A
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 good and services.
Aggregate risk:
Size of exposure of a single customer to a market related movement.
Aggregate Supply:
Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.
Aggressor:
A trader dealing on an existing price in the market.
Appreciation:
The increase in the value of an asset.
Arbitrage:
Profiting from differences in the price of a single currency pair that is traded on more than one market.
Ask:
The price at which a currency pair or security is offered for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'offer', 'ask price', and 'ask rate'.
Asset:
An item having commercial or exchange value.
B
Back Office:
The office location, or department, where the processing of financial transactions takes place.
Base Currency:
In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency.
Bear Market:
An extended period of general price decline in an individual security, an asset, or a market.
Bid:
The price at which an investor can place an order to buy a currency pair; the quoted price where an investor can sell a currency pair. This is also known as the 'bid price' and 'bid rate'.
Bid/Ask Spread:
The point difference between the bid and offer (ask) price.
Big Figure:
The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 108.05/10 the big figure is 108. EUR/USD price of .8325/28 the big figure is .83
Bull Market:
A market which is on a consistent upward trend.
Buy Limit Order:
An order to execute a transaction at a specified price (the limit) or lower.
Buy On Margin:
The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.
C
Cable:
The British pound/US Dollar exchange rate GBP/USD.
Candlestick Chart:
A chart that displays the daily trading price range (open, high, low and close).
Carry (Interest-Rate Carry):
The income or cost associated with keeping a foreign exchange position overnight. This is derived when the currency pairs in the position have different interest rates for the same period of time.
Central Bank:
A bank, administered by a national government, which regulates the behavior of financial institutions within its borders and carries out monetary policy.
Chartist:
A person who attempts to predict prices by analyzing past price movements as recorded on a chart.
Closing a Position:
The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of the position.
Closing Market Rate:
The rate at which a position can be closed based on the market price at end of the day.
Commission:
The fee levied by an institution to undertake a trade on behalf of a customer.
Confirmation:
Written acknowledgment of a trade, listing important details such as the date, the size of the transaction, the price, the commission, and the amount of money involved.
Counterpart:
A participant in a financial transaction.
Cross-Rate:
The exchange rate between 2 currencies where neither of the currencies are USD.
Currency:
Money issued by a government.
Currency Pair:
The two currencies that make up a foreign exchange rate. IE: USD/YEN.
Currency Risk:
The possibility of an unfavorable change in exchange rates.
D
Day Order:
A buy or sell order that will expire automatically at the end of the trading day on which it is entered.
Day Trade:
A trade opened and closed on the same trading day.
Day Trader:
A trader who buys and sells on the basis of small short-term price movements.
Day Trading:
Refers to a style or type of trading where trade positions are opened and closed during the same day.
Dealer:
An individual or firm that buys and sells assets from their portfolio, acting as a principal or counterpart to a transaction.
Depreciation:
A fall in the value of a currency due to market forces.
Devaluation:
The act by a government to reduce the external value of its currency.
Discretionary Account:
An account in which the customer permits a trading institution to act on the customer's behalf in buying and selling currency pairs. The institution has discretion as to the choice of currency pairs, prices, and timing-subject to any limitations specified in the agreement.
E
Euro:
The common currency adopted by eleven European nations(Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal) on January 1, 1999.
European Central Bank (ECB):
The Central Bank for the new European Monetary Union.
Execution:
The Process of completing an order or deal.
F
Federal Deposit Insurance Corporation (FDIC):
The regulatory agency responsible for administering bank depository insurance in the United States.
Federal Reserve (Fed):
The Central Bank of the United States.
Fill:
The process of completing a customer's order to buy or sell a currency pair.
Fill Price:
The price at which a buy or sell order was executed.
Financial Risk:
The risk that a firm will be unable to meet its financial obligations.
Flat:
Term describing a trading book with no market exposure.
Forward:
A transaction that settles at a future date.
Forward Points:
The points that are added to or subtracted from the spot rate to calculate the forward rates for a forward foreign exchange transaction. These points are based on the differential between the interest rates of the two currency pairs.
Forward Price: (See forward rates).
Forward Rates: The net price resulting from calculating the forward points and subtracting them from the existing spot rate. This is the rate at which a currency can be purchased or sold for delivery in the future.
G
Good Till Cancelled Order (GTC):
A buy or sell order which remains open until it is filled or canceled.
H
Hedge: A transaction that reduces the risk on an existing investment position.
IInitial Margin:
The deposit a customer needs to make before being allocated a trading limit.
Initial Margin Requirement:
The minimum portion of a new security purchase that an investor must pay for in cash.
J
Jobber:
A trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.
L
Limit Order:
An order to execute a transaction at a specified price (the limit) or better. A limit order to buy would be at the limit or lower, and a limit order to sell would be at the limit or higher.
Liquidity:
Refers to the relationship between transaction size and price movements. For example, a market is "liquid" if large transactions can occur with only minimal price changes.
Long Position:
In foreign exchange, when a currency pair is bought, it is understood that the primary currency in the pair is 'long', and the secondary currency is 'short'.
M
Maintenance:
A set minimum margin that a customer must maintain in his margin account
Margin:
The amount of money needed to maintain a position.
Margin Account:
An account that allows leverage buying on credit and borrowing on currencies already in the account. Buying on credit and borrowing are subject to standards established by the firm carrying the account. Interest is charged on any borrowed funds and only for the period of time that the loan is outstanding.
Margin Call:
A call for additional funds in a margin account either because the value of equity in the account has fallen below a required minimum (also termed a maintenance call) or because additional currencies have been purchased (or sold short).
Mark-to-Market:
The theoretical value of an open position at the current market price.
Market Close:
This refers to the time of day that a market closes. In the 24 hour-a-day foreign exchange market, there is no official market close. 5:00 PM EST is often referred to and understood as the market close because value dates for spot transactions change to the next new value date at that time.
Market-Maker:
person or firm that provides liquidity making two-sided prices (bids and offers) in the market.
Market Order:
A customer order for immediate execution at the best price available when the order reaches the marketplace.
Market Rate:
The current quote of a currency pair.
Market Risk:
The risks that occur when general market pressures cause the value of an investment to fluctuate.
Maturity:
The date on which payment of a financial obligation is due.
Momentum:
The tendency of a currency pair to continue movement in a single direction.
O
OCO-One Cancels the Other Order:
A combination of two orders in which the execution of either one automatically cancels the other.
Offer:
The price at which a currency pair or security is for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'ask', 'ask price', and 'ask rate'.
Open Order:
Buy or sell order that remains in force until executed or cancelled by the customer.
Open Position:
Any position (long or short) that is subject to market fluctuations and has not been closed out by a corresponding opposite transaction.
Order:
A customer's instructions to buy or sell currencies.
Overnight Position:
Trader's long or short position in a currency at the end of a trading day.
P
Pip:
The smallest increment of change in a foreign currency price, either up or down.
Price:
The price at which the underlying currency can be bought or sold.
Price Transparency:
The ability of all market participants to "see" or deal at the same price.
Principal Value:
The original amount invested by the client.
