will lend to their prime corporate customers.
 


V


Value Date The date that both parties of a transaction agree to exchange payments.
 
Variation Margin An additional margin requirement that a broker will need from a client due to market fluctuation.
 
Volatility A statistical measure of a market or a security’s price movements over time and is calculated by using standard deviation. Associated with high volatility is a high degree of risk.
 
Volume
The number, or value, of securities traded during a specific period.
 


W


Whipsaw A term used to describe a condition in a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
 


Y


Yard Another term for a billion.
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