The distribution of premiums and discounts on forward exchange transactions that relate to deposit swap deals, over the period of each deal.
Is normally an official action to either change the internal economic policies to correct a payment imbalance or the official currency rate.
American options allow the trader to exercise the option at any time up to and including its end-date. This allows a trader more freedom than a European option, which may only be exercised on the end-date of the contract.
The growth of value in any financial instrument.
The purchase or sale of an instrument and the simultaneous taking of an equal and opposite position in a related market, in order to take advantage of a price differential of the instrument between markets.
Ascending Trend Channel
An ascending line that connects the bottoms of the down waves and is parallel to a trend-line.
The quoted price at which a customer can buy a currency pair. Also referred to as the ‘offer,’ ‘ask price,’ or ‘ask rate.’
Either a positive balance or in the context of foreign exchange the right to receive a specific currency from a counterparty (broker) as brought about from an outstanding forward or spot deal.
Dividing funds amongst different instruments in order to reduce risk.
An instruction given to a dealer to buy or sell at the best rate that can be obtained.
At or Better
An order to deal or buy or sell at a specific rate or better.
Slang for the Australian Dollar.
A financial institution that is authorized to deal in foreign exchange.
A financial institutions area that is responsible for settlement, administration and reporting.
Is a test of the performance of a trading strategy based on historical data prior to applying the strategy to live data.
Balance of Payments
A systematic record of the economic transactions during a given period for a country.
Or Trading Band, is the range in which a currency is permitted to move against another, according to restrictions imposed on the currency by the local Government.
Line of credit granted by a bank to a customer, also known as a "line" or "credit line".
The rate at which a central bank is prepared to lend money to its domestic banking system.
For foreign exchange the base currency refers to the first currency in a currency pair. For example, in a EUR/USD currency pair, the EUR is the base currency.
The difference between the cash price and futures price.
The last decimal point shown for trading. In most currency pairs this is equivalent to 1/10,000. The most popular exception to the rule is USD/JPY where the basis point is 1/100.
Taking opposite positions in the cash and futures market with the anticipation of profiting from favorable movements in the basis.
A group of currencies normally used to manage the exchange rate of a currency, usually each currency in the basket is weighted to form the exchange rate.
An investor who believes that prices or the market are going to fall.
A prolonged period of generally falling prices.
The quoted price where a customer can sell a currency pair. This is also known as the "bid price" or "bid rate."
The difference in pips between the “bid” and the “ask” (offer) price.
A technical indicator that allows users to compare volatility and relative price levels over a period of time. It consists of three bands designed to encompass the majority of a security’s price action. Prices will often meet resistance at the upper band and support at the lower band.
Often referred to as an agent, brings buyers and sellers together for a commission paid by the initiator of the transaction. Brokers do not take market positions.
An investor who believes that prices are going to rise.
A prolonged period of generally rising prices.
The Central Bank of Germany.
The rate at which the market maker is willing to buy the currency. Often called bid rate.
A condition that indicates a good time to buy an instrument. The exact circumstances of the signal will be determined by the indicator that an analyst is using. For example, it is considered a buy signal when the MACD crosses above its signal line.
A term used in the foreign exchange market for the GBP/USD rate.
The overnight inter-bank interest rate.
A form of Japanese charting system that has become popular in the West. A narrow line shows the day’s price range. A wider body marks the area between the open and the close. If the close is above the open, the body is green or blue; if the close is below the open, the body is red.
The risk arising from a bank having to pay to the counter party without knowing whether the other party will or is able to meet its side of the bargain.
Is the strategy of buying high interest currencies against low interest currencies for a long period of time, with the intention of closing the trade at spot at a future date and taking a profit. As long as the higher interest rate currency does not depreciate against the lower interest rate currency by the i/r differential, then a profit will be made.
(Value same day) normally refers to an exchange transaction contracted for settlement on the day the deal is struck. This term is mainly used in the North American markets.
Same day settlement.
The market for the purchase and sale of physical currencies.
A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.
A nation's main regulatory bank. Traditionally, the primary responsibility is development and implementation of monetary policy.
Exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.
The fee that a broker may charge clients for a service or trade that is performed.
A memo sent from the bank or broker to its client describing all the necessary details of the transaction performed.
An agreement to buy or sell a specified amount of a particular currency or option for a specified month in the future (See Futures contract).
The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.
Currency which can be freely exchanged for other currencies or gold without special authorization from the appropriate central 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.
The other organization or party with whom the exchange deal is being transacted.
The risk attached to a borrower by virtue of its location in a particular country. This involves examination of economic, political and geographical factors.
To hedge or close an existing trade.
Risk of loss that may arise on open positions should a counter party default on its obligations.
An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, measured against the USD.
(European) Option contract which gives the right to buy or sell a currency against another currency at a specified exchange rate at a specified period.
The two currencies that make up a foreign exchange rate. For example, EUR/USD is a currency pair.
The risk of incurring losses resulting from an adverse change in exchange rates.
Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.
OTC Option; long-dated (more than one year) currency option.
The net balance of a country’s international payment arising from exports and imports together with unilateral transfers such as aid and migrant remittances, it excludes capital flows.
Speculators who take positions in financial markets which are then liquidated prior to the close of the same trading day.
Refers to opening and closing the same position or positions within one day’s trading.
The date on which a transaction is agreed upon.
The primary method of recording the basic information relating to a transaction.
Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate.
The date of maturity of the contract, when the exchange of the currencies is made; this date is more commonly known as the value date in the FX or Money markets.
A term to describe when a situation when a counter-party will not be able to complete his side of the deal, although willing to do so.
A fall in the value of a currency or any financial instrument.
Term referring to a group dealing with a specific currency or currencies.
All the information required to finalize a foreign exchange transaction, i.e. instrument, rate, dates, and point of delivery.
Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement.
Quoting in fixed units of foreign currency against variable amounts of the domestic currency.
A candlestick formation with a body so small that the open and close prices are equal. A Doji occurs when the open and close for that day are the same, or very close to being the same.
A reversal chart pattern displaying two prominent peaks. The reversal is complete when the support trough is broken. The double bottom is a mirror image of the top.
Modest decline in price.
Exponential Moving Average (EMA)
Statistics which indicate current economic growth rates, trends and health of the local economy such as retail sales and employment.
Electronic Fund Transfer.
Abbreviation for European Monetary System, an agreement between member nations of the European Union to maintain an alignment between the exchange rates of their respective currencies.
An order to buy or sell a foreign currency against another at a specific price. As opposed to a market order, limit orders might not be filled if the market moves away from the specified price.
An instruction to the dealer to buy or sell a currency pair when it trades beyond a specified price. A buy order is at a rate that is higher than the current market rate; a sell order is at a rate that is lower than the current market rate. They serve to either protect a trader’s profits or limit your losses.
A single European currency called the Euro, which officially replaced the national currencies of the member EU countries.
European Style Option
Is an option contract that can be exercised only on the day of expiration.
This is the last day on which an option may either be exercised.
Exponential Moving Average (EMA)
A moving average that gives greater weight to more recent data in an attempt to reduce the lag of (or "smooth") the moving average.
In foreign exchange this relates to a potential for gain or a loss because of a movement in a foreign exchange rate.
Fed Fund Rate
The interest rate where registered banks can borrow from the Fed. This also indicates the Fed's view as to the state of the money supply.
Federal Reserve (Fed)
The Central Bank of the United States.
The Fibonacci number sequence (1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144,...) is constructed by adding the first two numbers to arrive at the third. The ratio of any number to the next number is 61.8 percent, which is a popular Fibonacci retracement number. The inverse of 61.8 percent is 38.2 percent, also used as a Fibonacci retracement number. It is the ratio of the Fibonacci sequence that is important and valuable, not the actual numbers in the sequence.
Fixed Exchange Rate
Official rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower bands, leading to intervention.
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.
Flexible Exchange Rate
Exchange rates with a fixed parity against one or more currencies with frequent revaluations, a form of a managed float.
Federal Open Market Committee, the committee that sets money supply targets in the US which tend to be implemented through Fed Fund interest rates etc.
The purchase or sale of a currency against sale or purchase of another. We trade off-exchange Forex transactions.
Foreign Exchange Swap
Transaction which involves the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed at the time of the conclusion of the contract (short leg), at a date further in the future at a rate agreed at the time of the contract (the long leg), in reality this is a combination of a spot and an opposite forward deal.
A term commonly used when referring to the foreign exchange market.
Groups formed in the major financial centers to encourage educational and social contacts between foreign exchange dealers, under the umbrella of Association Cambiste International (ACI).
A deal trade that is executed today for a period longer then two working days (spot value). The forward rate is made up of the spot rate plus or minus the interest rate differentials between the two currencies over time. The interest rate differentials are often known as a premium or discount.
Discounts or premiums between spot rate and the forward rate for a currency, normally quoted in points (pips).
Total reserves held by a bank less the reserves required by the authority.
The activities carried out by the dealer, normal trading activities.
Thorough analysis of economic and political data with the goal of determining future movements in a financial market.
The macro economic factors that are accepted as forming the foundation for the relative value of a currency, these include inflation, growth, trade balance, government deficit, and interest rates.
A term commonly used when referring to the foreign exchange market or a short for foreign exchange.
The seven leading industrial countries, being made up of the United States, Germany, Japan, France, UK, Canada and Italy.
Made up of ten leading industrialized nations, including the G7 countries plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.
Gaps form when there is no trading in a particular series of rates. In normal market conditions price changes occur with increment movements. When the market is taken by surprise either by a major world event, lack of liquidity, major economic announcement; a gap may appear as the market is attempting to correct its view of the exchange rate immediately.
The original system for supporting the value of currency issued. When this was used the price of gold was fixed against the currency, this meant that any increase in the supply of gold did not lower the price of gold but caused prices to increase.
Fixed margin within which exchange rates are allowed to fluctuate.
Gross Domestic Product
Total value of a country’s output, income or expenditure produced within the country’s physical borders.
Gross National Product
Gross domestic product plus "factor income from abroad" - income earned from investment or work abroad.
"Good Till Cancelled". An order left with a Dealer to buy or sell at a fixed price. The order remains in place until it is cancelled by the client.
Any one of the major world currencies that is well traded and easily converted into other currencies.
Head and Shoulders
A pattern in price trends which chartists consider indicates a price trend reversal. The price has risen for some time, at the peak of the left shoulder; profit taking has caused the price to drop or level. The price then rises steeply again 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 that a further major fall is imminent. The breach of the neckline is the indication to sell.
Head and Shoulders Bottom
Also known as a reverse head and shoulders, a well-known reversal pattern marked by three (or more) prominent troughs with a middle trough (the head) that is lower than the other troughs (the shoulders). When the trend line (neckline) connecting the peaks at the top of the pattern is broken, the pattern is complete.
The purchase or sale of options, spot, forward or futures contracts as a temporary substitute for a transaction to be made at a later date. Usually it involves opposite positions in the cash or futures or options market.
One open buy position and one open sell position in the same currency.
The practice of undertaking one investment activity in order to protect against loss in another, e.g. selling short to nullify a previous purchase, or buying long to offset a previous short sale. While hedges reduce potential losses, they also tend to reduce potential profits.
Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.
If Done Order
(I/D) a conditional order usually based on an existing limit order.
International Monetary Fund, established in 1946 to provide international liquidity on a short and medium term and encourage liberalization of exchange rates. The IMF supports countries with balance of payments problems with the provision of loans.
The interest rate determined by calculating the difference between spot and forward rates.
(CPI) Continued rise in the general price level in conjunction with a related drop in purchasing power. Sometimes referred to as an excessive movement in such price levels.
The required initial deposit of collateral to enter into a position as a guarantee on future performance.
A loose network of currency transactions negotiated between financial institutions and other large companies.
The foreign exchange rates at which large international banks quote other large international banks.
Switching into another currency by buying spot and selling forward, and investing proceeds in order to obtain a higher interest yield. Interest arbitrage can be inward, i.e. from foreign currency into the local one or outward, i.e. from the local currency to the foreign one. Sometimes better results can be obtained by not selling the forward interest amount. In that case some treat it as no longer being a complete arbitrage, as if the exchange rate moved against the arbitrageur, the profit on the transaction may create a loss.
One currency is in interest parity with another when the difference in the interest rates is equalized by the forward exchange margins.
Interest Rate Swap
An agreement to swap interest rate exposures from floating to fixed or vice versa. There is no swap of the principal.
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.
A statistic that is considered to precede changes in economic growth rates and total business activity, e.g. factory orders.
L'utilisation de marge permet de bénéficier d'un plus grand capital pour trader. L'effet de levier est une arme à double tranchant, cela signifie que les pertes et gains peuvent significativement augmenter.
In terms of foreign exchange , the obligation to deliver to a 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.
An order to buy or sell a foreign currency against another at a specific price. AVA guarantees all Limit and Entry Limit Orders at the specified price, not a better price.
Price charts that connect periodical prices of a given market over a span of time that form a curving line on the chart. This type of chart is most useful with overlay or comparison charts that are commonly employed in inter-market analysis.
Any transaction that offsets or closes out a previously established position.
The ability of a market to accept large transactions.
A market position where the client has bought a currency he previously did not hold. Normally expressed in base currency terms.
Slang for the Canadian Dollar.
MACD (Moving Average Convergence/Divergence)
A technical indicator that is calculated by subtracting the 26-period exponential moving average of a given security from its 12-period exponential moving average.
A technical indicator shows a visual representation of the difference between the MACD line and the MACD signal line. The plot of this difference is presented as a histogram, making the centerline crossovers and divergences easily identifiable.
The minimum margin which an investor must keep on deposit in a margin account at all times in respect of each open contract. (See margin).
Make a Market
A dealer is said to make a market when he or she quotes bid and offer prices at which he or she stands ready to buy and sell.
When the monetary authorities intervene regularly in the market to stabilize the rates or to aim the exchange rate in a required direction.
The amount of money or collateral that must be, in the first instance, provided or thereafter, maintained, to ensure against losses on open contracts. Initial must be placed before a trade is entered into.
A trader receives a margin call from a broker when the equity in their margin trading account falls below the level required to cover potential losses.
Mark To Market
The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins.
A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices. A market maker runs a trading book.
An order to buy or sell a security at the prevailing market price.
Mid-Price or Middle Rate
The price half-way between the two prices, or the average of both buying and selling prices offered by the market makers.
A technical indicator measuring a security’s rate-of-change. The ongoing plot forms an oscillator that moves above and below 100. Bullish and bearish interpretations are found by looking for divergences, centerline crossovers and extreme readings.
Currency in circulation plus banks required and excess deposits at the central bank.
Moving Average (MA)
A technical indicator showing an average of data for a certain number of time periods. It "moves" because for each calculation, we use the latest x number of time periods" data. By definition, a moving average lags the market. An exponentially smoothed moving average (EMA) gives greater weight to the more recent data, in an attempt to reduce the lag.
A non standard amount for a transaction.
The price, or rate, that a willing seller is prepared to sell at, it is also the best price available to a trader to buy at.
The closing-out or liquidation of an open position.
One Cancels the Other Order (O.C.O. Order)
A contingent order where the execution of one part of the order automatically cancels the other part.
Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date.
See Market Order. During times of extreme volatility it can be difficult or impossible to execute orders.
A technical indicator that determines when a market is in an overbought or oversold condition. When the oscillator reaches an upper extreme, the market is overbought. When the oscillator line reaches a lower extreme, the market is oversold.
Over The Counter (OTC)
Used to describe any transaction that is not conducted over an exchange.
A deal from today until the next business day.
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.
A technical condition that occurs when prices are considered too low and ripe for a rally.
The value of one currency in terms of another.
A system where a currency moves in line with another currency, some pegs are strict while others have bands of movement.
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).
The uncertainty in return on an investment due to the possibility that a government might take actions which are detrimental to the investor's interests.
The netted total commitments 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).
The unwinding of a position to realize profits.
A recovery in price after a period of decline.
The distance between the high price and the low price for a given time period. For example, the daily range is equal to the day’s high minus the same day’s low.
The price of one currency in terms of another.
A currency that is normally quoted as dollars per unit of currency rather than the normal quote method of units of currency per dollar. Euro is the most common example.
Relative Strength Index (RSI)
A popular oscillator. RSI is plotted on a vertical scale from 0 to 100. Values above 70 are considered 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.
A price level at which you would expect selling to take place.
A price recognized by technical analysts as a price which is likely to result in a rebound but if broken through is likely to result in a significant price movement.
Increase in the exchange rate of a currency as a result of official action.
The rate for any period or currency which is used to revalue a position or book.
A chart pattern that occurs before an existing trend reverses direction. For example, a Head and Shoulders reversal pattern marks a change in trend. A break below neckline support indicates that the H&S pattern is complete and the prior uptrend has reversed.
RFQ (Request for Quote)
When a trader asks for a live quote from a dealer, as opposed to streaming prices.
The amount of money that an individual can afford to invest, which, if lost should not affect their lifestyle.
The identification of a potential loss and the handling of the risk usually under strict guidelines.
An asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates.
A calculation equal to the potential reward divided by the potential risk of a position.
Where the settlement of a deal is rolled forward to another value date based on the interest rate differential of the two currencies, the swap is also called Tomorrow Next, Tom-Next or T/N.
Buying and selling of a specified amount of currency.
Same Day Transaction
A transaction that matures on the day the transaction takes place.
The amount of money needed to open or maintain a position. Also known as ‘margin.’
Rate at which a financial institution or dealer is willing to sell foreign currency, also known as "ask" or "offer".
The actual delivery of currencies made on the maturity date of a trade.
The date upon which foreign exchange contracts settle.
Where a payment is made to a counter party before the counter value payment has been made. The risk is that the counter party's payment will not be received.
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.
Short term Interest Rates
Normally the 90 day rate.
A major currency that is lightly traded due to major market interest being in another currency pair.
Also known as a "trigger line", it is a moving average of another indicator that is used to generate simple buy and sell signals.
Simple Moving Average
A moving average that gives equal weight to each day’s price data.
Refers to the negative (or depreciating) pip value between where a stop loss order becomes a market order and where that market order may be filled.
More potential sellers than buyers, which creates an environment where rapid price falls are likely.
A transaction for the exchange of one currency against another that occurs immediately and the settlement takes place two business days after execution.
The overnight swap from the spot date to the next business day.
The difference between the bid and the ask price.
Purchase and sales are in balance and thus the trader or dealer has no open position.
A speaker connected to a phone often used in broker trading desks.
A term referring to certain normal amounts and maturities for dealing.
Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the FX market.
British pound, also known as cable.
This is a technical momentum indicator that measures the price of a security relative to the high/low range over a set period of time. The indicator oscillates between 0 and 100, with readings below 20 considered oversold and readings above 80 considered overbought. A 14-period Stochastic Oscillator reading of 30 would indicate that the current price was 30% above the lowest low of the last 14 days and 70% below the highest high. The Stochastic Oscillator can be used like any other oscillator by looking for overbought or oversold readings, positive/negative divergences and centerline crossovers.
An oscillator used to identify overbought and oversold readings in RSI. Because RSI can go for extended periods without becoming overbought (above 70) or oversold (below 30), StochRSI provides an alternative means to identify these extremities. StochRSI is found by applying the Stochastics formula to RSI readings . As an indicator of RSI, it measures the value of RSI relative to its high/low range over a set number of periods. When RSI records a new low for the set period, StochRSI will be at 0. When RSI records a new high for the set period, StochRSI will be at 100.
A price level at which there is an expectation of buying to take place, a break in the support often leads to lower prices. See resistance.
The simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another. A swap can be a swap against a forward. In essence, swapping is somewhat similar to borrowing one currency and lending another for the same period. However, any rate of return or cost of funds is expressed in the price differential between the two sides of the transaction. It is essentially made up of a spot deal and an opposite forward deal.
Market slang for Swiss Franc.
An effort to forecast future market activity by analyzing market data such as charts, price trends, and volume.
An adjustment to price not based on market sentiment but technical factors such as volume and charting.
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.
A minimum change in price, up or down.
The date on which a trade occurs.
An individual who is on the other side of the trade with the dealer and whose objective is to profit from price movements.
A stop-loss level set above or below the current price that adjusts as the price fluctuates.
The buying or selling of currencies resulting from the execution of an order.
The date on which a trade occurs.
Refers to the direction of prices. Rising peaks and troughs constitute an uptrend; falling peaks and troughs constitute a downtrend. A trading range is characterized by horizontal peaks and troughs. Trends are generally classified into major (longer than a year), intermediate (one to six months), or minor (less than a month).
Straight lines drawn on a chart below reaction lows (in an uptrend) or above rally peaks (in a downtrend) that determine the steepness of the current trend. The breaking of a trend line usually signals a trend reversal.
Rates for which both a bid and offer are quoted.
A matched deal which produces neither a gain nor a loss.
A moving average that uses a selected time span, but gives greater weight to the more recent price data.
Where a currency or other instrument’s price moves upwards or downwards then quickly moves back in the opposite direction, taking the price beyond the original position.
A day on which the banks in a currency’s principal financial centre are open for business. For FX transactions, a working day only occurs if the bank in both financial centers are open for business (all relevant currency centers in the case of a cross are open).