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appreciation A currency is said to appreciate when it
strengthens in price in response to market
demand.
arbitrage The purchase or sale of an instrument and simultaneous
taking of an equal and opposite
position in a related market, in order to take advantage of
small price differentials between
markets.
ask rate The rate at which a financial instrument is offered for
sale (as in a bid/ask spread or the
sell side of the broker spread).
back office The departments and processes related to the
settlement of financial transactions.
balance of trade The value of a country’s exports minus its
imports.
base currency In general terms, the currency in which an
investor or issuer maintains its book of
accounts. In the forex markets, the U.S. 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.
The primary exceptions to this rule are the British pound, the
euro, and the Australian dollar.
bear market A market distinguished by declining prices.
bid/ask spread The difference between the bid and offer price,
and the most widely used measure
of market liquidity. Also, the spread is a fee for the broker to
provide the transaction services for
traders.
bid rate The rate at which a trader is willing to buy a currency
(the buy side of a broker spread).
big figure Dealer expression 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/JPY rate
might be 107.30/107.35, but would
be quoted verbally without the first three digits (i.e.,
“30/35”).
book In a professional trading environment, the summary of a
trader’s or desk’s total positions.
broker An individual or firm that acts as an intermediary,
putting together buyers and sellers for
a fee or commission. In contrast, a dealer commits capital and
takes one side of a position, hoping
to earn a spread (profit) by closing out the position in a
subsequent trade with another party.
bull market A market distinguished by rising prices.
Bundesbank Germany’s central bank.
cable Trader jargon referring to the British pound/U.S. dollar
exchange rate. So called because
the rate was originally transmitted via a transatlantic cable
beginning in the mid-1800s.
candlestick chart A chart that indicates the trading range for a
time period, as well as the opening
and closing prices. If the opening price is higher than the
closing price, the rectangle between the
opening price and the closing price is shaded. If the closing
price is higher than the opening price,
that area of the chart is not shaded.
central bank A government or quasi-governmental organization
that manages a country’s monetary
policy. For example, the U.S. central bank is the Federal
Reserve, and the German central
bank is the Bundesbank.
chartist An individual who uses charts and graphs and interprets
historical data to find trends
and predict future movements. Also referred to as a technical
trader.
clearing The process of settling a trade.
commission A transaction fee charged by a broker.
confirmation A document exchanged by counterparts to a
transaction that states the terms of
said transaction.
consolidation A market that is moving sideways with a small
amount of volume.
contagion The tendency of an economic crisis to spread from one
market to another. In 1997,
political instability in Indonesia caused high volatility in its
domestic currency, the rupiah. From
there, the contagion spread to other Asian emerging currencies
and then to Latin America, and is
now referred to as the “Asian contagion.”
contract The standard unit of trading.
counterparty One of the participants in a financial transaction.
country risk Risk associated with a cross-border transaction,
including, but not limited to, legal
and political conditions.
cross rate The exchange rate between any two currencies that are
considered nonstandard in
the country where the currency pair is quoted. For example, in
the United States, a GBP/JPY quote
would be considered a cross rate, whereas in the United Kingdom
or Japan it would be one of the
primary currency pairs traded.
currency Any form of money issued by a government or central
bank and used as legal tender
and a basis for trade.
currency risk The probability of an adverse change in exchange
rates.
day trading Refers to positions that are opened and closed on
the same trading day.
dealer An individual who acts as a principal or counterparty to
a transaction. Principals take
one side of a position, hoping to earn a spread (profit) by
closing out the position in a subsequent
trade with another party. In contrast, a broker is an individual
or firm that acts as an intermediary,
putting together buyers and sellers for a fee or commission.
deficit A negative balance of trade or payments.
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delivery A forex trade where both sides make and take actual
delivery of the currencies traded.
depreciation A fall in the value of a currency due to market
forces.
derivative A contract that changes in value in relation to the
price movements of a related or
underlying security, future, or other physical instrument. An
option is the most common derivative
instrument.
devaluation The deliberate downward adjustment of a currency’s
price, normally by official announcement.
downtick A new price quote at a price lower than the preceding
quote.
economic indicator A government-issued statistic that indicates
current economic growth and
stability. Common indicators include employment rates, gross
domestic product (GDP), inflation,
retail sales, and so on.
end of day (EOD) order An order to buy or sell at a specified
price. This order remains open until
the end of the trading day, which is typically 5PM ET during the
week and 4PM ET on Fridays.
euro The currency of the European Economic and Monetary Union
(EMU). A replacement for
the European Currency Unit (ECU).
European Central Bank (ECB) The central bank for the European
Economic and Monetary Union.
European Economic and Monetary Union (EMU) The principal goal of
the EMU is to establish a
single European currency called the euro, which officially
replaced the national currencies of the
member EU countries in 2002. The current members of the EMU are
Germany, France, Belgium,
Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy,
Spain, Greece, and Portugal as well
as small European states like Andorra, Monaco, San Marino, and
Vatican City.
Federal Deposit Insurance Corporation (FDIC) The regulatory
agency responsible for administering
bank depository insurance in the United States.
Federal Reserve (Fed) The central bank for the United States.
Fib Slang for Fibonacci. A Fib level is a percentage level of a
measured range.
flat/square Dealer jargon used to describe a position that has
been completely reversed; for example,
you bought $500,000, then sold $500,000, thereby creating a
neutral (flat) position.
foreign exchange (forex, FX) The simultaneous buying of one
currency and selling of another.
forward The prespecified exchange rate for a foreign exchange
contract settling at some agreed
future date, based on the interest rate differential between the
two currencies involved.
forward points The pips added to or subtracted from the current
exchange rate to calculate a
forward price.
fundamental analysis Analysis of economic and political
information with the objective of determining
future movements in a financial market.
futures contract An obligation to exchange a good or instrument
at a set price on a future date.
The primary difference between a future and a forward is that
futures are typically traded over an
exchange as exchange-traded contracts (ETCs), versus forwards,
which are considered over-thecounter
(OTC) contracts. An OTC contract is any contract not traded on
an exchange.
good till canceled (GTC) order An order to buy or sell at a
specified price. This order remains
open until filled or until the client cancels.
g-meter A market direction meter found only on certain
proprietary type charts.
hedge A position or combination of positions that reduces the
risk of your primary position.
inflation An economic condition whereby prices for consumer
goods rise, eroding purchasing
power.
initial margin The initial deposit of collateral required 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.
invasion A term used by so-called river traders to identify the
market going against the overall
trend (reversal).
kiwi Slang for New Zealand currency.
lamb market A sideways movement of the market within a small
trading range. The same as a
consolidation or slow market.
leading indicator A statistic that is considered to predict
future economic activity.
limit order An order with restrictions on the maximum price to
be paid or the minimum price to
be received. As an example, if the current price of USD/JPY is
102.00/05, then a limit order to buy
USD would be at a price below 102.00 (e.g., 101.50).
liquidation The closing of an existing position through the
execution of an offsetting transaction.
liquidity The ability of a market to accept large transactions
with minimal to no impact on price
stability.
London Interbank Offered Rate (LIBOR) The rate used by banks
when borrowing from another
bank.
long position A position that appreciates in value if market
prices increase.
margin The required equity that an investor must deposit to
collateralize a position.
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