Aggregate: This can be seen as the risk total amount of exposure that a bank shares with the customer for both spot as well as forward contracts.
Aggressor: This is the term used for a trader who deals on an existing price in the market.
American Option: This refers to an option that can be exercised at any valid business date.
Appreciation: This term refers to a currency that strengthens according to market demand rather than by official action.
Arbitrage: This is the type of trading which is risk free because under this kind of trading the same instrument is bought and sold concurrently in two different markets and profit is made through the difference of price of the instrument in these markets.
Around: This term is used to quote ahead a premium or a discount.
Ask Price: This price is the lowest price that a buyer is ready to accept.
Asset: In the Foreign Exchange market, asset can be understood as the right to obtain an amount of currency from counterparty. This amount can be received in two ways- either in the form of a balance sheet asset (e.g. a loan) or on a specific future date in the form of an unmatched spot or forward deal.
Asset Allocation: In order to manage risks in the Foreign exchange market or to get returns that are consistent with the investor's goals, an investment practice known as Asset Allocation is undertaken. Under this practice, funds are divided amongst different markets.
At Best: This refers to the instruction that is given to the dealer so that he can sell or buy at the best rate that is available in the market.
At or Better: This is the instruction given in the foreign exchange market to deal at a certain rate or better.
At Par Forward Spread: This term is used when the forward price becomes equivalent to the spot price.
At- The- Money: At-the-Money is an option in which the exercise or strike price is equal to or almost the same as the current market price of the fundamental instrument.
Auction: In general, auction refers to the sale of an item to the person who bids the highest. In the context of foreign exchange market, Auction can be interpreted in two ways. First, it is the method that is commonly used in exchange control so that the allocation of foreign exchange can be done properly. Second, it is also a method through which government papers like US treasury bills are allocated. Small investors are preferred to access the bills. After this the average issuing price is computed on the basis of the competitive bids that are accepted.
Average Rate Option: Sometimes known as an Asian Option, Average Rate Option generally refers to a contract where the difference between the strike price and the average spot rate over the contract period decide the exercise price.
Back Office: Bank Office refers to settlement and other processes that are related to it.
Back to Back: In the context if the foreign exchange market, back to back can be interpreted in two ways. First, it can be seen as a transaction in which all the liabilities and obligations of one transaction are mirrored in the second transaction. Second, it can also be seen as a transaction in which the loan is made in the currency of one country against a loan in another currency and another
Balance Of Payments: This can be described as the systematic record of the economic transactions for a country during a certain period of time. It can also be described as the total of trade balance, current balance, capital account and invisible balance.
Balance of Trades: When you deduct the imports from the exports, the value that you obtain is known as Balance of Trades. While doing so, invisible factors are generally excluded. Figures are normally quoted on FoB/ FaS, customs cleared or FoB export.
Band: Band is a system used in ERM which is described as the range in which a currency is permitted to move.
Bank Line: Bank line can also be referred to as line. It is the line of credit that a bank grants to a customer.
Bank Notes: Bank notes can be generally referred to as papers that are issued by either the central or issuing bank. These notes can be seen as legal tenders that are not generally accepted as the part of the FX market. However, in some countries, these notes can be converted into FX. It is then that they are normally priced at a premium to the current spot rate for a currency.
Bank Rate: This is the rate at which the central bank lends money to a domestic banking system.
Base Currency: The currency at which the operating results of the institution or bank are reported is known as Base currency.
Base Rate: This is a term that is primarily used in UK to refer to the rate that the banks use to calculate the interest rates of borrowers.
Basis: Basis can be defined as the difference between the cash price and the future prices.
Basis Convergence: The process in which, as the contract expiry approaches, the basis move towards zero.
Basis Point: Basis point is the one per cent of one per cent.
Basis Price: Basis price is described as the price that is expressed in terms of yield maturity or annual rate of return.
Basis Trading: This is when you take opposite positions in the cash and futures market so that you can profit from the favorable movements in the basis.
Basket: Sometimes known as the unit of account, basket refers to a group of currencies that are used to manage the exchange rate of a currency.
Bear: Bear is a person who asserts that the prices will decline.
Bear Market: Bear market is actually the opposite of Bull market. It can be described as the type of market in which the prices decline sharply against a background of widespread pessimism.
Bid Price: Bid price is the highest price that the seller offers for a particular currency. It is the difference between the ask and bid prices that is known as the spread. And, the total of the two prices is known as the quotation.
Big Figure: This refers to the first three digits of the exchange rate that the dealers use in quoting.
Bilateral Clearing: The system of Bilateral Clearing is normally used when the foreign currency is limited.
Binary Options: In finance, a binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. Thus, the options are binary in nature because there are only two possible outcomes. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and Fixed Return Options (FROs) (on the American Stock Exchange).
Black Scholes Model: Fisher Black and Myron Scholes derived this option pricing formula keeping in mind the security options and options for future. This formula is widely used in the currency market.
Book: In the context of the Foreign Exchange market, a Book is the summary of a trader's or desk's total positions.
Booked: Booked is when you record a transaction outside the country where it was actually negotiated.
Boris: Boris is a slang used for Russian trading.
Break Even Point: this is the point in trading when the option buyer makes neither a gain nor a loss. This can be described as the total of exercise price and premium.
Break Out: Break out refers to a reversal in the options market so that the options buyer's original position is restored.
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.
Broker: An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries
Brokerage: This refers to the commission charged by the broker.
BUBA: This is the term used for the reserve bank of Germany.
Bull: Bull is the person who believes that the prices will rise.
Bull Market: It is the market in which prices remarkably rise.
Bulldogs: These are the sterling bonds that are issued in the UK by foreign institutions.
Bundesbank: This is the central bank of Germany.
Buy Limit Order: It is an order given to carry on a transaction at a specified price or lower.
Buy on Margin: The procedure of purchasing a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.
Cable: This is the term used in the Foreign Exchange market for the US dollar or the British pound rate.
Cable Transfer: Similar to the inter bank electronic fund transfer; cable transfer is the telegraphic transfer of funds from one centre to the other.
Call: A choice that provides the holder the right to purchase the fundamental instrument at a particular value during a fixed period.
Call Option: A call option grants the right but not the compulsion to purchase stock, shares or futures at a specific price.
Candlestick chart: This refers to a chart that displays the daily trading price range.
Capital Account: This refers to the combination of the short term and long term capital imports and exports of a country.
Carry: The interest cost that is held on financial securities and financial instruments is known as carry.
Carry-Over Charge: This basically refers to the finance charge that is linked with the storing of commodities from one date of delivery to another.
Cash: In the context of the foreign exchange market, cash usually describes an exchange transaction that is contracted for settlement on the very same day the deal is struck. What is important to note is that this term is normally used in the North American markets.
Cash and Carry: This refers to purchasing of an asset one day and then selling a future contract on that asset later.
Cash Settlement: This is a process through which futures contracts are settled. In these contracts, the difference between the future and market price is paid rather than physical delivery.
CBOE: The full form of CBOE is Chicago Board Options Exchange.
CBOT or CBT: The full form of CBOT/CBT is Chicago Board of Trade.
CD: This refers to the Certificate Of Deposit.
Central Bank: A central bank provides financial and banking services for a country's government and commercial banks. It implements the government's monetary policy, as well, by changing interest rates. Reserve Bank of India is the central bank of India which performs the role of maintaining orderly conditions in the forex market by intervention through various instruments like cash reserve ratio, bank rate, open market operations and moralsuation.
Central rate: Central rate is the exchange rates adopted for each currency within the EMS against the ECU. The central rate allows for limited movements of currencies according to the relevant band.
CFTC: Known as the Commodity Futures Trading Commission, CFTC is the US federal regulatory agency that future trades on commodity markets including the financial futures.
CHAPS: Clearing House Automated Payment System.
Chartist: An individual who studies graphs and charts of historic data to find trends and predict trend reversals which include the observance of certain patterns and characteristics of the charts to derive resistance levels, head and shoulders patterns, and double bottom or double top patterns which are thought to indicate trend reversals.
CHIPS: Known as the Clearing House Interbank Payment System, this is the settler of most of the Euro transactions.
CIBOR: Copenhagen Interbank Rate, the rate at which the banks lend the Danish Krone on an unsecured basis. The rate is calculated daily by the Danmarks Nationalbank (the Danish Central Bank), based on rules set out by the Danish Banker's Association.
Clearing: This is the procedure through which trades are settled.
Closed position: This is a transaction that leaves zero net commitment to the market on a trade.
Closing market rate: The rate at which a position can be closed based on the market price at end of the day is known as Closing Market Rate.
Closing Purchase Transaction: The purchase of an option matching to one already sold to liquidate a position is known as Closing Purchase Transaction.
CME: Chicago Mercantile Exchange Cock Dates
Coincident Indicator: An economic indicator that generally moves in line with the general business cycle such as industrial production.
Comex: Commodity Exchange of New York
Commission: when the clients deal on the behalf of the broker, the broker charges a fee from them which is known as Commission.
Commodity: A commodity is some good for which there demand is, but which is supplied without qualitative differentiation across a market.
Compound Option: This is an option on an option.
Contract: This is an agreement to buy or sell a specified amount of a particular currency or option for a specified month in the future
Correspondent Bank: The foreign banks representative who regularly performs services for a bank which has no branch in the relevant centre, e.g. to facilitate the transfer of funds. In the US this often occurs domestically due to interstate banking restrictions.
Cost of Living Index: This is equal to Retail Price Index or Consumer Price.
CPI: Consumer Price Index
CPSS: Committee on Payment and Settlement Systems.
Crawling Peg: This is an exchange rate system in which the exchange rate of a country is fixed in relation to another country.
Cross Rate: This is an exchange rate between two currencies.
Cross Trade: A cross-trade transaction is a transaction where both the buy broker and the sell broker are the same, or the buy broker and the sell broker belong to the same firm.
Currency: This can be defined as the type of money a country uses.
Currency Pair: a pair of two currencies that make up a foreign exchange rate.
Current Balance: The value of all exports (goods plus services) less all imports of a country over a specific period of time, equal to the sum of trade and invisible balances plus net receipt of interest, profits and dividends from abroad.
Cycle: This is the set of expiration dates applicable to different classes of options.
Day Order: It is a specific day order which if not executed on the very day will stand cancelled.
Day Trading: In a Day Trading deal currency is exchanged which is renewed every night at 22:00 (GMT time) automatically from the day the deal was made and till it ends. In case of following events the deal ends:
If you initiate termination.
Day trading rate reaches the Stop-Loss rate that was predefined by you.
The deal has reached its end date.
A renewal fee is charged every night at 22:00 (GMT time) as long as deal is open.
Deal Date: It's the date when the transaction is agreed upon.
Deal Ticket: It is primary method used to record the basic information to a transaction.
Dealer: When an individual or a firm acts as a principal rather than an agent, in the purchase and/or sale of securities it is called a dealer. In contrast to the brokers who do trade only on behalf of their clients the dealers trade for their own account and risks.
Declaration Date: For the buyer of a given option it is the last day or time to tell the seller about his willingness or unwillingness to exercise that option.
Delivery: Settling a transaction by receipt or tender of a financial instrument or currency.
Delivery Date: It is the date of maturity of the contract, by exchanging the currencies when the final settlement of transaction is made. It is commonly known as the value date.
Delivery Risk: This is the term used to describe a counterparty which will not be able to complete his side of the deal. It is highly risky in case of the counter transactions as there is no exchange which can stand as a guarantee to the trade between the two parties.
Delta: Its is the change in the value of the option premium made fully paid by capitalizing the reserves and given relative to the instantaneous change in the value of the; underlying instrument, expressed as a coefficient.
Delta Hedging: Option writers use a method to hedge risk exposure of written option by purchasing and selling of the underlying instrument in proportion to the delta.
Delta Spread: It is a ration spread of options which are established as a neutral position by using the deltas of the options concerned for determining hedge ratio.
Depo: It is used for the word Deposit.
Depreciation: When the currency value falls due to market forces it is called depreciation.
Derivatives: It is a broad term related to risk management such as futures, options, swaps, etc. The contract value moves in relation to the underlying instrument and currency. There has been much debate on the issues of derivatives and their control following large losses by banks and corporate.
Desk: This term refers to a group dealing with a specific currency or currencies.
Details: All the information such as name, dates, rate and point of delivery required to finalize a foreign exchange transaction.
Devaluation: When a deliberate downward adjustment of a currency takes place against its fixed parties or bands which is normally accompanied by a formal announcement it is called devaluation.
Direct Quotation: When we quote in fixed units of foreign currency against variable amounts of the domestic currency.
Discount: Selling something less than the spot price for example: forward discount.
Discount Rate: It is the rate at which a bill is discounted. It specifically refers to the rate at which a central bank is prepared to discount certain bills as a means of easing the liquidity for a financial institution, and it is more accurately referred as the official discount rate.
Discretionary Account: It is an account where the customer permits a trading institution to act on the customer's behalf in buying and selling of currency pairs. It gives the institution the discretion to choose currency pairs, prices, and timing-subject to any limitations specified in the agreement.
Domestic rates: It is the interest rates applicable to deposits domiciled in the country of origin. Due to taxation and varying market practices the value and values may vary from Euro deposits.
Economic Exposure: It reflects the impact of foreign exchange changes on future competitive position of a company that is the impact it can have on the future cash flows of the company.
Economic Indicator: It is a statistics that indicates current economic growth rates and trends such as retail sales and employment.
ECU- European Currency Unit: It is collection of member currencies. It is a composite unit and consists of all the European Community currencies, which are individually weighted. The European monetary system created it with the eventual goal of replacing the individual European member currencies.
Effective Exchange Rate: It is an attempt to summarize the impact of currency changes against other currencies on a country's trade balance.
EFT: It's full form is Electronic Fund Transfer.
Either Way Market: When both the bid and offer rates for a particular period are the same in the Euro Interbank deposit it is called either way market.
EMS: Its full form is European Monetary System.
EMU: The full form is European Monetary Union.
EOE: European options exchange.
Epsilon: It is the change in the price of an option associated with 1% change in implied volatility( Technically the first derivative of the option price with respect to volatility). It is also called as eta, vega, omega and kappa.
ERM: Exchange Rate mechanism.
ETF: An investment fund traded on stock exchanges, much like stocks is an exchange- traded fund. ETF holds assets like stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. They mostly track an index, such as the S&P 500 or MSCI Eafe. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features.
Euro: It is the common currency adopted by eleven European nations (Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal) on January 1, 1999.
Euro Clear: A settlement and depository system that is computerized for safe custody, delivery of, and payment for Eurobonds.
European union: The European Community group is formally known as European Union.
Exchange Rate Risk: Due to adverse movement in exchange rates the potential loss that can be incurred is called Exchange Rate Risk.
Execution: It is the process by which one completes an order or a deal.
Exercise Price( Strike Price): It is the price at which an option can be exercised.
Exotic: It is currency which is less broadly traded.
Expiration Date: (1) Options- the date after which the option can no longer be exercised.
(2) Bonds- The date on which the bond matures.
Expiration Month: The month in which the option expires.
Expiry Date: It is the date on which the option can be last brought or sold.
Expiry Date: The date on which the holder of an option can last buy or sell the underlying security.
Exposure: It is the total amount of money loaned to either a borrower or a country. There are rules set up by the bank to prevent overexposure to any single borrower.
It is the potential for running a profit or loss from fluctuations in market prices in trading operations.
Fast Market: When there is a strong interest by buyers and /or sellers it causes a rapid movement in a market. In such a situation price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported.
Fed: The United States Federal Reserve. For Federal Reserves members Federal Deposit Insurance Corporation Membership is compulsory. It has a deep involvement in the savings and loan crisis of the late 80's.
Fed Fund Rate : It is the interest rate on Fed funds. It is a closely watched short term interest rate as it signals the Feds view as to the state of the money supply.
Fed Funds: These are the cash balances held by the banks with their local Federal Reserve Bank. The inter bank sale of a Fed fund deposit for one business day is the normal transaction with these funds. And where funds are traded overnight on unsecured basis it is called a straight deal.
FEDAI: Foreign Exchange Dealers Association of India is an association of all dealers in foreign exchange setting the ground for rules for fixation of commissions and other charges and also the rules and regulations relating to day to day transactions in foreign exchange in India are determined. It has commonly recognised 38 currencies for dealing.
Federal Deposit Insurance corporation (FDIC): It is the regulatory agency responsible for administering bank depository insurance in the United States.
Federal National Mortgage Association: A corporation that trades in residential mortgages owned privately but US sponsored. Its activities are funded by the sale of instruments commonly known as Fannie Maes.
Federal Reserve Board: It is appointed by the US president for 14 year term one of whom is appointed for four years as chairman. This system is called the federal reserve system.
Federal Reserve system: It is the central banking system of the US comprising of 12 Federal Reserve Banks controlling 12 districts under the federal reserve board. Its membership is compulsory for the banks chartered by the comptroller of currency and optional for state chartered banks.
Fill: It is a process of completing a customer's order to buy or sell a currency pair.
Financial Risk: It is considered to be the risk that a firm will be unable to meet its financial obligations.
Fiscal Policy: It uses taxation as a tool to implement monetary policy.
Fixed Exchange Rate: These are the official rates set by the monetary authorities for one or more currencies. Even fixed exchange rate in practice are allowed to fluctuate between definite upper and lower bands, Leading to intervention by the central bank.
Fixing: It is a method by which rates are determined by normally finding a rate that balances buyers to sellers. Such a process happens either once or twice daily at defined times. It is also used in the London Bullion market.
Flat/ Square: When an earlier deal is reversed hence creating a neutral position or a client has not traded in that currency it is called a flat/ square.
Float: (1) see Floating exchange rate.
(2) Cash in hand or in the course of being transferred between banks
(3) Federal Reserve Float arises from the system where cheques sent to the Federal Reserve Banks are credited sometimes in advance of the depositing bank loosing the reserve.
Floating Exchange Rate: When the value of a currency is decided by the market forces dictating the demand and supply of that particular currency.
Floor: (1) It is an agreement with a counterparty that sets a lower limit to interest rates for the floor buyer for a stated time.
(2) It is a term for an exchanges trading area (cf. screen based trading), normally the trading area is referred to as a pit in the commodities and futures markets.
FOMC: Federal Open Market Committee, it is the committee that sets money supply targets in the US which tend to be implemented through Fed Fund interest rates etc.
Foreign Exchange: The purchase or sale of a currency against sale or purchase of another is called foreign exchange.
Foreign Position: It means a position under which one party hereto agrees to purchase from or sell to the other party hereto an agreed amount of foreign currency.
Forex: An abbreviation of foreign exchange.
G10: This is a group that includes G7 plus Belgium, Netherlands and Sweden that is associated with IMF discussions. Switzerland is sometimes involved.
G5: It is a group of five leading industrial countries that is US, Germany, japan, France, UK.
G7: It is the group of seven leading industrial companies that is US, Japan, Germany, France, UK, Canada, Italy.
Gamma: The rate at which a delta changes over time or for one unit change in the price of the underlying asset.
GNP Deflator: It removes inflation from the GNP figure. It is usually expressed as a percentage and based on an index figure.
GNP Gap: It is th difference between the actual real GNP and the Potential real GNP. Negative gap shows economy is overheated.
Gold Standard: It is the original system for supporting the value of currency system. It was in vogue before 1973 when fixed exchange rate was prevalent.
Gross Domestic Product: It is the total value of a country's output, income or expenditure within its physical borders.
Gross National Product: It is gross domestic product plus" factor income from abroad"- income earned from investment or work abroad.
GTC- Good Till Cancelled: It is an order which is left with the dealer to buy or sell at a fixed price. The order remains in place until it is cancelled by the client.
Hard commodity: These are materials such as metals, chemicals, and oil that are traded in the commodities market.
Hard Currency: It a currency whose value is expected to remain stable or increase in terms of other currencies.
Head and Shoulders: It is pattern which chartist consider indicates a price trend reversal in price trends. The price has risen for some time at the peak of left shoulder, as profit taking has caused the price to drop or level. The price then rises steeply agin to the head before more profit taking causes the price to drop to around the same level as the shoulder. A further modest rise or level will indicate further major fall in imminent. The breach of the neckline is the indication to sell.
Hedge: A temporary substitute for a transaction to be made at a later date by the purchase or sale of options or future contracts . It involves opposite positions in the cash or futures or options market.
Hedging: The main aim is to protect an asset or liability a fluctuation in the foreign exchange rate rather that profit from the exchange rate fluctuation.
Hyperinflation: These are very high and self sustaining inflation levels. It is the period while inflation exceeds 50% until it has drops below that level for 12 months.
ICCH: International Commodities Clearing House Limited
IFEMA: International Foreign Exchange Master Agreement.
IMF: International Monetary Fund.
IMM: International Monetary Market.
Inflation: Continued rise in the general price level in conjunction with a related drop in purchasing
power is known as inflation.
IOM: Index and Options Market
IPI: Industrial Production Index.
ISDA: International Securities Dealers Association.
J Curve: It describes the expected effects of devaluation on a country's trade balance. It is anticipated that the import bills rise before export orders and receipts increase.
Jobber: This is a term used for a trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.
Kiwi: It is slang from the New Zealand dollar.
Knock In: It is a process through which a barrier option (European) becomes active as the underlying spot price is in the money.
Knock Out: Even though the option may permanently cease to exist it may have a corresponding meaning.
Lay Off: This is to carry out a transaction in the market to offset a previous transaction and return to a square position.
LDC: Less developed countries, much used with respect to secondary debt market.
Leading Indicators: They consider that statistics precede changes in economic growth rates and total business activity, e.g. factory orders.
Leads and Lags: It is an effect on foreign trade payments of an anticipated move in the exchange rate, normally devaluation. The importers speeded up the payment for the imports and exporters delay receiving payment for the exports.
Liability: It is the obligation to deliver to counterparty an amount of currency either in respect of a balance sheet holding at a specified future date or in respect of an un-matured forward or spot transaction in terms of foreign exchange.
MO: Only used by the UK, MO means cash in circulation.
M1: Cash in circulation plus demand deposits at commercial banks.
M2: Includes demand deposits time deposits and money market mutual funds excluding large CDs.
M3: In the UK it is M1 plus public and private sector time deposits and sight deposits held by the public sector.
Money Supply: The amount of money in the economy, which can be measured in a number of ways. In India we have four measures of money supply i.e. M1, M2, M3, M4.
Nickel: It is a term used in US to for five basic points.
Nostro Account: It is a foreign currency current account maintained by another bank. It is used to receive and pay currency assets and liabilities denominated in the currency of the country in which the bank is resident.
Net held Basis Order: It is such an order by which the price may trade through or better than the client's desired level, but the principal is not held responsible if order is not executed.
Note: It is a financial instrument that consists of a promise to pay rather than an order to pay or certificate of indebtedness
OCO: One cancels the other order
Offer: This is the rate at which the dealer sells the base currency.
Off-Shore: The operations of a financial institution which although physically located in a country, has little connection with that country's financial systems. In certain countries a bank is not permitted to do business in the domestic market but only with other foreign banks. This is known as an off shore banking unit.
Old Lady: This is the term used for Bank of England.
Option Series: This is when all options of the same class have the same exercise price and expiration date.
Order: This is the instructions of the customer to buy or sell currencies.
Overnight Limit: Net long or short position in one or more currencies that a dealer can carry over into the next dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces the need for dealers to maintain these unmonitored exposures.
Overnight Position: at the end of the trading day, the long or short position of the trader in the currency is known as Overnight Position.
Package Deal: When a number of exchange and /or deposit orders have to be fulfilled simultaneously it is called a package deal.
Par: (1) It is the nominal value of a security or instrument.
(2) It is the official value of a currency.
Parities: It is the value of a currency in terms of another currency.
Parity: (1) It is a foreign exchange dealer's slang for your price is the correct market price.
(2) It is also the official rates in terms of SDR or other pegging currency.
Permitted currency: It refers to a foreign currency which is freely convertible i.e. a currency which is permitted by the rules and regulations of the country concerned to be converted into major reserve currencies and for which a fairly active and liquid market exists for dealing against the major currencies.
Pip: It refers to the See point. (0.0001 of a unit).
Point: (1) It refers to 100th part of a per cent, normally 10,000 of any spot rate. Movement of exchange rates usually in terms of points.
(2) One percent on an interest rate e.g. from 8-9%.
(3) The Minimum fluctuation or smallest increment of price movement.
Political Risk: These are the potential losses arising from a change in government policy or due to the risk of expropriation (nationalization by the government).
Position: The netted total exposure in a given currency. A position can be either flat or square (no exposure), long, (more currency bought than sold), or short ( more currency sold than bought).
PPI: Producer Price Indices. See wholesale price indices.
Premium: It is the amount by which a forward rate exceeds a spot rate.
(2) The amount by which the market price of a bond exceeds its par value.
(3) Options, the price a put or call buyer must pay to a put or call seller for an option contract.
(4) The margin paid above the normal price level.
Price Transparency: It is the ability of all market participants to "see" or deal at the same price.
Prime Rate: (1)It is the rate at which banks calculate lending rates in the US.
(2) The rate of discount of prime banks bills in UK.
Principal: It refers to a dealer who buys or sells stock for his/her own account.
Profit Taking: It is the unwinding of a position to realize profits.
Purchasing Power parity: It is a model of exchange rate determination stating that the price of a good in one country should equal the price of the same good in another country after adjusting for the changes in the price due to the change in exchange rate. And is also known as the law of one price.
Put Call Parity: It is the equilibrium relationship between premiums of call and put options
Put Option: A put option does not confers the obligation but not the right to sell currencies, instruments or futures at the within a predetermined time period at the option exercise time.
Range-The difference between the highest and lowest price of a future recorded during a given trading session.
Rate: The price of one currency in terms of another. It has the same meaning as the term parities.
Recession: It is defined as a decline in business activity. Often defined as two consecutive quarters with a real fall in GNP.
Reserve currency: It is a currency held by a central bank on a permanent basis as a store of international liquidity, these are normally Dollar, Deutschemark, and sterling.
Reserves: These are the funds held against future contingencies, normally a combination of convertible foreign currency, gold, and SDRs. Official reserves are to ensure that a government can meet near term obligations. They are an asset in the balance of payments.
Resistance: It is a price level at which the selling is expected to take place.
Resistance: It is the Price level at which technical analysts note persistent selling of a currency.
Retail Price Index: The measurement of the monthly change in the average level of prices at retail, normally of a defined group of goods.
Reuter Dealing: It is a system for screen based trading that has been in operation since the early 1980s now has a matching optional enhancement known as Dealing 2000-2.
Revaluation: It is the increase in the exchange rate of a currency as a result of official action.
Risk Management: It is the identification and acceptance or offsetting of the risks threatening the profitability or existence of an organization. With respect to foreign exchange involves among others consideration of market, sovereign, country, transfer, delivery, credit, and counterparty risk.
Risk Premium: The additional sum payable or return to compensate a party for adopting a particular risk is called risk premium.
Risks: With any market there are risks associated with it. It means variance of the returns and the possibility that the actual return might not be in line with the expected returns. The risks associated with trading foreign currencies are: market, exchange, Interest rate, yield curve, volatility, liquidity, forced sale, counter party, credit, and country risk.
Rolling Over: It is the substituting of a far option for a near option of the same underlying stock at the same strike/exercise price.
Rollover: It is where the settlement of a deal is carried forward to another value date based on the interest rate differential of the two currencies example: next day.
Selling Rate: This is the rate at which a bank is willing to sell foreign currency.
Selling Short: A situation where a currency has been sold with the intent of buying back the position at a lower price to make a profit is known as Selling Short.
Settlement Date: It means the business day specified for delivery of the currencies bought and sold under a forex contract.
Soft Market: Soft market is when there are more potential sellers than buyers.
Stagflation: Recession or low growth in conjunction with high inflation rates.
Sterling: This refers to British Pound which is also known as cable.
Stop Loss Order: Order given to ensure that, should a currency weaken by a certain percentage, a short position will be covered even though this involves taking a loss. Realize profit orders are less common.
Swift: Society for Worldwide Inter-bank Financial Telecommunication. This is a clearing system for international trading.
Swiffy: This is the market slang for Swiss Franc.
Take Profit Order: These are the customer's instructions to 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 said position.
T-Bill: Treasury Bill.
Technical Analysis: It refers to the study of the price that reflects the supply and demand factors of a currency. Common methods are flags, trend-lines spikes, bottoms, tops, pennants, patterns and gaps.
Technical Correction: It is an adjustment made to price not based on market sentiment but technical factors such as volume and charting.
Terms of Trade: It is defined as the ratio between export and import price indices.
Theta: A measure of the sensitivity of the price of an option to a change in its time to expiry.
Thin Market: It is a market in which trading volume is low and in which consequently bid and ask quotes are wide and the liquidity of the instrument traded is low.
TIBOR: Tokyo Inter-bank Offered Rate.
Tick: It is a minimum change in price, up or down.
TIFFE: Tokyo International Financial Futures Exchange
Tomorrow Next (Tom next): Simultaneous buying and selling of a currency for delivery the following day and selling for the next day or vice versa.
Trade Date: The date on which a trade occurs.
Tranche: It is a portion of, specifically used for borrowings from the IMF.
Transaction: It is the process of buying or selling of securities resulting from the execution of an order.
Transaction Date: It refers to the date on which a trade occurs.
Transaction Exposure: It is the potential profit and loss generated by current foreign exchange transactions.
Turnover: It is the total volume of all executed transactions in a given time period.
Two Way Price: It is a quote used in the foreign exchange market that indicates a bid and an offer.
Under-Valuation: Exchange rate is normally considered to be undervalued when it is below its purchasing power parity.
Uptick: It is a new price quote which is higher than the preceding quote.
US Prime Rate: It is the interest rate at which US banks will lend to their prime corporate customers.
Value Date: It is the date on which two contracting parties exchange the currencies which are being bought or sold.
Value Spot: It is normally the settlement for two working days from the date the contract is entered into. It is also referred to as "cash transaction".
Vanilla: It is simple options whose terms and conditions do not include any provision other than exercise style, expiry and strike. If compared with exotic options which have additional term.
Variation Margin: These are funds that are required to be deposited by the client when a price movement has caused funds to fall below the stipulated percentage of the value of the contract.
Vega: It expresses the price change of an option for a one percent change in the implied volatility.
Velocity Of Money: It is the speed with which money circulates or turnover in the economy. It is calculated as the annual national income: average money stock in the period.
Volatility: It is the measure of the amount by which an asset price is expected to fluctuate over a given period. It is normally measured by the annual standard deviation of daily price changes (historic). It can be implied from futures pricing, implied volatility.
Vostro Account: It is a local currency account maintained with a bank by another bank. The term is normally applied to the counterparty's account from which funds may be paid into or withdrawn, as a result of a transaction.
Whipsaw: It is slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Wholesale Money: It is the money borrowed in large amounts from banks and institutions rather than from small investors.
Wholesale Price Index: It measures changes in prices in the manufacturing and distribution sector of the economy and tends to lead the consumer price index by 60 to 90 days. The index is often quoted separately for food and industrial products.
Working Day: A day on which the banks in a currency's principal financial centre are open for business.
World Bank: It is a bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available.
Writer: Writer is the seller of a position and is also known as the grantor of the trade.
Yard: It is a slang word which is used in the currency industry meaning 'billion'.
Yield Curve: It is a graph showing changes in yield on instruments depending on time to maturity. A positive sloping curve has lower interest rates at the shorter maturities and higher at the longer maturities and a negative sloping curve has higher interest rates at the shorter maturities.
Z-Certificate: It is a certificate issued by the Bank of England to "discount houses" in lieu of getting stock certificates to facilitate their dealing in the short dated gilt edge securities.
Zero Coupon Bond: It is a bond that pays no interest that is the bond is initially offered at a discount to its redemption value.
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