The record of all transactions.
The amount of money in an account.
A currency is said to appreciate when the price rises in response to market demand; an increase in the value of an asset.
The practice of taking advantage of countervailing prices in different markets by the purchase or sale of an instrument, and the simultaneous taking of an equal and opposite position in a related market to profit from small price differentials.
The price, or rate, that a willing seller is prepared to sell at.
The Australian Dollar.
The departments and processes related to the settlement of financial transactions (i.e., written confirmation and settlement of trades, record keeping).
Balance of Payments
A record of a nation’s claims of transactions with the rest of the world over a particular time period; these include merchandise, services and capital flows.
Balance of Trade
The value of a country's exports minus its imports.
A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar; the opening price, which is marked with a little horizontal line to the left of the bar; and the closing price, which is marked with a little horizontal line to the right of the bar.
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.
A unit that is equal to 1/100th of a percentage point.
An investor who believes that prices/the market will decline.
A market distinguished by a prolonged period of declining prices accompanied with widespread pessimism.
The price that a buyer is prepared to purchase at; the price offered for a currency.
Dealer phrase referring to the first few digits of an exchange rate. (These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity. For example, a USD/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits i.e., "30/35".)
Bonds are tradable instruments (debt securities) which are issued by a borrower to raise capital. They pay either fixed or floating interest, known as the coupon. As interest rates fall, bond prices rise and vice versa.
Bretton Woods Agreement of 1944
An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US$35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.
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.
Bundesbank, Central Bank of Germany.
An investor who believes that prices/the market will rise.
Trader jargon for the British pound sterling referring to the sterling/US dollar exchange rate (term began due to the fact that the rate was originally transmitted via a transatlantic cable starting in the mid-1800s).
A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
Markets for medium to long-term investment, usually over one year. (These tradable instruments are more international than the ‘money market’, i.e., Government Bonds and Eurobonds.)
A government or quasi-governmental organization that manages a country’s monetary policy and prints a nation’s currency. (For example, the US central bank is the Federal Reserve, others include the ECB, BOE, BOJ.)
An individual who uses charts and graphs and interprets historical data to find trends and predict future movements, also referred to as Technical Trader.
The process of settling a trade.
Exposures in Foreign Currencies that no longer exist. (The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will 'square' the position.)
A transaction fee charged by a broker.
A document exchanged by counterparts to a transaction that confirms the terms of said transaction.
The standard unit of trading.
The participant, either a bank or customer, with whom the financial transaction is made.
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.)
Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
The two currencies that make up a foreign exchange rate (For Example, EUR/USD).
The risk of incurring losses resulting from an adverse change in exchange rates.
Opening and closing the same position or positions within the same trading session.
An individual or firm that acts as a principal or counterpart to a transaction. The principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
A negative balance of trade or payments.
An actual delivery where both sides transfer possession of the currencies traded.
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.
A decline in the value of a currency due to market forces.
A contract that changes in value in relation to the price movements of a related or underlying security, future, or other physical instrument. An Option is the most common derivative instrument.
The deliberate downward adjustment of a currency's price, normally by official announcement.
ECB - European Central Bank
The Central Bank for the European Monetary Union.
A statistic that indicates current economic growth and stability issued by the government or a non-government institution; i.e., Gross Domestic Product (GDP), Employment Rates, Trade Deficits, Industrial Production, and Business Inventories.
EMU - European Monetary Union
The principal goal of the EMU was to establish a single European currency called the euro, which would officially replace the national currencies of the member EU countries in 2002. On January 1, 1999, the transitional phase to introduce the euro began. The euro now exists as a banking currency, and paper financial transactions and foreign exchanges are made in euros. The transitional period lasted for three years, at which time euro notes and coins entered circulation. On July 1, 2002, only euros would be the legal tender for EMU participants; the national currencies of the member countries will cease to exist. The current members of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal.
End of Day (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.
The currency of the European Monetary Union (EMU) which replaced the European Currency Unit (ECU).
The date on which a trade occurs.
Fed - Federal Reserve
The Central Bank for the United States.
Fixed Exchange Rate (Representative Rate)
An official exchange rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.
Flat (Square, Balanced)
To be neither long nor short is the same as to be flat or square. One would have a flat book if he/she has no positions or if all the positions cancel each other out.
FOMC - Federal Open Market Committee
The Federal Reserve monetary committee.
Forex - Foreign Exchange
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.
The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.
The pips added to or subtracted from the current exchange rate to calculate a forward price.
FRA - Forward Rate Agreements
FRAs are transactions that allow one to borrow/lend at a stated interest rate over a specific time period in the future.
Front and Back Office
The front office usually comprises of the trading room and other main business activities.
Analysis of economic and political information with the objective of determining future movements in a financial market.
An obligation to exchange a good or instrument at a set price on a future date; the primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contacts - ETC), versus forwards, which are considered Over the Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.
The five leading industrial countries; US, Germany, Japan, France, UK.
The seven leading industrial countries; US, Germany, Japan, France, UK, Canada, Italy.
GDP - Gross Domestic Product
Total value of a country's output, income or expenditure produced within the country's physical borders.
GNP - Gross National Product
GNP - Gross National Product - Gross domestic product plus income earned from investment or work abroad.
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.
A position or combination of positions that reduces the risk of your primary position.
Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.
IMF - International Monetary Fund
The IMF is an international organization of 184 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment, and to provide temporary financial assistance to countries to help ease balance of payments adjustment.
An economic condition where there is an increase in the price of consumer goods, thereby eroding purchasing power.
The initial deposit of collateral required to enter into a position as a guarantee on future performance.
The Foreign Exchange rates at which large international banks quote other large international banks.
Action by a central bank to affect the value of its currency by entering the market (concerted intervention refers to action by a number of central banks to control exchange rates).
IRS - Interest Rate Swaps
An exchange of two debt obligations that have different payment streams (the transaction usually exchanges two parallel loans; one fixed the other floating).
The New Zealand dollar is the currency of New Zealand, informally known as the “kiwi”.
Economic variables that are considered to predict future economic activity (i.e., Unemployment, Consumer Price Index, Producer Price Index, Retail Sales, Personal Income, Prime Rate, Discount Rate, and Federal Funds Rate).
The ratio of the amount used in a transaction to the required security deposit (also referred to as margin).
Libor - London InterBank Offered Rate
The London Inter-Bank Offered Rate. Large international banks use LIBOR when borrowing from another bank.
An order with restrictions on the maximum price to be paid or the minimum price to be received (as an example, if the current price of USD/YEN is 117.00/05, then a limit order to buy USD would be at a price below 102, i.e., 116.50).
The closing of an existing position through the execution of an offsetting transaction.
The ability of a market to accept large transactions with minimal to no impact on price stability.
A position to purchase more of an instrument than is sold; hence, an appreciation in value if market prices increase.
A position that appreciates in value if market prices increase (when the base currency in the pair is bought, the position is said to be long).
The Canadian 1 dollar coin (often referred to as the Loonie) is a gold-coloured, bronze-plated, one-dollar coin.
A unit to measure the amount of the deal (the value of the deal always corresponds to an integer number of lots).
The required equity that an investor must deposit to collateralize a position.
A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.
An order to buy/sell at the best price available when the order reaches the market.
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.
Money supply figures, specifically M1, once were the most important release to watch in the Treasury market, as the Fed directly targeted M1 growth in the early 1980s. The focus on money supply has long since been abandoned, however. To the extent that money supply is still monitored by the market, M2 is the favoured monetary aggregate. The Fed still targets both M2 and M3 in a rhetorical sense, but these targets mean little when it comes to policy decisions. If the Fed misses its target, it is more likely to change the target than it is to change policy. In 2000, the Fed finally abandoned the targets altogether, thereby removing any remaining emphasis on this one-time star release.
MPC - Monetary Policy Committee
A committee of the central bank that is responsible for the monetary policy decisions.
OCO - One Cancels the Other
A contingent order where the execution of one part of the order automatically cancels the other part.
An order that will be executed when a market moves to its designated price; normally associated with Good-Till-Cancelled Orders.
An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.
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.)
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.
A trade that remains open until the next business day.
The term used in currency market to represent the smallest incremental move an exchange rate can make. (Depending on context, normally one basis point, i.e., 0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY.)
A position is a trading view expressed by buying or selling. It can refer to the amount of a currency either owned or owed by an investor.
In the currency markets, it is the amount of points added to the spot price to determine a forward or futures price.
The actual "realized" gain or loss resulting from trading activities on Closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.
An indicative market price; shows the highest bid and/or lowest ask price available on a security at any given time.
A recovery in price after a period of decline.
The difference between the highest and lowest price of a future recorded during a given trading session.
The price of one currency in terms of another.
Repo - Re-purchase
This type of trade involves the sale and later re-purchase of an instrument, at a specified time and date, and occurs in the short-term money market.
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.
To hedge one's risk one will employ financial analysis and trading techniques.
Process whereby the settlement of a deal is rolled forward to another value date (the cost of this process is based on the interest rate differential of the two currencies).
The process of exchanging the consideration for financial instruments once a transaction has been executed. (The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.)
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.
An investment position that benefits from a decline in market price (when the base currency in the pair is sold, the position is said to be short).
A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck.
The current market price (settlement of spot transactions usually occurs within two business days).
The difference between the bid and offer (ask) prices; used to measure market liquidity (Narrower spreads usually signify high liquidity).
Stop Loss 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).
A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself (opposite of resistance).
A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.
An effort to forecast prices by analyzing market data, e.g., historical price trends and averages, volumes, open interest, etc.
A minimum change in price, up or down.
Tomorrow Next (Tom/Next)
Simultaneous buying and selling of a currency for delivery the following day.
Two Way Price
Both the bid and ask rate is quoted for a Forex transaction.
US Prime Rate
The interest rate at which US banks will lend to their prime corporate customers.
The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward (also known as maturity date).
A statistical measure of a market or a security's price movements over time, calculated by using standard deviation (associated with high volatility is a high degree of risk).
The number, or value, of securities traded during a specific period.