FOREX DictionaryOn this page you will find a complete FOREX Dictionary. At least in my humble opinion, it is the best on the web. If there is something here that you find is missing then send me a note via the Contact page. Refer to this page when you find something in the Forex Trading Course "7 Steps to Profitable FOREX Trading" that you don't understand or that you are not entirely sure of. If you are new to FOREX Trading then skim through this FOREX Dictionary a few times and take note of words and explanations you think is useful or that can further your education in this area. In this FOREX Dictionary you will not find terms related to Technical Analysis - goto the Technical Analysis page instead to find in depth explanations. You will see that many of the words listed in this FOREX Dictionary are of no consequence for you as a trader, but you will notice as you progress in your education and development towards a successful FOREX trader that actually knowing the FOREX jargon can be helpful and make your understanding easier. A FOREX Dictionary becomes more useful by time and I urge you to come back and visit many times to get the most out of a FOREX Dictionary like this. Also some of the words here are also explained in the Fundamental Analysis page.
A | B | C | D | E | F | G | H | I | J | K | L | M | == A of Forex Dictionary ==AccrualThe apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (Interest Arbitrage) deals, over the period of each deal. Actualize The underlying assets or instruments traded in the cash market. ADB Either the African Development Bank or the Asian Development Bank. Adjustable Peg an exchange rate regime where a country's exchange rate is "pegged" (i.e. fixed) in relation to another currency , often the dollar, but where the rate may be changed from time to time. See peg and crawling peg. Adjusted Net Capital FCMs and independent IBs have to compute Adjusted Net Capital (in order to comply with CFTC regulations and NFA Rules) using the following calculation: Adjusted Net Capital = Current Assets - Liabilities - Charges Against Capital. Adjustment Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate. Agent Bank (1) A bank acting for a foreign bank. (2) In the Euro market the agent bank is the one appointed by the other banks in the syndicate to handle the administration of the loan. Aggregate Demand Total demand for goods and services in the economy. It includes private and public sector demand for goods and services within the country and the demand of consumers and firms in other countries for goods and services. Aggregate risk Size of exposure of a bank to a single customer for both spot and forward contracts. Aggregate Supply Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand. Agio Difference in the value between currencies. Also used to describe percentage charges for conversion from paper money into cash, or from a weak into a strong currency. AIBOR Amsterdam Inter-bank Offered Rate. American Option An option which may be exercised at any time prior to expiration. (European options can only be exercised on a specific date). Appreciation The strengthening of a currency in response to market demand rather than through official action. Arbitrage A risk-free type of trading in which the same instrument is bought and sold simultaneously in two different markets in order to cash in on the divergence between the two markets. Arbitrage channel The range of prices within which there will be no possibility to arbitrage between the cash and futures market. Arcru A unit of account based on the movement of 12 Arab currencies against the USD. AroundUsed in quoting forward "premium/discount". "Five-five around" would mean five points on either side of the present spot value. Asset Allocation Dividing instrument funds among markets to achieve diversification or maximum return. Article 8 Currency IMF terminology for a senior, freely convertible currency. As you like option Enables the holder to convert from one style of option to a different style of option over a preset period of time. Sometimes referred to as either a "call-or-put option" or "chooser option". Asian Monetary Unit An accounting unit for the Asian Clearing Union with the same value as an SDR. Ask (Offer) Price The price at which the market is prepared to sell a specific Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation. For example, in the quote USD/CHF 1.2627/30 the ask price is 1.2630; meaning you can buy one US dollar for 1.2630 Swiss francs. Asset In the context of foreign exchange is the right to receive from a counter party an amount of currency either in respect of a balance sheet asset (e.g. a loan) or at a specified future date in respect of an unmatched forward Forward or spot deal. Assignment Notice to an option holder, usually by the clearing house of an exchange traded option that the option has been exercised. Association Cambiste Internationale The international society of foreign exchange dealers consisting of national "Forex clubs" affiliated on a world wide basis. At best 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 at a specific rate or better. At par forward spread Forward price is zero; therefore, the spot price is similar to the forward price. It reflects the fact that the foreign interest rate is similar to the U.S. interest rate for that particular period. At-the- money An option whose strike/exercise price is equal to or near the current market price of the underlying instrument. At the price stop-loss order A stop-loss order that must be executed at the precise requested level, regardless of market conditions. ATHIBOR Athens Inter-bank Offered Rate. Au Jour le Jour The rate for money lent from day to day on the French money market. Auction Sale of an item to the highest bidder. (1) A method commonly used in exchange control regimes for the allocation of foreign exchange. (2) A method for allocating government paper, such as US Treasury Bills. Small investors are given preferential access to the bills. The average issuing price is then computed on the basis of the competitive bids accepted. In some circumstances for government auctions it is the yield rather than the price which is bid. Authorized Dealer A financial institution or bank authorized to deal in foreign exchange. Automated Clearing House A US term for an organization set up by financial institutions agreeing to initiate and receive among themselves electronic transfers of funds authorized by their customers. Automatic exercise A procedure for exchange traded options under which the in-the-money options are exercised on a given date. Average Rate Option A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an "Asian option". Back to top of FOREX Dictionary.
== B of Forex Dictionary ==Back OfficeSettlement and related processes. Back to Back (1) Transaction where all the obligations and liabilities in one transaction are mirrored in a second transaction. (2) Transaction where a loan is made in one currency in one country against a loan in another country in another currency. Back see backwardation. Backwardation Term referring to the amount that the spot price exceeds the forward price. Balance of Payments A systematic record of the economic transactions during a given period for a country. (1) The term is often used to mean either: (i) balance of payments on "current account"; or (ii) the current account plus certain long term capital movements. (2) The combination of the trade balance, current balance, capital account and invisible balance, which together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital transfers, and or decline in currency values. Balance of Trade The value of exports less imports. Invisibles are normally excluded, and is otherwise referred to as mercantile or physical trade. Band The range in which a currency is officially permitted to move. Bank line Line of credit granted by a bank to a customer, also known as a " line". Bank notes Bank notes are paper issued by the central or issuing bank and are legal tender, but are not usually considered to be part of the FX market. However bank notes can be converted , in some countries, into FX. Bank notes are normally priced at a premium to the current spot rate for a currency. Bank of Canada (BOC) The central bank of Canada. Bank of England (BOE) The central bank of the United Kingdom. It is a less independent central bank. The government may overwrite its decision. Bank of Japan (BOJ) The Japanese central bank. Although its Policy Board is still fully in charge of the monetary policy, changes are still subject to the approval of the Ministry of Finance (MOF). Bank Rate The rate at which a central bank is prepared to lend money to its domestic banking system. Banking day see trading day and value date. Baron Adesi and Whaley An option model for valuing American options, an extension of Black-Scholes. Barrier Option A family of path dependent options whose pay-off pattern and survival to the expiration date depend not only on the final price of the underlying currency but also on whether or not the underlying currency breaks a predetermined price level at any time during the life of the option. See Down and Out call/put, Down and in call/put, Up and out call/put, Up and in call/put. Base currency The first currency in a Currency Pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.2615 then one USD is worth CHF 1.2615 In the FX markets, 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. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar. Base Rate A term used in the UK for the rate used by banks to calculate the interest rate to borrowers. Basis point For most currencies, denotes the fourth decimal place in the exchange rate and represents 1/100 of 1 percent (0.01%). For such currencies as the Japanese yen, a basis point is the second decimal place when quoted in currency terms or the sixth and seventh decimal places, respectively, when quoted in reciprocal terms. Basis price The price expressed in terms of yield maturity or annual rate of return. Basis convergence The process whereby the basis tends towards zero as the contract expiry approaches. Basis trading Taking opposite positions in the cash and futures market with the intention of profiting from favorable movements in the basis. Basis The difference between the cash price and futures price. Basket A group of currencies normally used to manage the exchange rate of a currency. Some times referred to as a unit of account. BBA British Banking Association. Bear call spread A spread designed to exploit falling exchange rates by purchasing a call option with a high exercise price and selling one with a low exercise price. Bear put spread A spread designed to exploit falling exchange rates by purchasing a put option with a high exercise price and selling one with a low exercise price. Bear market A prolonged period of falling prices. Bear Squeeze Any official action in the market or through regulations which makes it costly or difficult for bears to stay short of a suspect currency. Bear An investor who believes that prices are going to fall. Bearer Refers to instruments in which ownership can transfer by mere physical delivery, requires no registration as does not have the name of the holder on its face. Certain stamp duty advantages arise from this type of instrument. Best of two Option Gives the option holder a payoff based on the independent performance of two different instruments. Best Order Firm order with no rate limit stipulated. Beta A measure of relative volatility of the price of the instrument to the overall performance of the market. Bid The price at which a buyer has offered to purchase the currency or instrument. Bilateral Clearing A system used where foreign currency is limited. Payments are usually routed through the central banks, and sometimes require that the trade balance is equaled every year. Binary Options A binary "call" (or "step up") is like a standard European call option except that the pay off at expiry is fixed at one unit of the counter currency if the call expires in the money. Black-Scholes Model An option pricing formula initially derived by Fisher Black and Myron Scholes for securities options and later refined by Black for options on futures. It is widely used in the currency markets. Book The summary of currency positions held by a dealer, desk, or room. A total of the assets and liabilities. If the average maturity of the book is less than that of the assets, the bank is said to be running a short and open book. Passing the Book refers normally to transferring the trading of the Banks positions to another office at the close of the day , e.g. from London to New York. Booked The recording of a transaction outside the country where the transaction is itself negotiated. Book method Point-and-figure chart's original name. Boris Slang for Russian trading. Box Option Options are purchased, the gains/losses on which offset positions in the underlying currency. Box Spread A combination of a horizontal, or calendar, call spread and a horizontal put spread. Both spreads have the same expiration dates on their long and short positions. A bear call spread with a bull put spread is a credit box. A bull call spread with a bear put spread is a debit box. Brady Plan A plan conceived by Nicholas Brady US Treasury Secretary to reschedule and restructure third world debt. Break A sudden or rapid fall in instrument pricing. Break even point The price of a financial instrument at which the option buyer recovers the premium, meaning that he makes neither a loss or gain. In the case of a call option, the break even point is the exercise price plus the premium. Break out In the options market, undoing a conversion or a reversal to restore the option buyer's original position. 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. Broad Money A broad definition of money supply including long term deposits and corporate lending. Broken dates or period Deals that are undertaken for value dates that are not standard periods e.g. 1 month. The standard periods are 1 week, 2 weeks, 1,2,3,6, and 12 months. Terms also used are odd dates, or cock dates, broken period or broken period. 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. For information on specific brokers please visit my dedicated page to FOREX Brokers. Brokerage Commission charged by a broker. BUBA Bundesbank, the reserve bank of Germany. Bull market A prolonged period of rising prices. Bull (call or put) spread An option position composed of both long and short options of the same type, either calls or puts, designed to be profitable in a declining market. An option with a lower strike price is bought and one with a higher strike price is sold. Bull An investor who believes that prices are going to rise. Bulldogs Sterling bonds issued in the UK by foreign institutions. Bullion A term for gold coins. Bundesbank Reserve Bank of Germany. Butterfly spread (1) A futures butterfly spread is a spread trade in which multiple futures months are traded simultaneously at a differential. Basically the trade consists of two futures spread transactions with either three or four different futures months at one differential. (2) An options butterfly spread is a combination of a bear and bull spread trade in which multiple options months and strike prices are traded simultaneously at a differential. Basically the trade consists of two options spread transactions with either three or four different options months and strikes at one differential. Buy in Market activity by an option writer when the writer holds insufficient assets to meet delivery upon expiration. Buy-Back valuation The valuation of a forward exchange transaction by applying the current exchange rate that would apply to the remaining period of the transaction. Buy-back See repurchase agreements. Buyer/taker The purchaser of an option, whether a call or put option. The buyer may also be referred to as the option holder. Option buyers receive the right, but not the obligation, to enter a futures/securities market position. Buying Rate Rate at which the market and a market maker in particular is willing to buy the currency. Sometimes called bid rate. Buying the spread To buy the nearby contract and simultaneously sell the deferred contract. Also referred to as a bull spread. Back to top of FOREX Dictionary.
== C of Forex Dictionary ==Cable TransferTelegraphic transfer of funds from one centre to another. Now synonymous with inter bank electronic fund transfer. Cable A term used in the foreign exchange market for the USD/GBP rate. Calendar combination A compound option strategy that consists of the simultaneous call calendar spread and put calendar spread, in which the strike price of the calls is higher than the strike price of the puts. Calendar spread An option position comprised of purchase and sale of two option contracts of the same type with different expiration dates at the same exercise price. Calendar straddle A compound option strategy that consists of simultaneous buying of a longer-term straddle and a near-term straddle with a common strike price. Call Money Money lent that is repayable on demand. Call option A call option confers the right but not the obligation to buy stock, shares or futures at a specified price. Call ratio backspread A compound option strategy that consists of short calls with a lower strike price and more long calls with a higher strike price. The profit is twofold. The maximum upside profit potential is unlimited. The downside profit potential consists of the total premium received. The maximum loss potential occurs when the currency price reaches the higher strike price at expiration. Call (1) An option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period. (2) A period of trading. (3) The right of an bond issuer to pre pay debt and demand the surrender of its bonds. Call money Overnight (GBP) or Federal funds (USD) currency lent by banks on a very short term basis which can be called the same day, at one day notice or at two days notice. Cambiste French term for foreign exchange dealer. Candlestick chart A type of chart that consists of four major prices: high, low, open, and close. The body (jittai) of the candlestick bar is formed by the opening and closing prices. To indicate that the opening was lower than the closing, the body of the bar is left blank. If the currency closes below its opening, the body is filled. The rest of the range is marked by two "shadows": the upper shadow (uwakage) and the lower shadow (shitakage). Cap An agreement with a counter party that sets an upper limit to interest rates for the cap buyer for a stated time. Capital Account Juxtaposition of the long and short term capital imports and exports of a country. Capital Adequacy Standards set by the Bank of International Settlement (BIS) for banks. Capital market The market for medium and long term securities. Capital Movements Short and long term claims and liabilities, which are entered into vis a vis foreign countries, e.g. repayment of foreign debt, direct investments, portfolio investments, purchase of private real estate. Capital Risk The risk arising from a bank having to pay to the counter party with out knowing whether the other party will or is able to meet its side of the bargain. Carry The interest cost of financing securities or other financial instruments held. Cash Delivery Same day settlement. Cash market The market in the actual financial instrument on which a futures or options contract is based. Cash 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 and those countries which rely for foreign exchange services on these markets because of time zone preference i.e. Latin America. In Europe and Asia, cash transactions are often referred to as value same day deals. Cash and Carry The buying of an asset today and selling a future contract on the asset. A reverse cash and carry is possible by selling an asset and buying a future. Cash Option An option written on an underlying cash instrument rather than a futures contract. Cash Settlement A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery. CBOE Chicago Board Options Exchange. CBOT Chicago Board of Trade. CD Certificate of Deposit. CEDEL A computerized system for safe custody, delivery and settlement for Eurobonds and related securities. Also the name of an instrument coding system. Central Bank A bank which is responsible for controlling a country's monetary policy. It is normally the issuing bank and controls bank licensing, and any foreign exchange control regime. Certificate of deposit A negotiable certificate in bearer form issued by a commercial bank as evidence of a deposit with that bank which states the maturity value, maturity rate and interest rate payable. CDs vary in size with maturities ranging from a few weeks to several years. CDs may normally be redeemed before maturity only by sale on the secondary market but may also be redeemed back to issuing bank through payment of a penalty. CFTC An independent agency created by Congress in 1974 with a mandate to regulate commodity futures and options markets in the United States. The CFTC's responsibilities are to ensure the economic utility of futures markets, via competitiveness and efficiency; ensure the integrity of these markets; and protect the participants against manipulation, fraud, and abusive practices. The Commission, based in Washington, D.C., regulates the activities of 285 commodity brokerage firms; 48,211 salespeople; 8017 floor brokers; 1325 commodity pool operators (CPOs); 2733 commodity trading advisers (CTAs); and 1486 introducing brokers (IBs). CHAPS Clearing House Automated Payment System. Chartist Any individual that 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 The New York clearing house clearing system. (Clearing House Interbank Payment System). Most Euro transactions are cleared and settled through this system. Christmas tree spread A compound option strategy that consists of several short options at two or more strike prices. CIBOR Copenhagen Interbank Rate. Circuit breaker Price change limits and trading halts intended to reduce excessive price fluctuations. Clean float An exchange rate that is not materially effected by official intervention. Clean price The price of a bond not including the accrued interest element. Clean In the UK capital market refers to a price quoted excluding accrued interest. Clear Day see trading day. Clearing house An exchange-associated, usually independent organisation through which all contracts are made, offset and delivered e.g. ICCH. Clearing member A member firm of a clearing house. Clearing The process of setting a number of items against one another and making fund transfers on the net balance only as part of the settlement process. Clearing The process of matching, registering and guaranteeing transactions. Close The end of the business day. Closed position A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency. Closing purchase transaction The purchase of an option identical to one already sold to liquidate a position. CME Chicago Mercantile Exchange. Cock Dates see broken dates. Coincident Indicator An economic indicator that generally moves in line with the general business cycle such as industrial production. Collar A combination of a cap and a floor. A collar sets a band within which interest rates will apply (e.g. 10%-13.75%), for a given period. Combination spread (synthetic future) A compound option strategy that consists of a long call and a short put, or a long put and a short call, with a common expiration date. Comex Commodity Exchange of New York. Commercial Paper Promissory notes usually with up to 270 day maturity, sold by companies or institutions for working capital. Widely used in the US. Commission The fee that a broker may charge clients for dealing on their behalf. Commodity Research Bureau's (CRB) Futures Index Index formed from the equally weighted futures prices of 21 commodities. The preponderance of food commodities makes the CRB Index less reliable in terms of general inflation. Compound Option An option on an option, the dates and price of such option being fixed. Comptant French term for spot settlement in foreign exchange. Comptroller of the Currency US Treasury Department official with the primary role in bank supervision. Condor spread A compound option strategy that consists of either four same-type options with a common expiration date—two long options with consecutive strike prices, one short option with an immediately lower strike price, and one short option with an immediately higher strike price; or four same-type options with a common expiration date—two short options with consecutive strike prices, one long option with an immediately lower strike price, and one long option with an immediately higher strike price. Confirmation A memorandum to the other party describing all the relevant details of the transaction. Consumer Price Index Monthly measure of the change in the prices of a defined basket of consumer goods including food, clothing, and transport. Consumer sentiment A survey of households designed to gauge the individual propensity for spending. There are two studies in the US conducted in this area, one survey by the University of Michigan, and the other by the National Family Opinion for the Conference Board. The confidence index measured by the Conference Board is sensitive to the job market, whereas the index generated by the University of Michigan is not. Contango A condition in a futures market where the more distant delivery months trade at a premium to the term delivery months. Contract of differences A futures contract which is settled by a cash payment reflecting the monetary difference between the initial transaction price and the price of the underlying asset on expiry. Contract expiration date The date on which a currency must be delivered to fulfill the terns of the contract. For options, the last day on which the option holder can exercise his right to buy or sell the underlying instrument or currency. Contract month The month in which a futures contract matures or becomes deliverable if not liquidated or traded out before the date specified. Contract 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. Convergence The process by which the futures price moves towards and ultimately equals the price of the underlying instrument at expiration. Cover Forwards or futures taken to limit or eliminate exposure to currency fluctuations. Covered Call Calls are sold on the underlying currency with strikes which are higher than the market price. The strike price limits the profit that can be realized from the position. Conversion Account A general ledger account representing the uncovered position in a particular currency. Such accounts are referred to as Position Accounts. Conversion premium The amount by which the price of a convertible bond exceeds the market price of the underlying stock. Conversion The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency. Conversion arbitrage A transaction where the asset is purchased and buys a put option and sells a call option on the asset purchased, each option having the same exercise price and expiry. Convertible currency A currency that can be freely exchanged for another currency ( and or gold ) without special authorization from the central bank. Copey Slang for the Danish krone. 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 inter state banking restrictions. Cost of carry The interest rate parity, whereby the forward price is determined by the cost of borrowing money in order to hold the position. Cost of Living Index Broadly equivalent to Retail Price Index or Consumer price Index. Council of Ministers The legislative body of the European Economic Community in charge of making the major policy decisions. It is composed of ministers from all the 12 member nations. The presidency rotates every six months by all the 12 members, in alphabetical order. The meetings take place in Brussels or in the capital of the nation holding the presidency. Counter party The other organisation or party with whom the exchange deal is being transacted. Countervalue Where a person buys a currency against the dollar it is the dollar value of the transaction. Country risk The risk attached to a borrower by virtue of its location in a particular country. This involves examination of economic, political and geographical factors. Various organisations generate country risk tables. Coupon value The annual rate of interest of a bond. Coupon (1) On bearer stocks, the detachable part of the hide behind nominee status. certificate exchangeable for dividends. (2) Denotes the rate of interest on a fixed interest security. Cover (1) To take out a forward foreign exchange contract. (2) To close out a short position by buying currency or securities which have been sold. Covered Arbitrage Arbitrage between financial instruments denominated in different currencies, using forward cover to eliminate exchange risk. Covered call write A strategy of writing call options against a long position in the underlying asset. A covered put write being based on a short position in the asset. Covered Margin The interest rate margin between two instruments denominated in different currencies after taking account of the cost of forward cover. Cox, Ross, and Rubinstein pricing model An option pricing model that takes into consideration the early exercise provision of the American style options. As it assumes that early exercise will occur only if the advantage of holding the currency exceeds the time value of the option, their binomial method evaluated the call premium by estimating the probability of early exercise for each successive day. The theoretical premium is compared to the holding cost of the cash hedge position, until the option's time value is worth less than the forward points of the currency hedge and the option should be exercised. CPSS Committee on Payment and Settlement Systems. Crawling peg A method of exchange rate adjustment; the rate is fixed/ pegged, but adjusted at certain intervals in line with certain economic or market indicators. Credit Lombard see Lombard rate. Credit Risk The risk that a debtor will not repay; more specifically the risk that the counter party does not have the currency promised to be delivered. Cross deal A foreign exchange deal entered into involving two currencies, neither of which is the base currency. Cross hedge A technique using financial futures to hedge different but related cash instruments based on the view that the price movements between the instruments move in concert. Cross rates Rates between two currencies, neither of which is the US Dollar. Cross-trade A cross-trade transaction is a transaction where either the buy broker and the sell broker are the same, or the buy broker and the sell broker belong to the same firm. Crossed market The situation which exists when a broker's bid is higher than the lowest offer of another broker. Currency Basket Various weightings of other currencies grouped together in relation to a basket currency. Currency call A contract between the buyer and seller that holds that the buyer has the right, but not the obligation, to buy a specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency. The writer assumes the obligation of delivering the specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency, if the buyer wants to exercise the call option. Currency Cocktail Colloquial term for a unit of account or basket of currencies. Current Account 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. 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. Currency fixings An open auction executed in Europe on a daily basis in which all players, regardless of size, are welcome to participate with any amount. Currency futures A specific type of forward outright deal with standardized expiration date and size of the amount. Currency option A contract between a buyer and a seller, also known as writer, that gives the buyer the right, but not the obligation, to trade a specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency; and gives the seller the obligation to deliver or buy the currency under the predetermined terms, if and when the buyer wants to exercise the option. Currency put A contract between the buyer and the seller that holds that the buyer has the right, but not the obligation, to sell a specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency. The writer assumes the obligation to buy the specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency, if the buyer wants to exercise the call option. Current account balance The broadest current dollar measure of U.S. trade, which incorporates services and unilateral transfers into the merchandise trade data. Currency Swaps See swaps. Current delivery month The most current calendar month in which a futures contract comes to maturity and becomes deliverable. Also known as the spot month. CUSIP code The CUSIP numbering system is the standard method for identifying securities throughout the US financial industry. The CUSIP number is permanently allocated to each issue. Cycle The set of expiration dates applicable to different classes of option. Back to top of FOREX Dictionary.
== D of Forex Dictionary ==Daylight position limitThe maximum amount of a certain currency a trader is allowed to carry at any single time, between the regular trading hours. Day Order An order that if not executed on the specific day is automatically canceled. Day trader Speculators who take positions in commodities which are then liquidated prior to the close of the same trading day. Dealing systems On-line computers that link the contributing banks around the world on a one-on-one basis. Deal date The date on which a transaction is agreed upon. Deal Ticket The primary method of recording the basic information relating to a transaction. Dealer An individual or firm acting as a principal, rather than as an agent, in the purchase and/or sale of securities. Dealers trade for their own account and risk. Dealing Board The panel of communications equipment forming part of a dealer's desk. Debenture A non-secured loan raised by a company, paying a fixed rate of interest. Debt-Service Ratio The ratio of interest and capital repayments as a percentage of the country's export earnings. The treatment of public debt varies. Declaration date The latest day or time by which the buyer of an option must indicate to the seller his intention to the option. Default Generally a breach of contract. Failure to make timely payment of principal or interest. Deficit Shortfall in the balance of trade, balance of payments, or government budgets. Defection French term for default. Deferred months Distant actively trading contract months, also referred to as back months. Deflator Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate. Delcredere risk Risk that the counter party is either unable or unwilling to fulfill his payment obligations. Delivery date 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. Delivery month The calendar month in which a futures contract comes to maturity and becomes deliverable. Delivery points Those locations designated by futures exchanges at which the currency represented by a futures contract may be delivered in fulfillment of the contract. Delivery Risk A term to describe when a counter party will not be able to complete his side of the deal, although willing to do so. Delivery The settlement of a futures contract by receipt or tender of a financial instrument or currency. Delta The change in the value of the option premium made fully paid by the capitalisation of reserves and given relative to the instantaneous change in the value of the; underlying instrument, expressed as a coefficient. Delta hedging A method used by option writers to hedge risk exposure of written options by purchase or sale of the underlying instrument in proportion to the delta. Delta spread A ratio spread of options established as a neutral position by using the deltas of the options concerned to determine the hedge ratio. Demand pull Demand led inflation, commonly referred to as too much money chasing too few goods. Depo Deposit. Deport French term for discount. Deposit dealings Money Market operations. Deposit money Bank and other giro credit balances which can be converted at any time into cash although normally used for cashless payment. Deposit Swap A series of transactions whereby a deposit for a particular currency 1, and the proceeds converted via spot currency into currency 2 . Currency 2 is then lent. To cover potential exchange movement a forward sale of currency 2 against currency 1 is entered into which will return the converted amount plus interest into the original currency. Deposit Book The net position arising from all deposit and loan transactions in a given currency. Depreciation A fall in the value of a currency due to market forces rather than due to official action. Depth of market A measure of how much a price has to move in order to execute larger than normal transactions. The smaller the price movement and the larger the transaction, the deeper the market. Derivatives A broad term relating to risk management instruments such as futures, options, swaps etc.. The contract value moves in relation to the underlying instrument or currency. Desk Term referring to a group dealing with a specific currency or currencies. Details All the information required to finalize a foreign exchange transaction, i.e. name, rate, dates, and point of delivery. Deutsche Terminboerse The German options and futures exchange, a fully computerized system with integrated trading and clearing. Devaluation Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement. Devisen, Devises Foreign exchange in German and French respectively. Devisenkassamarkt German for spot exchange market. Devisenterminmarkt German for forward exchange market. Diagonal (bull or bear) spread The purchase of a longer maturity option and the sale of a shorter maturity, lower exercise price option. The choice of calls or puts will determine its bear or bull character. DIBOR Dublin Inter-bank Offered Rate. Direct dealing An aggressive approach in which banks contact each other outside the brokers' market. Direct quotation Quoting in fixed units of foreign currency against variable amounts of the domestic currency. Dirty Float Floating a currency when the rate is controlled by intervention by the monetary authorities. Discount (1) See forward Rate. Forward rate is lower than spot rate (2) an option that is trading for less than its intrinsic value. Discount Rate The rate at which a bill is discounted. Specifically it refers to the rate at which a central bank is prepared to discount certain bills for financial institutions as a means of easing their liquidity, and is more accurately referred to as the official discount rate. Disposable Income Earnings after tax. Discretionary Income Net of tax and fixed personal spending commitments. Discretion for range to trader stop-loss order A stop-loss order that gives the trader a number of discretionary pips within which the order has to be filled. Divergence indicator A concept in the EMS to measure divergence from the central parity of the currency against the ECU. The thresh-hold for intervention for each currency excludes the currencies weight in the ECU. Domestic Rates The interest rates applicable to deposits domiciled in the country of origin. Double An option either to buy or sell an instrument or currency at a specified price. The exercise of the right to sell causes the right to buy to expire and vice versa. Down and Out call A call option that expires if the asset price falls below a predetermined level. Down tick The sale of a security at a price lower than the previous one. DTB abbreviation of Deutsche Terminboerse. Due from Balance US term for "nostro account". Due to Balance US term for "vostro account". Dutch Auction A competitive bidding technique where the lowest price to sell the entire amount of the offered instrument is the price at which all instruments are sold. A technique used for some controlled foreign exchange and sovereign debt. Back to top of FOREX Dictionary.
== E of Forex Dictionary ==EasingModest decline in price Economic exposure Reflects the impact of foreign exchange changes on the future competitive position of a company. Economic Indicator A statistics which indicates current economic growth rates and trends such as retail sales and employment. EDI Electronic Data Interchange. Effective Exchange Rate An attempt to summarize the effects on a country's trade balance of its currency's changes against other currencies. EFT Electronic Fund Transfer. Either way market In the Euro Interbank deposit market where both bid and offer rates for a particular period are the same. Elliott Wave A system of empirically derived rules for interpreting action in the markets. It refers to a five-wave/three-wave pattern that forms one complete bull market/bear market cycle of eight waves. End/end Indicates that both the spot and forward maturity, or two forward maturities in a swap transaction, fall due on the last business day of appropriate calendar months. Entrepot A term used for international trade where goods are shipped to a centre for re-export. Hong Kong engages in significant amounts of this form of trade. Envelope model A band created by two winding parallel lines above and below a short-term moving average that borders most price fluctuations. When the upper band is penetrated, a selling signal occurs; when the lower band is penetrated, a buying signal is generated. Because the signals generated by the envelope model are very short-term and occur many times against the ongoing direction of the market, speed of execution is paramount. EOE European Options Exchange. Epsilon The change in the price of an option associated with a 1% change in implied volatility (technically the first derivative of the option price with respect to volatility). Euro The name of the European Union's single currency unit. Euro clear A computerized settlement and depository system for safe custody, delivery of, and payment for Eurobonds. Euro Rates The rates quoted for Euro-currencies. Eurobonds A long-term loan issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax. Eurocurrency A currency domiciled outside its country of origin normally held by non residents. Eurodollars US dollars deposited in a bank (US or non US) located outside the USA. Eurofranc Swiss French traded on the Eurocurrency market. European Coal and Steel Community European entity established in 1951 by the Treaty of Paris, with the purpose of promoting inter-European trade in general, and eliminating restrictions on the trade of coal and raw steel in particular. West Germany, France, Italy, the Netherlands, Belgium, Luxembourg, and Great Britain formed this community. European Commission The executive body of the European Economic Community in charge of making and observing the enforcement of policy. It consists of 23 departments, such as foreign affairs, competition policy and agriculture. Each country selects its own representatives for four-year terms, but the commissioners may only act for the benefit of the community. The commission is based in Brussels and consists of 17 members. European Court of Justice The European Economic Community body in charge of settling disputes between the EC and member nations. It consists of 13 members and is based in Luxembourg. European option An option that can be exercised only on its expiration date rather than before that date. European Union The grouping formerly known as the European Community. Excess Liquidity The maintenance by banks of a higher level of funds than is normally desirable, usually arising due to a drop in demand for funds because of economic conditions or interest rates. Exchange control A system of controlling inflows and out flows of foreign exchange, devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges. Exchange Equalization Account An account controlled by the UK Treasury and managed by the Bank of England. Its assets include the country's gold and foreign exchange reserves. Its objective is to manage the exchange rate in accordance with government policy. Exchange of futures for cash A transaction in which the buyer of a cash commodity transfers to the seller a corresponding amount of long futures contracts, or receives from the seller a corresponding amount of short futures, at a price difference mutually agreed upon. In this way, the opposite hedges in futures of both parties are closed out simultaneously. Exchange for physical (EFP) Consists of deals executed in the cash market, outside the exchanges, for amounts equivalent to the currency futures amount, on forward outright prices valued for the futures' expiration. EFPs are generally quoted by commercial and investment banks, even during regular trading hours. Exchange rate risk (1) Foreign exchange risk that is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. (2) Trading risk pertinent to market fluctuation. Exercise notice The formal notification that the holder of a call (or put) option wishes to buy (or sell) the underlying security at the exercise price. Exercise limit A limit on the number of options contracts a holder may exercise within a specific period. Exercise price See Strike price. Exercise value For a call option, this is the amount by which the strike price is below the underlying investment; for a put option, it is the amount by which the strike price is above the underlying investment. Exotic A less broadly traded currency. Expiration date (1) Options - the last date after which the option can no longer be exercised. (2) Bonds - the date on which a bond matures. Expiration month The month in which an option expires. Expiry date The last date on which an option can be bought or sold. Exposure see position and mismatch. Various methods of calculating an exposure exist (1) Net working capital- The current assets in a foreign currency minus current liabilities in the currency; (2) Net financial method The current assets in a foreign currency minus current liabilities and long term debt in the currency ; (3) Monetary/non monetary method- Monetary assets and liabilities in the foreign currency are valued at present exchange rates, while non monetary items are entered at the relevant historic rates. Extrinsic value See Time value. Back to top of FOREX Dictionary.
== F of Forex Dictionary ==Fair valueAn option value derived from a mathematical option valuation model. Fast market Rapid movement in a market caused by strong interest by buyers and/or sellers. In such circumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported. Fat tail distribution A graph that predicts a greater probability of a very large price movement than that predicted by normal distribution. Fed Fund Rate The interest rate on Fed funds. This is a closely watched short term interest rate as it signals the Feds view as to the state of the money supply. Fed Funds Cash balances held by banks with their local Federal Reserve Bank. The normal transaction with these fund is an inter bank sale of a Fed fund deposit for one business day. Straight deals are where the funds are traded overnight on a unsecured basis. Fed The United States Federal Reserve. Federal Deposit Insurance Corporation Membership is compulsory for Federal Reserve members. The corporation had deep involvement in the Savings and Loans crisis of the late 80s. Federal National Mortgage Association A privately owned but US government sponsored corporation that trades in residential mortgages. Its activities are funded by the sale of instruments commonly known as Fannie Maes. Federal Open Market Committee See FOMC. Federal Reserve Board The board of the Federal Reserve System, appointed by the US President for 14 year terms, one of whom is appointed for four years as chairman. Federal Reserve System The central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board. Membership of the Fed is compulsory for banks chartered by the Comptroller of Currency and optional for state chartered banks. Fedwire An automated communications and settlement system linking the Federal Reserve banks with other banks and with depository institutions. Fence A compound option strategy that consists of either a long currency position—a long out-of-money put and a short out-of-the-money call, where the options have the same expiration date (risk conversion); or a short currency position—a short out-of-the-money put and a long out-of-the-money call, where the options have the same expiration date (risk reversal). Feste Schuld A long term debt consolidated in the form of bonds, mortgages etc. German term. Fest Geld Money on fixed term deposit at banks. German term. FIBOR Frankfurt Inter-bank Offered Rate. Fill or Kill An order which must be entered for trading, normally in a pit three times, if not filled is immediately canceled. Financial future A futures contract based on a financial instrument. Financial Rand Introduced in 1979 it is part of the dual currency exchange rate system operated in South Africa. It is the proceeds of disposal of South African securities and includes the purchase of plant and equipment by foreign investors. Fine Rate (1) A quote with a narrow spread. (2) The most favorable rate charged to a high quality borrower. Firm quotation The price given in response to a request for a rate at which the quoting party is willing to execute a deal for a reasonable amount for spot settlement. Screen quotes are indicative. Quotes on matching systems are normally firm depending on systems requirement to reconfirm rate prior to completing matching. First notice day The first day on which notices of intention to deliver actual currencies against futures market positions can be received. Fiscal Policy Use of taxation as a tool in implementing monetary policy. Fisher Effect The relationship that exists between interest rates and exchange rate movements, so that in an ideal situation interest rate differentials would be exactly off set by exchange rate movements. See interest rate parity. Fixed dates The monthly calendar dates similar to the spot. There are two exceptions. For detailed description see value dates. Fixed exchange rate Official rate set by monetary authorities. Often the fixed exchange rate permits fluctuation within a band. Fixing A method of determining rates by normally finding a rate that balances buyers to sellers. Such a process occurs either once or twice daily at defined times. Used by some currencies particularly for establishing tourist rates. The system is also used in the London Bullion market. Flexible exchange rate Exchange rates with a fixed parity against one or more currencies with frequent revaluation's. A form of managed float. 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 An exchange rate where the value is determined by market forces. Even floating currencies are subject to intervention by the monetary authorities. When such activity is frequent the float is known as a dirty float. Floor (1) An agreement with a counterparty that sets a lower limit to interest rates for the floor buyer for a stated time. (2) 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. Floor brokers Any individuals on the exchange floor engaged in executing orders for another person. They may also trade for their own accounts, with the primary responsibility of executing the customers' orders first. Brokers are licensed by the federal government. Floor traders (locals) Exchange members who execute their own trades by being physically present in the pit, or place for futures trading. FOMC 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. Foreign Exchange The purchase or sale of a currency against sale or purchase of another. Forex Foreign Exchange. Forex Club Groups formed in the major financial centers to encourage educational and social contacts between foreign exchange dealers, under the umbrella of Association Cambiste International. Forward book Various net exposures for forward contracts which the bank has incurred as a result of dealing activities. Forward Contract Sometimes used as synonym for "forward deal" or "future". More specifically for arrangements with the same effect as a forward deal between a bank and a customer. Forward Cover Taking forward contracts to protect against movements in the exchange rate. Forward Deal A deal with a value date greater than the spot value date. Forward Forward A forward / forward deal is one where both legs of the deal have value dates greater than the current spot value date. Forward margins Discounts or premiums between spot rate and the forward rate for a currency. Normally quoted in points. Forward maturities Trading days on which days contracts can be transacted later than the spot date. Forward Operations Foreign exchange transactions, on which the fulfillment of the mutual delivery obligations is made on a date later than the second business day after the transaction was concluded. Forward Outright A commitment to buy or sell a currency for delivery on a specified future date or period. The price is quoted as the Spot rate minus or plus the forward points for the chosen period. Forward Rate Agreements The FRA is an agreement between two parties that determine the interest rate that will apply to a notional future loan or deposit of an agreement. Forward Rate Forward rates are quoted in terms of forward points, which represents the difference between the forward and spot rates. In order to obtain the forward rate from the actual exchange rate the forward points are either added or subtracted from the exchange rate. The decision to subtract or add points is determined by the differential between the deposit rates for both currencies concerned in the transaction. The base currency with the higher interest rate is said to be at a discount to the lower interest rate quoted currency in the forward market. Therefore the forward points are subtracted from the spot rate. Similarly, the lower interest rate base currency is said to be at a premium, and the forward points are added to the spot rate to obtain the forward rate. FRAS Forward Rate Agreement. FRN Floating rate note; see floating rate. FRCD Floating rate CD; see floating rate. Free Reserves Total reserves held by a bank less the reserves required by the authority. Freeze Legislation or agreement to keep prices or wages at current levels. Front Office The activities carried out by the dealer, normal trading activities. See Back-office. Frozen Assets Normally funds that are temporarily blocked normally either due to court order or government regulation often arising from war or major international dispute. Fundamentals 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. Funds A term for USDCAD. Fungibles Instruments that are equivalent, substitutable and interchangeable in law. May apply to certain exchange traded currency contracts offered on a number of exchanges. Furthest month The month that is furthest away from settlement of a futures or options contract. Futures contract A contract traded on a futures exchange which requires the delivery of a specified quality and quantity of a commodity, currency or financial instruments a specified future month, if not liquidated before the contract matures. FX Foreign Exchange. Back to top of FOREX Dictionary.
== G of Forex Dictionary ==G5The Group of five. The five leading industrial countries, being US , Germany, Japan, France, UK. G7 The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy. G10 G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved. Gamma The rate at which a delta changes over time or for one unit change in the price of the underlying asset. Gap A mismatch between maturities and cash flows in a bank or individual dealers position book. Gap exposure is effectively interest rate exposure. Garman Kohlhagen An option model. Gearing A company's debts expressed as a percentage of its equity capital. Gilt edged In the UK, loans issued on behalf of the government to fund its spending. Longs are gilts with a redemption date greater than 15 years. Mediums are those with a redemption date between 5 and 15 years. Shorts are those with a redemption date within 5 years. Ginnie Mae Securities issued by the Government National Mortgage Association (GNMA) of the USA. GLOBEX An electronic trading system conceived in 1987 as an after-hours trading system and geared toward global futures trading; created through a joint venture of the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBT), and Reuters PLC. Golden cross An intersection of two consecutive moving averages that move in the same direction and suggest that the currency will move in the same direction. GNMA Government National Mortgage Association . The government owned entity that was established to take over some of the FNMA functions. Unlike the FNMA its paper bears a government guarantee. Going long The purchase of a stock or commodity for investment or speculation. Going short The selling of a currency or instrument not owned by the seller. Gold Clause A clause in a financial agreement linking a monetary payment to the value of gold. Gold Franc Several gold francs are minted. The Swiss gold franc is used in BIS's balance sheet The value of these Francs is now expressed in terms of SDRs. Gold Standard The original system for supporting the value of currency issued. The was that where the price of gold is fixed against the currency it means that the increased supply of gold does not lower the price of gold but causes prices to increase. Gold Tranche Part of the country quota for IMF members that had to be paid in gold. This was normally 25% of the quota, the remainder being in domestic currency. The Gold Tranche was automatically available to members without condition. Good until canceled An instruction to a broker that unlike normal practice the order does not expire at the end of the trading day, although normally terminates at the end of the trading month. Green Currency A notional currency used in the EU's Common Agricultural Policy to keep agricultural prices at the same level throughout the EU to ensure a unified market. Grid Fixed margin within which exchange rates are allowed to fluctuate. Gross Settlement A process where full payment of each transaction is made rather than clearing a group of transactions as currently occurs in the FX market. A method designed to eliminate capital risk. Gross Before deduction of tax. 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. GNP Deflator Removes inflation from the GNP figure. Usually expressed as a percentage and based on an index figure. GNP Gap The difference between the actual real GNP and the potential real GNP. If the gap is negative an economy is overheated. Gramm Rudman The Gramm Rudman Hollings Act is the US law imposing a gradual reduction in the Federal budget deficit. Grossing-up Calculating a gross or pre-tax rate of interest or dividend by adding a notional amount of tax to the net, or post-tax amount received. GTC See Good until canceled. Back to top of FOREX Dictionary.
== H of Forex Dictionary ==Hard currencyA currency whose value is expected to remain stable or increase in terms of other currencies. Head and Shoulders A pattern in price trends which chartist 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 the price to drop to around the same level as the shoulder. A further modest rise or level will indicate a that a further major fall is imminent. The breach of the neckline is the indication to sell. Hedge The purchase or sale of options 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. Hedge ratio The number of futures or options required to hedge a given exposure in the cash market. HEIBOR Helsinki Inter-bank Offered Rate. Herstatt Relates to the exposure to the counterparty to a foreign exchange transaction defaulting which could trigger widespread default in the market due to the netting system of settlement. The name derives from a German bank involved in a bank failure that resulted in default in settling a FX transaction in the 70s. HIBOR Hong Kong Inter-bank Offered Rate. High-low band A band created by two winding parallel lines above and below a short-term moving average that borders most price fluctuations. The moving average is based on the high and low prices. The resulting two moving averages define the edges of the band. A close above the upper band suggests a buying signal and a close below the lower band gives a selling signal. Historical volatility The annualized standard deviation of percentage changes in futures prices over a specific period. It is an indication of past volatility in the marketplace. Hit the bid Acceptance of purchasing at the offer or selling at the bid. Holder Same as buyer. Hold Account Current Accounts in the UK in a currency other than sterling. Horizontal spread A calendar or time spread. Hot money Short term international capital movements, motivated by interest rate differentials or expectation of exchange rate movements. Hots In the UK treasury bills on the day of issue. Hyperinflation Very high and self sustaining inflation levels. One definition being the period while inflation exceeds 50% until it drops below that level for 12 months. Back to top of FOREX Dictionary.
== I of Forex Dictionary ==ICCHInternational Commodities Clearing House Limited, a clearing house based in London operating world wide for many futures markets. IFEMA International Foreign Exchange Master Agreement. IMF 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. IMM International Monetary Market part of the Chicago Mercantile Exchange that lists a number of currency and financial futures. Implied volatility A measurement of the market's expected price range of the underlying currency futures based on the traded option premiums. Implied volatility skews The implied volatility varies for different strikes of an option. Implied Rates The interest rate determined by calculating the difference between spot and forward rates. In-the-money A call option is in-the-money if the price of the underlying instrument is higher than the exercise/strike price. A put option is in-the-money if the price of the underlying instrument is below the exercise/strike price. See Out-of-the-money. Inconvertible currency Currency which cannot be exchanged for other currencies, either because this is forbidden by the foreign exchange regulations. Index linking The process of linking wages, social benefits payments, prices, interest rates or loan values to an economic index, usually of prices. Indicative quote A market-maker's price which is not firm. Indirect quote See reciprocal currency. Industrial Production Index A coincident indicator measuring physical output of manufacturing, mining and utilities. Inflation 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. Info Quote Rate given for information purposes only. Initial margin The margin is a returnable deposit required to be lodged by buyers and sellers with the clearing house to secure a new futures or options position. Instruction The specification of the banks at which funds shall be paid upon settlement. Inter-bank rates The bid and offer rates at which international banks place deposits with each other. The basis of the Interbank market. Inter-dealer broker A specialist broker who acts as an intermediary between market-makers who wish to buy or sell securities to improve their book positions, without revealing their identities to other market-makers. Interest Arbitrage 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. Interest parity One currency is in interest parity with another when the difference in the interest rates is equalized by the forward exchange margins. For instance, if the operative interest rate in Japan is 3% and in the UK 6%, a forward premium of 3% for the Japanese Yen against sterling would bring about interest parity. Interest rate Options An agreement permitting a party to obtain a particular interest rate, issued both OTC and by exchanges. Interest rate Cap An agreement that provides the buyer of a cap with a maximum interest rate for future borrowing requirements. Interest rate Collar A combination of a cap and a floor to provide maximum and minimum interest rates for borrowing or lending. Interest rate Floor An agreement which provides the buyer of the floor with a minimum interest rate for future lending requirements. Interest rate risk Amount of mismatches and maturity gaps among transactions in the foreign exchange book. Interest rate Swaps An agreement to swap interest rate exposures from floating to fixed or vice versa. There is no swap of the principal. It is the interest cash flows be they payments or receipts that are exchanged. Internationalization Referring to a currency that is widely used to denominate trade and credit transactions by non residents of the country of issue. US dollar and Swiss Franc are examples. International Fisher effect Theory holding that investors will hold assets denominated in depreciating currencies only to the extent that interest rates are sufficiently high to balance the expected currency losses. International Monetary Market (IMM) The major currency futures and options on currency futures market in the world. It is a division of the Chicago Mercantile Exchange in Chicago. Intervention Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates. In the money A call option is in the money when the strike price is less than the current price of the underlying instrument. A put is when the strike price is greater. Intra Day limit Limit set by bank management on the size of each dealer's Intra Day Position. Intra day position Open positions run by a dealer within the day. Usually squared by the close. Intrinsic value The amount by which an option is in-the-money. The intrinsic value is the difference between the exercise/strike price and the price of the underlying security. Inverted Market Where near months are trading at premiums to longer dates. Invisible Balance Comprises transportation services, income and expenditure on travel services, insurance's, licensees, earnings and interest income from international capital movements. IOM Index and Options Market part of the Chicago Mercantile Exchange. ISIN code The International Securities Identification Number. The structure of the ISIN code is two-digit alpha country code (ISO 3166) or XS for securities numbered by CEDEL or Euroclear; nine-digit Alpha-numeric code based on the national securities code or the common CEDEL/Euroclear code; a check digit computed according to the modulus 10 'double-add double'. ISO codes Standardized currency codes developed by the International Organization for Standardization (ISO). Islamic Banking Banking operations carried on in line with Islamic principles which prohibit usury. Interest is therefore often replaced by involvement in the venture by temporarily owning the out put from the business and onselling it at a predetermined profit. Islamic Development Bank (IDB) Established in 1976 to assist in financing development in countries with a substantial Islamic population. Investment Currency An exchange control system under which currency needed for foreign investment must be acquired through the investment currency market. Such systems are liable to create wide disparities between this and the actual market rate. Invisibles A term for exports and imports of services as distinct from merchandise (visibles). Back to top of FOREX Dictionary.
== J of Forex Dictionary ==J CurveA term describing the expected effect of a devaluation on a country's trade balance. It is anticipated that import bills rise before export orders and receipts increase. Jawbone Announcements and statements by politicians or monetary authorities to influence decisions by business, consumer, or trade union sectors, often associated with forecasts and policy implications. Jurisdiction Risk (1) the risk inherent in placing funds in the centre where they will be under the jurisdiction of a foreign legal authority. (2) the risk in making a loan subject to the laws of another country. Journal of Commerce Index Index that consists of the prices of 18 industrial materials and supplies used in the initial stages of manufacturing, building, and energy production. It is more sensitive than other indexes, as it was designed to signal changes in inflation prior to the other price indexes. Back to top of FOREX Dictionary.
== K of Forex Dictionary ==KappaA measure of the sensitivity of the price of an option to a change in its implied volatility. Kassenobligation German financial instrument traded on the Euromarkets. Key currency Small countries, which are highly dependent on exports, orientates their currencies to their major trading partners, the constituents of a currency basket. Key reversal day The daily price range on the bar chart of the reversal day fully engulfs the previous day's range; also, the close is outside the preceding day's range. Kiwi Slang for the New Zealand dollar. Kondratieff Cycle Long term economic cycles , named after an economist who identified 50-60 year economic cycles. Knock in A process where a barrier option (European) becomes active as the underlying spot price is in the money. Knock out has a corresponding meaning although the option may permanently cease to exist. Back to top of FOREX Dictionary.
== L of Forex Dictionary ==LadderDealers analysis of the forward book or deposit book showing every existing deal by maturity date, and the net position at each future date arising. Lagging Indicator A measure of economic activity which tends to change after change has occurred in the overall economy e.g. CPI. Lapsed rights Rights for which call payments have not been made by the acceptance date. Last notice day The final day on which notices of intent to deliver on futures contracts may be issued. Last trading day The day on which trading ceases for an expiring contract. Lay off To carry out a transaction in the market to offset a previous transaction and return to a square position. LDC Less developed countries, often used with respect to secondary debt market. Leading Indicators Statistic that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders. Leads and Lags The effect on foreign trade payments of an anticipated move in the exchange rate, normally a devaluation. Then payment of imports is faster and export receipts is slowed down. Left-hand side Taking the left hand side of a two way quote i.e. selling the quoted currency. Leverage The use of credit or borrowed funds to improve one's speculative capacity and increase the rate of return from an investment, as in buying securities on margin. In options terminology, this expresses the disproportionately large change in the premium in terms of the relative price movement of the underlying instrument. Levy An option model. Liability 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. LIBID The London Interbank Bid Rate. The rate charged by one bank to another for a deposit. LIBOR The London Interbank Offered Rate, the rate charged by one bank to another for lending money. LIMEAN Calculated from the mean average of LIBOR and LIBID. Liee French term for a swap. Life of contract The period between the beginning of trading in a particular future and the expiration of trading. LIFFE London International Financial Futures Exchange. Limit down The maximum price decline from the previous trading day's settlement price permitted in one trading session. Limit move A price that has advanced or declined the permissible limit permitted during one trading session. Limit order An order to buy or sell a specified amount of a security at a specified price or better. Limit up The maximum price advance from the previous trading day's settlement price permitted in one trading session. Limit (1)The maximum price fluctuation permitted by an exchange from the previous session's settlement price for a given contract. (2) In international banking the limit a bank is willing to lend in a country. (3) the amount that one bank is prepared to trade with another. (4) the amount that a dealer is permitted to trade in a given currency. Limited convertibility When residents of a country are prohibited from buying other currencies even though non-residents may be completely free to buy or sell the national currency. Lines An arrangement by which a bank agrees to lend to the line holder during some specified period any amount up to the full amount of the line. Liquidation Any transaction that offsets or closes out a previously established position. Liquidity The ability of a market to accept large transactions. Local A futures trader who normally trades on an exchange on his/her own account. Locked market A market is locked when the bid price equals the asked price. Lombard Rate One of the key commercial interest rates normally referring to Germany although such rates exist in France, Belgium, and Switzerland. An interest rate for a loan against the security of pledged paper. Long dated shorts A forward purchase and sale with a brief uncovered position between them. This may also be referred to as long short dates. Long The holding of an excess of a particular currency. Long Hedge The purchase of futures contracts for price protection purposes, as a defensive position against an increase in cash prices, or falling interest rates. Long straddle A compound option that consists of a long call and a long put on the same currency, at the same strike price, and with the same expiration dates. The maximum loss for the buyer is the sum of the premiums. The upside break-even point is the sum of the strike price and the premium on the straddle. The downside break-even point is the difference between the strike price and the premium on the straddle. The profit is unlimited. Long strangle A compound option that consists of a long call and a long put on the same currency, at different strike prices, but with the same expiration dates. The profit is unlimited. Look Back An option that permits exercise at any rate that existed during the option period but only exercisable after the option period. Louvre Accord The 1987 agreement between the G5 calling for a halt in the dollars decline, re-establish balanced trade and non inflationary growth. LXBOR Luxembourg Inter-bank Offered Rate. Back to top of FOREX Dictionary.
== M of Forex Dictionary ==M0cash in circulation. Only used by the UK. M1 cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities. 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. M4 In the US it is M2 plus negotiable CDs. Maintenance margin The minimum margin which an investor must keep on deposit in a margin account at all times in respect of each open contract. 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. Make up day The day when banking figures need to be compiled for central bank reporting. Managed float When the monetary authorities intervene regularly in the market to stabilize the rates or to aim the exchange rate in a required direction. Margin call A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse future price movements. Margin (1)Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward. (2)For options the sum required as collateral from the writer of an option. (3)For futures a deposit made to the clearing house on establishing a futures position account. (4) The percentage reserve required by the US Federal Reserve to make an initial credit transaction. Marginal Risk The that a customer goes bankrupt after entering into a forward contract. In such an event the issuer must close the commitment running the risk of having to pay the marginal movement on the contract. Mark to market The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins. Mark up Premium. Market amount The minimum amount conventionally dealt for between banks. Market maker A market maker is a person or firm authorized to create and maintain a market in an instrument. Market if Touched An order that becomes a market order if the specified price is reached. Market order An order to buy or sell a financial instrument immediately at the best possible price. Marshall - Lerner A model that states that if the sum of the elasticity's of demand for a country's and that of the imports exceed one, then devaluation will have a positive effect upon the trade balance. Marry Where a dealer is able to match two customer deals which off set one another. MAS Monetary Authority of Singapore. Matched book If the distribution of the maturities of a banks liabilities equal that of its assets , it is said to be running a matched book. Matching The process of ensuring that purchases and sales in each currency and deposits given and taken in each currency are in balance, by amount and maturity. Matching systems Electronic systems duplicating the traditional brokers' market. A price shown by a bank is available to all traders. Maturity date The date when a foreign exchange contract expires. Merchandise Trade Balance An economic indicator that consists of the net difference between the exports and imports of a certain economy. The data includes food, raw materials and industrial supplies, consumer goods, autos, capital goods, and other merchandise. MATIF Marche a Terme International de France. Maturity date (1) The last trading day of a futures contract. (2) Date on which a bond matures, at which time the face value will be returned to the purchaser. Sometimes the maturity date is not one specified date but a range of dates during which the bond may be repaid. MIBOR Madrid Inter-bank Offered Rate. Micro economics The study of economic activity as it applies to individual firms or well defined small groups of individuals or economic sectors. Mid Office The control of the trading activity including position keeping. 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. Milliard European term for 1,000 million. Mine Expression used to indicate that the contacting party is willing to buy at the rate offered by the quoting bank. Minimum price fluctuation The smallest increment of market price movement possible in a given futures contract. Minimum Reserve Reserves required to be deposited at central banks by commercial banks and other financial institutions. Sometimes referred to as Registered Reserves. Mio Million. Mismatch (1) A mismatch between the interest rate maturities of a banks assets and liabilities. (2) Forward purchases differ in the value date from the forward sales in a given currency. MITI Japanese ministry of International Trade & Industry. MM Money Markets. Monetarism A school of economics which believes that strict control of money supply is the principal tool for implementing monetary policy, especially against inflation. Policies include cuts in public spending and hopefully temporary high interest rates. Monetary Base Currency in circulation plus banks' required and excess deposits at the central bank. Monetary Easing A modest loosening of monetary constraint by changing interest rate, money supply, deposit ratios etc. Monetary Union An agreement between countries to maintain a fixed exchange rate between their currencies. Moneyness The extent to which an option is in or out of the money, expressed as a percentage of the current spot, forward or future depending upon the nature of the underlying asset. Positive moneyness is in the money. Money Market A market consisting of financial institutions and dealers in money or credit who wish to either borrow or lend. Money Market Operations Comprises the acceptance and re-lending of deposits on the money market. Money Stock A measure of German money supply, being cash and banks' minimum reserves on domestic liabilities (sight, statutory notice, and time deposits). Used by the Bundesbank until 1987 as its monetary target. Money Supply The amount of money in the economy, which can be measured in a number of ways. See definitions of M0-M4. Moral Suasion When monetary authorities and governments try to influence the markets by persuasion rather than regulation or the its threat. Most Favored Nation (MFN) An undertaking to give the rate of tariff concession offered to members of the GATT. More concessionaire rates can exist. Moving Average A way of smoothing a set of data, widely used in price time series. Multiple Exchange Rates Different exchange rates for different types of transaction. Mutual fund An open-end investment company. Equivalent to unit trust. Back to top of FOREX Dictionary.
== N of Forex Dictionary ==Naked intervention (unsterilized intervention) Back to top of FOREX Dictionary.
== O of Forex Dictionary ==Odd Lot Back to top of FOREX Dictionary.
== P of Forex Dictionary ==Package deal Back to top of FOREX Dictionary.
== Q of Forex Dictionary ==Quote Back to top of FOREX Dictionary.
== R of Forex Dictionary ==Rally |