- Record of all transactions.
Balance - Same as
- An individual employed
to act on behalf of another (the principal).
Demand - The sum
of government spending, personal consumption expenditures, and
or None - A limit
price order that instructs the broker to fill the whole order
at the stated price or not at all.
- A currency is said
to appreciate when price rises in response to market demand;
an increase in the value of an asset.
- Taking advantage
of countervailing prices in different markets by the purchase
or sale of an instrument and simultaneous taking of an equal
and opposite position in a related market to profit from small
Size - The amount
of shares being offered for sale at the ask rate.
Rate - The lowest
price at which a financial instrument is offered for sale (as
in bid/ask spread).
Allocation - Investment
practice that distributes funds among different markets (forex,
stocks, bonds, commodity, real estate) to achieve diversification
for risk management purposes and/or expected returns consistent
with the outlook of the investor, or investment manager.
in Fact - Person
who is allowed to transact business and execute documents on
behalf of another person because one holds power of attorney.
Office - The departments
and processes related to the settlement of financial transactions
(i.e. written confirmation and settlement of trades, record
- Amount of money
in an account.
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.
Currency - The currency
in which an investor or issuer maintains its book of accounts;
the currency that other currencies are quoted against. In the
forex market, the US Dollar is normally considered the `base`
currency for quotes, meaning that quotes are expressed as a
unit of $1 USD per the other currency quoted in the pair.
- Bank of England
– Bank of Japan
- The difference
between the spot price and the futures price.
Point - One hundredth
of a percent.
- An investor who
believes that prices/the market will decline.
Market - 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
Spread - See spread
Figure - 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
- 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.
- In a professional
trading environment, a book is the summary of a trade’s or a
desk’s total positions.
Woods Accord of 1944 - An
agreement that established fixed foreign exchange rates for
major currencies, provided for central bank intervention in
the currency markets, and set the price of gold at US $35 per
ounce. The agreement lasted until 1971. See More on Bretton
- 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.
- An investor who
believes that prices/the market will rise.
Market - A market
distinguished by a prolonged period of rising prices. (Opposite
of bear market)
- The central bank
- 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 1800`s.
Charts - A chart that
indicates the trading ranges for the day as well as the opening
and closing price. If the close price is lower than the open
price, the rectangle is shaded or filled. If the open price
is higher than the close price, the rectangle is not filled.
Markets - Markets
for medium to long term investment (usually over 1 year). These
tradable instruments are more international than the ‘money
market’ (i.e. Government Bonds and Eurobonds).
Bank - A government
or quasi-governmental organization that manages a country’s
monetary policy a prints a nation’s currency. For example, the
US central bank is the Federal Reserve; others include the ECB,
BOE, and BOJ.
- An individual who
uses charts and graphs and interprets historical data to find
trends and predict future movements, as well as, aid in technical
- The process of
settling a trade.
a Position (Position Squaring) - To
eliminate an investment from one’s portfolio by either buying
back a short position or selling a long position.
- Fee broker charges
for a transaction.
- A document exchanged
by counterparts to a transaction that confirms the terms of
- The tendency of
an economic crisis to spread from one market to another. In
1997, financial instability in Thailand caused high volatility
in its domestic currency, the Baht, which triggered a contagion
into other East Asian emerging currencies, and then to Latin
America. It is now referred to as the Asian Contagion.
(Unit or Lot) - The
standard unit of trading on certain exchanges.
Currency - A currency
which can be exchanged freely for other currencies at market
rates, or gold.
of Carry - The cost
associated with borrowing money in order to maintain a position.
It is based on the interest parity, which determines the forward
party - The participant,
either a bank or customer, with whom the financial transaction
Risk - The risk associated
with government intervention (does not include central bank
intervention). Examples are legal and political events such
as war, or civil unrest.
Checking - Due to
the large size of certain financial transactions that change
hands, it is essential to check that that the counter parties
have room for the trade. Once the price has been agreed the
credit is checked. If the credit is bad then no trade takes
place. Credit is very important when trading, both in the Inter-bank
market and between banks and their customers.
Netting - Arrangements
that exist to maximize free credit and speed the dealing process
by reducing the need to constantly re-check credit. Large banks
and trading institutions may have agreements to net outstanding
Rates - An exchange
rate between two currencies. The cross rate is said to be non-standard
in the country where the currency pair is quoted. For example,
in the US, a GBP/CHF quote would be considered a cross rate,
whereas in the UK or Switzerland it would be one of the primary
currency pairs traded
- A country’s unit
of exchange issued by their government or central bank whose
value is the basis for trade.
Risk - The risk of
incurring losses resulting from an adverse change in exchange
Trading - Opening
and closing the same position or positions within the same trading
- One who acts as
a principal or counterpart to a transaction; places the order
to buy or sell.
- A negative balance
of trade (or payments); expenditures are greater than income/revenue.
- 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.
- Trades that are
constructed or derived from another security (stock, bond, currency,
or commodity). Derivatives can be both exchange and non-exchange
traded (known as Over the Counter or OTC). Examples of derivative
instruments include Options, Interest Rate Swaps, Forward Rate
Agreements, Caps, Floors and Swap options.
- The deliberate
downward adjustment of a currency’s value versus the value of
another currency normally caused by official announcement.
Indicator - 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).
Market - A market
in which the current price reflects all available information
from past prices and volumes.
of Day (or Mark to Market) -
Traders account for their positions in two ways: accrual or
mark-to-market. An accrual system accounts only for cash flows
when they occur; hence, it only shows a profit or loss when
realized. The mark-to-market method values the trader’s book
at the end of each working day using the closing market rates
or revaluation rates. Any profit or loss is booked and the trader
will start the next day with a net position.
Annual Income - Projected
- The currency of
the European Monetary Union (EMU) which replaced the European
Currency Unit (ECU).
- European Central Bank - The
Central Bank for the European Monetary Union.
Monetary Unit - The
principal goal of the EMU is to establish a single European
currency called the Euro, which will officially replace the
national currencies of the member EU countries in 2002. Currently,
the Euro exists only as a banking currency and for paper financial
transactions and foreign exchange. The current members of the
EMU are Germany, France, Belgium, Luxembourg, Austria, Finland,
Ireland, the Netherlands, Italy, Spain and Portugal.
Rate Risk - See Currency
Exposure - The risk
on a company’s cash flow stemming from foreign exchange fluctuations.
Deposit Insurance Corporation (FDIC) - The
regulatory agency responsible for administering bank depository
insurance in the US.
Federal Reserve (Fed) - The Central Bank of the United States.
Fixed Exchange 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.
Fixed Interest - This type of transaction pays an agreed interest rate that remains
constant for the term of the deal. Fixed interests are many
times found in bonds, as well as, a fixed rate mortgage.
Flat (or Square) - To be neither long nor short is the same as to be flat or square.
One would have a flat book if he has no positions or if all
the positions cancel each other out.
Floating Rate Interest - As opposed to a fixed rate, the interest rate on this type of deal
will fluctuate with market rates or benchmark rates. One example
of a floating rate interest is a standard mortgage.
Foreign Exchange (or Forex or FX) - The
simultaneous buying of one currency and selling of another in
an over-the-counter market. Most major FX is quoted against
the US Dollar.
Foreign Exchange Risk - See Currency Risk
Forward - A
deal that will commence at an agreed date in the future. Forward
trades in FX are usually expressed as a margin above (premium)
or below (discount) the spot rate. To obtain the actual forward
FX price, one adds the margin to the spot rate. The rate will
reflect what the FX rate has to be at the forward date so that
if funds were re-exchanged at that rate there would be no profit
or loss (i.e. a neutral trade). The rate is calculated from
the relevant deposit rates in the 2 underlying currencies and
the spot FX rate. Unlike in the futures market, forward trading
can be customized according to the needs of the two parties
and involves more flexibility. Also, there is no centralized
Forward Points - The pips added to or subtracted from the current exchange rate to
calculate a forward price.
Forward Rate Agreements (FRA’s) – FRA’s
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.
Fundamental Analysis - Analysis of economic and political data with the goal of determining
future movements in a financial market.
Futures - A
way of trading financial instruments, currencies or commodities
for a specific price on a specific date in the future. Unlike
options, futures give the obligation (not the option) to buy
or sell instruments at a later date. They can be used to both
protect and to speculate against the future value of the underlying
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.
Hedge - An
investment position or combination of positions that reduces
the volatility of your portfolio value. One can take an offsetting
position in a related security. Instruments used are varied
and include forwards, futures, options, and combinations of
all of them.
Usually the highest traded price and the lowest traded price
for the underlying instrument for the current trading day.
An economic condition where there is an increase in the price
of consumer goods, thereby eroding purchasing power.
Initial Margin - The required initial deposit of collateral to enter into a position
as a guarantee on future performance
Interbank Rates - The Foreign Exchange rates at which large international banks quote
other large international banks
Interest Rate Swaps (IRS) - An exchange of two debt obligations that have different payment
streams. The transaction usually exchanges two parallel loans;
one fixed the other floating.
Interest Rate Swap Points - Interest rates may be determined by a simple rule using the
bid and offer spread on a forex rate. If the rate quoted is
in foreign (non US) terms and the offered price is higher than
the bid, then the interest rate in that nation is higher than
the rate in the base nation for the particular time in question.
If quoted in American terms, the opposite is true. Example –
USD/ JPY quoted 105.75 to 105.65. Because the offered price
is lower than the bid, then you know that rates are lower in
Japan than in the US.
ISDA - The
body that sets terms and conditions for derivative trades is
The International Swaps and Derivatives Association.
Leading Indicators - 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).
LIBOR - Stands
for London Interbank Offer Rate. The interest rate that the
largest international banks will lend to each other.
LIFFE - The
London International Financial Futures Exchange. Consists of
the three largest UK futures markets.
Limit Order - An
order to buy at or below a specified price or to sell at or
above a specified price.
Liquid and Illiquid Markets - The ability of a market to buy and sell at ease with no impact
on price stability. A market is described as liquid if the spread
between the bid and the offer is small. Another measure of liquidity
is the presence of buyers and seller, with more players creating
tighter spreads. Illiquid markets have few players, hence, wider
Liquidation - To
close an open position through the execution of an offsetting
Liquid Assets - Assets that can be easily converted into cash. Examples: money market
fund shares, US Treasury Bills, bank deposits, etc.
Long - A position
to purchase more of an instrument than is sold, hence, an appreciation
in value if market prices increase.
is the study of the entire economy in terms of the total amount
of goods and services produced, total income earned, the level
of employment of productive resources, and the general behavior
of prices. Macroeconomics can be used to analyze how best to
influence policy goals such as economic growth, price stability,
full employment and the attainment of a sustainable balance
Margin - Customers
must deposit funds as collateral to cover any potential losses
from adverse movements in prices.
Margin Call - A
requirement from a broker or dealer for additional funds or
other collateral to bring the margin up to a required level
to guarantee performance on a position that has moved against
Mark to Market (or End Of Day) - Traders
account for their positions in two ways: accrual or mark-to-market.
An accrual system accounts only for cash flows when they occur;
hence, it only shows a profit or loss when realized. The mark-to-market
method values the trader’s book at the end of each working day
using the closing market rates or revaluation rates. Any profit
or loss is booked and the trader will start the next day with
a net position.
Market Maker - A dealer who supplies prices and is prepared to buy or sell at those
stated bid and ask prices. A market maker runs a trading book.
Market Order - An order to buy/sell at the best price available when the order reaches
Market Risk - Risk
relating to the market in general and cannot be diversified
away by hedging or holding a variety of securities.
The date a debt becomes due for payment.
Mine and Yours - To announce that a trader wants to buy he/she may say or type Mine.
This would also be known as taking the offer. To sell he will
use Yours. This would be known as `hitting the bid`.
Money Markets - Refers to investments that are short-term (i.e. under one year) and
whose participants include banks and other financial institutions.
Examples include Deposits, Certificates of Deposit, Repurchase
Agreements, Overnight Index Swaps and Commercial Paper. Short-term
investments are safe and highly liquid.
Net Worth -
Amount of assets which exceed liabilities; May also be known
as stockholders equity or net assets. For an individual -- the
total value of all possessions such as houses, stocks, bonds,
and other securities, minus all outstanding debts, such as mortgage
Off Balance Sheet - Products such as Interest Rate Swaps and Forward Rate Agreements
are examples of `off balance sheet’ products. Also, financing
from other sources other than equity and debt are listed.
Offer - The
price, or rate, that a willing seller is prepared to sell at.
Offsetting Transaction - A trade that serves to cancel or offset some or all of the market
risk of an open position.
One Cancels Other Order (O.C.O. Order) - A
contingent order where the execution of one part of the order
automatically cancels the other part.
Open Order -
An order to buy or sell when a market moves to its designated
Open Position - A deal not yet reversed or settled and the investor is subject to
exchange rate movements.
- 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
- 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 Counter (OTC) - Used
to describe any transaction that is not conducted over an exchange
- A form of price
stabilization; typically used to stabilize a country’s currency
by making it fixed to the exchange rate with another country.
(or Points) - The
term used in currency market to represent the smallest incremental
move an exchange rate can make. Depending on context, normally
one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF
and .01 in the case of USD/JPY).
Risk - Changes in
a country’s governmental policy, which may have an adverse effect
on an investor’s position.
- 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.
Transparency - Every
market participant has equal access to the description of quotes.
- An indicative market
price; shows the highest bid and/or lowest ask price available
on a security at any given time.
A rise in the prices
of individual securities, bonds, or indexes, following a period
of flat or declining prices.
- The price of one
currency in terms of another.
and Unrealized Profit and Loss - One
using an accrual type accounting system has an “unrealized profit”
until he sells his shares. Upon the sale of one’s shares, the
profit becomes “realized.”
(or Repo) - This type
of trade involves the sale and later re-purchase of an instrument,
at a specified time and date. Occurs in the short-term money
- 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.
Rates - The revaluation
rates are the market rates used when a trader runs an end-of-day
to establish profit and loss for the day.
- Exposure to uncertain
change, the variability of returns significantly the likelihood
of less-than-expected returns.
Capital- The amount
of money that an individual can afford to invest, which, if
lost would not affect their lifestyle.
Management - To hedge
one’s risk they will employ financial analysis and trading techniques.
- The settlement
of a deal is rolled forward to another value date with the cost
of this process based on the interest rate differential of the
- The finalizing
of a transaction, the trade and the counterparts are entered
into the books.
- 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.
Position - An investment
position that results from short selling. Benefits from a decline
in market price because the position has not been covered yet.
- A transaction that
occurs immediately, but the funds will usually change hands
within two days after deal is struck.
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.
Price - The current
market price. Spot transaction settlements usually occur within
two business days.
- The difference
between the bid and offer (ask) prices; used to measure market
liquidity. Narrower spreads usually signify high liquidity.
Levels - A term used
in technical analysis indicating a specific price level at which
a currency will have the inability to cross below. Recurring
failure for the price to move below that point produces a pattern
that can usually be shaped by a straight line.
- A swap occurs when
one currency is temporarily exchanged for another, then the
currency is held and exchanged later after a fixed period of
time. To calculate the swap take the interest rate differential
between the two underlying currencies, thus it may be used for
speculative purposes to exploit anticipated movement in the
- Another term for
the Great British Pound.
Analysis - An effort
to forecast future market activity by analyzing market data
such as charts, price trends, and volume.
- Minimum price move.
- Shows current and/or
recent history of a currency either in the format of a graph
Next (Tom/Next) - Simultaneous
buying and selling of a currency for delivery the following
Cost - The cost associated
with buying or selling of a financial instrument.
Date - The date on
which the trade occurs.
- The volume traded,
or level of trading, over a specified period, usually daily
Way Price - Both
the bid and offer rate is quoted for a Forex transaction.
- A new price quote
that is higher than the preceding quote for the same currency.
Rule - In the U.S.,
a regulation which states that a security may not be sold short
unless the trade prior to the short sale was at a price lower
than the price at which the short sale is executed.
Prime Rate - The
interest rate at which US banks will lend to their prime corporate
Date - The date that
both parties of a transaction agree to exchange payments.
Margin - An additional
margin requirement that a broker will need from a client due
to market fluctuation.
- A statistical measure
of a market or a security’s price movements over time and is
calculated by using standard deviation. Associated with high
volatility is a high degree of risk.
- The number, or
value, of securities traded during a specific period.
- Warrants are a
form of traded option. They are the right to purchase shares
or bonds issued by a company at a specific price within a specified
- A term used to
describe a condition in a highly volatile market where a sharp
price movement is quickly followed by a sharp reversal.
Another term for a billion.
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