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A

Account – A record of transactions of goods and services owed by one person to another (Go to our forex account section).

Accrual – The 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 which are traded in the cash market.

ADX – Measures the strength of a prevailing currency trend and whether or not there is direction in the forex market. Plotted from zero on up, usually a reading above 25 can be considered directional.

Adjustable Peg – Term for 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. This was the basis of the Bretton Woods Agreement. See peg, and crawling peg.

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, consisting of government spending, private/consumer and business investment.

Aggregate Risk – Size of exposure of a bank to a single customer for both forex 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 currency into a strong currency.

All or None – A limit price order that instructs the broker to fill the whole order at the stated price or not at all.

American Option – An option that can be exercised anytime during its life. The majority of exchange-traded options are American.

Anonymous Trading – Visible bids and offers on the forex market without the identity of the bidder and seller being revealed. Anonymous trades allow the high profile traders to execute transactions without the scrutiny and speculation of the market.

Appreciation – An increase in the value of a currency in response to market demand.

Arbitrage – Taking advantage of countervailing prices in different markets by the purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market to profit from small price differentials.

Arbitrage Channel – The range of prices within which there will be no possibility to arbitrage between the cash and futures market.

Around – Used in quoting forward "premium / discount". "Five-five around" would mean five point on either side of the present spot value.

Ascending Triangles – A bullish continuation pattern that is shaped like a right triangle consisting of two or more equal highs forming a horizontal line at the top.

Asset Allocation – The diversification of one’s assets into different sectors, such as real estate, stocks, bonds, and forex, to optimize growth potential and minimize risk.

Asset Swap – An interest rate swap used to alter the cash flow characteristics of an institution’s assets in order to provide a better match with its liabilities.

Ask – The price at which the currency or instrument is offered.

Asset – In the context of foreign exchange is the right to receive from a counterparty an amount ofcurrency either in respect of a balance sheet asset (e.g. a loan) or at a specified future date in respect ofan unmatched forward Forward or spot deal.

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.

Authorized Dealer – A financial institution or bank authorized to deal in foreign exchange.

B

Back Office – The departments and processes related to the settlement of financial transactions (i.e.written confirmation and settlement of trades, record keeping).

Back Testing – The process of designing a trading strategy based on historical data. It is then applied tofresh data to see if and how well the strategy works. Most technical analysis is tested with this approach.

Backwardation – Term referring to the amount that the spot price exceeds the forward price.

Balance – Amount of money in a forex account.

Balance of Payments – A record of all transactions made by one particular country with others during acertain time period. It compares the amount of economic transactions between a country and all othercountries. This includes trade balance, foreign investments, and investments by foreigners.

Balance of Trade – Net flow of goods (exports minus its imports) between two countries.

Bank for International Settlements (BIS) – An international organization fostering the cooperation ofcentral banks and international financial institutions. Essentially, the BIS, located in Basel, Switzerland, is a central bank for central banks. It monitors and collects data on international banking activity andpromulgates rules concerning international bank regulation.

Band – The range in which a currency is permitted to move. A system used in the ERM.

Bank Line – Line of credit granted by a bank to a customer, also known as a " line".

Bank Rate – The rate at which a central bank is prepared to lend money to its domestic banking system.

Bar Chart – On a daily bar chart each bar represents one day’s activity. The vertical bar is drawn from theday’s highest price to the day’s lowest price. Closing price and opening price are represented by ticks onthe bar. Each bar can represent different periods of time.

Base Currency – In general terms, the base currency is the currency in which an investor or issuermaintains its book of accounts. In the forex markets, the US Dollar is normally considered the "base" currency for quotes, meaning that quotes are expressed as a unit of US$1 per the other currency quotedin the pair. The primary exceptions to this rule are the British Pound (GBP), the Euro (EUR) and theAustralian Dollar (AUD).Basis – The difference between the cash price and futures price.

Basis Point – For most currencies, it denotes the fourth decimal place in the exchange rate andrepresents 1/100 of one percent (.01%). For such currencies as the Japanese Yen (JPY), a basis point isthe second decimal place when quoted in currency terms or the sixth and seventh decimal places,respectively, when quoted in reciprocal terms.

Basis Trading – Taking opposite positions in the cash and futures market with the intention of profitingfrom favorable movements in the basis.

Basket – A group of currencies normally used to manage the exchange rate of a currency. Sometimesreferred to as a unit of account.

Bear Market – A market distinguished by a prolonged period of declining prices accompanied withwidespread pessimism.

Bear – Investor acting on the belief that prices or the market will decline.

Bid – The price at which a buyer has offered to purchase the currency.

Bid/Ask Spread – See spread.

Bollinger Bands – The basic interpretation of Bollinger Bands is that prices tend to stay within the upperand lower bands. The distinctive characteristic of Bollinger Bands is that the spacing between the bandsvaries based on the volatility of the prices. During periods of extreme price changes (i.e., high volatility),the bands widen to become more forgiving. During periods of low volatility, the bands narrow to containforeign exchange prices. The bands are plotted two standard deviations above and below a simplemoving average. They indicate a "sell" when above the moving average (or close to the upper band) anda "buy" when below it (or close to the lower band). The bands are used by some FX traders in conjunctionwith other analyses, including RSI, MACD, CCI, and Rate of Change.

Book – The summary of currency positions held by a dealer, desk, or room. A total of the assets andliabilities. 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 positionsto another office at the close of the day, e.g. from London to New York.

Bretton Woods Accord of 1944 – An agreement that established fixed foreign exchange rates for majorcurrencies, provided for central bank intervention in the forex market, and set the price of gold at US$35per ounce. The agreement lasted until 1971.

Broker – Brings buyers and sellers together for a commission paid by the initiator of the transaction. Brokers do not take market positions.

Bull Market – A prolonged period of generally rising prices.

Bull – An investor who believes that currency prices are going to rise.

Bundesbank – Central Bank of Germany.

Buying Rate – Rate at which the forex market and a market maker in particular is willing to buy thecurrency. Sometimes called bid rate.

C

Cable – A term used in the forex market for the US Dollar/British Pound rate.

Call Rate – The overnight interbank interest rate.

Candlestick Charts – Identical to a bar chart in the information conveyed, but presented in an entirelydifferent visual context. The candlestick encapsulates the open, high, low and close of the trading periodin a single candle.

Capital Markets – Markets in which capital (stocks, bonds, etc.) is traded; Usually for medium or long term investing.

Capital Risk – The risk arising from a bank having to pay to the counter party with out knowing whetherthe 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.

Carry Trade – An investment position of buying a higher yielding currency with the capital of a loweryielding currency to gain an interest rate differential.

Cash Delivery – Same day settlement.

Cash Market – The market in the actual financial instrument on which a futures or options contract isbased.

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 forex serviceson these markets because of time zone preference; i.e. Latin America. In Europe and Asia, cashtransactions 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 cashand carry is possible by selling an asset and buying a future.

Cash Settlement – A procedure for settling futures contract where the cash difference between the futureand the market price is paid instead of physical delivery.

Central Bank – A banking organization, usually independent of government, responsible for implementinga country’s monetary policy and for printing money.

Central Rate – Foreign exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.

Chartist – An individual who uses charts and graphs and interprets historical data to find trends andpredict future movements, as well as, aid in technical analysis.

Clean Float – An exchange rate that is not materially effected by official intervention.

Close a Position (Position Squaring) – Refers to getting rid of a position, either by buying back a shortposition or selling a long position.

Commission – The fee that a broker may charge clients for dealing on their behalf.

Confirmation – A written document to the other party describing all the relevant details of the transaction.

Contagion – Term used to describe the spread of economic crises from one country’s market to othercountries within close geographic proximity. This term was first used following the Asian Financial Crisisin 1997, which began in Thailand and soon spread to other East Asian economies. It now is used to referto the recent crisis in Argentina and its effects on other Latin American countries.

Contract – An agreement to buy or sell a specified amount of a particular currency or option for aspecified month in the future (See Futures contract).

Continuation – Represents an extension of the trend. The trend continues to have momentum, andhence it moves onwards without reversal.

Conversion Account – A general ledger account representing the uncovered position in a particularcurrency. Such accounts are referred to as Position Accounts.

Conversion – The process by which an asset or liability denominated in one currency is exchanged for anasset or liability denominated in another currency.

Conversion Arbitrage – A transaction where the asset is purchased and buys a put option and sells a calloption on the asset purchased, each option having the same exercise price and expiration.

Convertible Currency – Currencies that can be exchanged for other currencies or gold.

Copey – Slang for the Danish Krone.

Correction – A move in price against the current established trend.

Correspondent Bank – The foreign banks representative who regularly performs services for a bankwhich has no branch in the relevant canter, e.g. to facilitate the transfer of funds. In the US this oftenoccurs domestically due to inter state banking restrictions.

Cost of Carry – The cost associated with borrowing money in order to maintain a position. It is based onthe interest parity, which determines the forward price.

Counterparty – The other organization 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 thetransaction.

Country Risk – The risk associated with government intervention (does not include central bankintervention). Examples are legal and political events such as war, or civil unrest.

Cover – (1) To take out a forward foreign exchange contract. (2) To close out a short position by buyingcurrency or securities which have been sold.

Covered Arbitrage – Arbitrage between financial instruments denominated in different currencies, usingforward cover to eliminate exchange risk.

Covered Margin – The interest rate margin between two instruments denominated in different currenciesafter taking account of the cost of forward cover.

Crawling Peg – A method of exchange rate adjustment; the rate is fixed/ pegged, but adjusted at certainintervals in line with certain economic or market indicators.

Credit Checking – Before making a large financial transaction, it imperative to check whether thecounterparty has enough available credit to carryout/honor the transaction. Credit checking refers to theprocess of verifying that counterparty has enough credit. The check is initiated after the price has beendetermined.

Credit Netting – Arrangements that exist to maximize free credit and speed the dealing process byreducing the need to constantly recheck credit. Large banks and trading institutions may haveagreements to net outstanding deals.

Credit Risk – Risk of loss that may arise on outstanding contracts should a counter party default on itsobligations.

Cross Deal – A foreign exchange deal entered into involving two currencies, neither of which is the basecurrency.

Cross Rates – Rates between two currencies, neither of which is the US Dollar.

Cup with Handle – Named after the resemblance the formation on the chart bears to a cup and handle,this pattern offers Explanation into where a bullish trend in the price of a currency can begin. Once thepattern begins to curve upward and reaches the cup line, the currency is believed to be bullish and set fora rise.

Currency Option – Option contract which gives the right to buy or sell a currency with another currency ata specified exchange rate during a specified period.

Currency Risk – The risk of incurring losses resulting from an adverse change in exchange rates.

Currency Swap – Contract which commits two counter-parties to exchange streams of interest paymentsin different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.

Currency Swaption – OTC Option to enter into a currency swap contract.

Currency Warrant – OTC Option; long-dated (more than one year) currency option.

Current Account – The net balance of a country’s international payment arising from exports and importstogether with unilateral transfers such as aid and migrant remittances. It excludes capital flows.

D

Day trader – Speculators who buy and sell currencies during the same trading day, ending the day withno opened positions.

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 – One who, as opposed to a broker, acts as a principle in all transactions, buying and selling for itsown accounts.

Deficit – A negative balance of trade (or payments); expenditures are greater than income/revenue.

Deflator – Difference between real and nominal Gross National Product, which is equivalent to the overallinflation rate.

Delivery Date – The date of maturity of the contract, when the exchange of the currencies is made Thisdate is more commonly known as the value date in the FX or Money markets.

Delivery Risk – A term to describe when a counterparty will not be able to complete his side of the deal,although willing to do so.

Depreciation – A fall in the value of a currency due to market forces rather than due to official action.

Derivative – A security whose value is dependent on the value of another security. Examples ofderivatives are future contracts, forward contracts and options. Underlying securities can include stocks,bonds or currencies. Derivatives can be traded and are usually used to hedge portfolio risk.

Devaluation – The deliberate downward adjustment of a currency`s value versus the value of anothercurrency normally caused by official announcement.

Desk ("Trade Desk") – Term referring to a group dealing with a specific currency or currencies.

Details – All the information required to finalize an FX transaction, i.e. name, rate, dates, and point ofdelivery.

Devaluation – Deliberate downward adjustment of a currency against its fixed parities or bands, normallyby formal announcement.

Direct Quotation – Quoting in fixed units of the foreign currency against variable amounts of the domesticcurrency.

Dirty Float – An exchange rate system in which the currency is not pegged, but is "managed" by thecentral bank to prevent extreme fluctuations in the exchange rate. The exchange rate is managed throughchanges in the interest rate to attract/detract capital flows or through the buying and selling of thecurrency. This system is contrasted with a Pure Float in which there is no central bank intervention andthe exchange rate is entirely determined by the market and speculation. Also known as "Managed Float."

Dollar Rate – When a variable amount of a foreign currency is quoted against one US Dollar, regardlessof where the dealer is located or in what currency he is requesting a quote. The exception is theSterling/US Dollar rate (cable) which is quoted as variable amount of US Dollars to one Sterling.

E

Easing – Modest decline in price.

Economic Exposure – The risk on a company’s cash flow arising from foreign exchange fluctuations.

Economic Indicator – An economic statistic used to indicate the overall health of an economy, such asGDP, unemployment rates, and trade balances. Used in fundamental analysis of the forex market tospeculate against the direction of an exchange rate.

Economic Exposure – When the cash flow of a country is vulnerable to changes in the exchange rate.

ECU – European Currency Unit.

EDI – Electronic Data Interchange.

Effective Exchange Rate – An attempt to summarize the effects on a country’s trade balance of itscurrency’s changes against other currencies.

Efficient Markets – Markets where assets are traded in which the price is indicative of all current andrelevant information and thus it is impossible to have undervalued assets.

Efficient Market Theory – The theory that the current market price reflects all information andexpectations regarding the currency pair in question. The theory also assumes that the market cannotoverprice or underprice an asset, and hence the current price is the correct valuation at the time.

EFT – Electronic Fund Transfer.

Elliot Wave Theory – A theory based on the notion that the market moves in waves, which consist oftrends followed by partial corrections. The Elliot Wave Theory states that there are 5 waves within anoverall trend.

EMS – European Monetary System, an agreement between member nations of the European Union tomaintain an alignment between the exchange rates of their respective currencies.

End Of Day (or Mark to Market) – Traders account for their positions in two ways: accrual or mark-to-market. An accrual system accounts only for cash flows when they occur, hence, it only shows a profit orloss when realized. The mark-to-market method values the trader`s book at the end of each working dayusing the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start thenext day with a net position.

Envelopes – While Bollinger Bands place boundary lines based on standard deviation, envelopes placelines at fixed percentage points above and below a moving average line. The upper and lower limitsspecify entry and exit points for currency traders.

Equilibrium – A price region that suggests a balance between demand and supply for an currency pair inthe marketplace.

Euro – The currency of the European Monetary Union (EMU) which replaced the European Currency Unit(ECU).

European Central Bank – The Central Bank for the European Monetary Union.

European Monetary System – A system designed to stabilize if not eliminate exchange risk betweenmember states of the EMS as part of the economic convergence policy of the EU. It permits currencies tomove in a measured fashion (divergence indicator) within greed bands (the parity grid) with respect tothe ECU and consequently with each other.

European Monetary Union – An institution of the EU, whose primary goal is to establish a singlecurrency (the euro) for the entire EU. Currently, the Euro exists only as a banking currency and for paperfinancial transactions and foreign exchange. The current members of the EMU are Germany, France,Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal.

Exchange Control – Rules used to preserve or protect the value of a countries currency.

Exchange Rate Risk – See Currency Risk.

Exotic – A less broadly traded currency.

Exponentially Weighted Moving Average (EMA) – While the simple moving average distributes weightequally across the data series, exponentially weighted moving averages place greater weight to morerecent data. As a result, they tend to provide a faster signal.

Exposure – In foreign exchange, a potential for gain or loss because of movement in foreign exchangerate.

F

Fast Market – Rapid movement in a market caused by strong interest by buyers and/or sellers. In suchcircumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fullyreported.

Fed Fund Rate – The interest rate on Fed funds. This is a closely watched short term interest rate as itsignals the Fed’s view as to the state of the money supply.

Fed – The central bank of the United States, responsible for monetary policy.

Federal Reserve System – The central banking system in the United States.

Fibonacci Numbers – Derived from a sequence of numbers in which each successive number is the sumof the two previous numbers, Fibonacci numbers are used frequently in hypothesizing which currenciesinvestment capital will gravitate towards. Namely, there are four popular Fibonacci studies: arcs, fans,retracements, and time zones. Fibonacci numbers are commonly used in the forex market.

Fill or Kill – An order which must be entered for trading, normally in a pit three times, if not filled isimmediately canceled.

Fisher Effect – The relationship that exists between interest rates and exchange rate movements, so thatin an ideal situation interest rate differentials would be exactly off set by exchange rate movements. Seeinterest rate parity.

Fixed Exchange Rate – An official exchange rate set by monetary authorities for one or more currencies.In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading tointervention.

Flag and Pennant – Shaped like a flagpole with a penant, this formation is characterized by an upwardmovement with a large slope followed by a period of consolidation. It is considered a bullish patternoverall, as the pattern is expected to continue rising.

Flat / Square – To be neither long nor short is the same as to be flat or square. One would have a flatbook if he has no positions or if all the positions cancel each other out.

Flexible Exchange Rate – Exchange rates with a fixed parity against one or more currencies with frequentrevaluation’s. A form of managed float.

Floating Exchange Rate – An exchange rate where the value is determined by market forces. Evenfloating currencies are subject to intervention by the monetary authorities. When such activity is frequentthe float is known as a dirty float.

Floating Rate Interest – As opposed to a fixed rate, the interest rate on this type of deal will fluctuate withmarket rates or benchmark rates. One example of a floating rate interest is a standard mortgage.

FOMC – Federal Open Market Committee, the committee that sets money supply targets in the US whichtend to be implemented through Fed Fund interest rates etc.

Foreign Exchange (or Forex or FX) – The purchase or sale of a currency against sale or purchase ofanother.

Foreign Exchange Swap – Transaction which involves the actual exchange of two currencies (principalamount only) on a specific date at a rate agreed at the time of the conclusion of the contract (short leg), ata date further in the future at a rate agreed at the time of the contract (the long leg).

Forex – Term commonly used when referring to the foreign exchange market.

Forex Club – Groups formed in the major financial centers to encourage educational and social contactsbetween FX dealers, under the umbrella of Association Cambiste International.

Forward Margins – Discounts or premiums between spot rate and the forward rate for a currency.Normally quoted in points.

Forward Operations – Forex transactions, on which the fulfillment of the mutual delivery obligations ismade 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 orperiod. The price is quoted as the Spot rate minus or plus the forward points for the chosen period.

Forward Rate – Forward rates are quoted in terms of forward points, which represents the differencebetween the forward and spot rates. In order to obtain the forward rate from the actual exchange rate theforward points are either added or subtracted from the exchange rate. The decision to subtract or addpoints is determined by the differential between the deposit rates for both currencies concerned in thetransaction. The base currency with the higher interest rate is said to be at a discount to the lower interestrate quoted currency in the forward market. Therefor 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 areadded to the spot rate to obtain the forward rate.

Free Reserves – Total reserves held by a bank less the reserves required by the authority.

Front Office – Refers to the sales personnel (trading and other business personnel) in a financialcompany.

Fundamental Analysis – The analysis of economic indicators and political and current events that couldeffect the future direction of financial markets. In the foreign exchange market, fundamental analysis isbased primarily on macroeconomic events.

Futures – A way of trading financial instruments, currencies or commodities for a specific price on aspecific date in the future. Unlike options, futures give the obligation (not the option) to buy or sellinstruments at a later date. They can be used to both protect and to speculate against the future value ofthe underlying product.

FX – Foreign Exchange.

G

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. Switzerlandis sometimes peripherally involved.

Gap – A mismatch between maturities and cash flows in a bank or individual dealers position book. Gapexposure is effectively interest rate exposure.

Going Long – The purchase of a stock, commodity, or currency for investment or speculation.

Going Short – The selling of a currency or instrument not owned by the seller.

Gold Standard – The original system for supporting the value of currency issued. The was that where theprice of gold is fixed against the currency it means that the increased supply of gold does not lower theprice of gold but causes prices to increase.

Good-till-Canceled (GTC) – Refers to an order given by an investor to a dealer to buy or sell a security ata fixed price that is considered "good" until the investor cancels it.

Grid – Fixed margin within which exchange rates are allowed to fluctuate.

Gross Domestic Product (GDP) – Total value of a country’s output, income or expenditure producedwithin the country’s physical borders.

Gross National Product – Gross domestic product plus " factor income from abroad" – income earnedfrom investment or work abroad.

GTC – "Good Till Cancelled". An order left with a Dealer to buy or sell at a fixed price. The order remainsin place until it is cancelled by the client.

H

Hard Currency – Any one of the major world currencies that is well traded and easily converted into othercurrencies.

Head and Shoulders – A pattern resembling two peaks (the shoulders) with a higher peak between thetwo shoulders (the head). The neckline, or the bottom boundary that both shoulders reach, is regarded asa key point traders can use to enter/exit positions.

Hedge – An investment position or combination of positions that reduces the volatility of your portfoliovalue. One can take an offsetting position in a related security. Instruments used are varied and includeforwards, futures, options, and combinations of all of them.

Hedged Position – One open buy position and one open sell position in the same currency.

High/Low – Refers to the daily traded high and low prices of a given currency pair.

Historical Volatility – A measure of the change in price over a specified time frame. Higher volatilitysuggests that the currency is more likely to trade within a wider range, while reduced volatility suggeststhat the currency will trade in a narrower range.

Hit The Bid – Acceptance of purchasing at the offer or selling at the bid.

I

IMF – International Monetary Fund, established in 1946 to provide international liquidity on a short andmedium term and encourage liberalization of exchange rates. The IMF supports countries with balance ofpayments problems with the provision of loans.

IMM – International Monetary Market part of the Chicago Mercantile Exchange that lists a number ofcurrency and financial futures.

Implied Volatility – A measurement of the market’s expected price range of the underlying currencyfutures based on the traded option premiums.

Implied Rates – The interest rate determined by calculating the difference between spot and forwardrates.

Indicative Quote – A market-maker’s price which is not firm.

Inflation – An economic condition where there is an increase in the price of consumer goods, therebyeroding purchasing power.

Initial Margin – The margin required by a forex firm to initiate the buying or selling of a determinedamount of currency.

Inter-Bank Rates – The bid and offer rates at which international banks place deposits with each other.The basis of the Interbank market.

Interest Arbitrage – Switching into another currency by buying spot and selling forward, and investingproceeds in order to obtain a higher interest yield. Interest arbitrage can be inward, i.e. from foreigncurrency into the local one or outward, i.e. from the local currency to the foreign one. Sometimes betterresults can be obtained by not selling the forward interest amount. In that case some treat it as no longerbeing a complete arbitrage, as if the exchange rate moved against the arbitrageur, the profit on thetransaction may create a loss.

Interest Parity – One currency is in interest parity with another when the difference in the interest rates isequalized 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 aboutinterest parity.

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 areexchanged.

Intermarket Analysis – An analysis of an underlying asset that incorporates examinations of variousmarkets. Namely, four markets are examined: currencies, commodities, stocks, and bonds. Intermarketanalysis is centered on the idea that the four markets are correlated.

Internationalization – Referring to a currency that is widely used to denominate trade and credittransactions by non residents of the country of issue. US dollar and Swiss Franc are examples.

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.ISDA (International Swaps and Derivatives Association) – Organization defining the terms andconditions for derivative trades.

K

Kiwi – In forex, slang for the New Zealand dollar.

L

Leading Indicators – Such statistics as unemployment rates, CPI, Federal Funds Rate, retail sales,personal income, discount rate and the prime rate that are used to predict economic activity.

Liability – In terms of foreign exchange , the obligation to deliver to a counterparty an amount of currencyeither in respect of a balance sheet holding at a specified future date or in respect of an unmaturedforward or spot transaction.

LIBOR – Stands for London Interbank Offer Rate. The interest rate that the largest international banks willlend to each other.

LIFFE – London International Financial Futures Exchange, made up of the three largest future exchangesin the UK.

Limit Order – A request to buy or sell a foreign currency at a specified price or better.

Liquid and Illiquid Markets – The ability of a market to buy and sell at ease with no impact on pricestability. A market is described as liquid if the spread between the bid and the offer is small. Anothermeasure of liquidity is the presence of buyers and sellers, with more players creating tighter spreads.Illiquid markets have fewer participants; thus, the spreads are wider and the risk to the short-term traderare greater.

Liquidation – Any transaction that offsets or closes out a previously established position.

Liquidity – The ability of a market to accept large transactions.

Long (Position) – A position that was obtained by buying in anticipation of an increase in price. Normallyexpressed in base currency terms, e.g., long Dollars (short D.Marks).

M

Maintenance Margin – The minimum margin which an investor must keep on deposit in a margin accountat all times in respect of each open currency position.

Make a Market – A dealer is said to make a market when he or she quotes bid and offer prices at whichhe or she stands ready to buy and sell a currency pair.

Managed Float – When the monetary authorities intervene regularly in the market to stabilize the rates orto aim the exchange rate in a required direction.

Margin Call – This is a call by a broker or dealer to raise the margin requirement of an account. The call istypically made after the value of a security (securities) has significantly declined in value.

Margin – The amount of money or collateral that must be, in the first instance, provided or thereafter,maintained, to ensure against losses on open contracts. Initial must be placed before a trade is enteredinto. Maintenance or Variation margin must be added to initial to maintain against losses on openpositions. Sometimes herein the amount that needs to be present to establish or thereafter maintained issometimes herein referred to as necessary margin.

Mark to Market – The daily adjustment of an account to reflect accrued profits and losses often requiredto calculate variations of margins.

Market Maker – A dealer who supplies prices and is prepared to buy or sell at those stated bid and askprices. A market maker runs a trading book.

Market Order – An order to buy or sell a financial instrument immediately at the best possible price.

Maturity – The date that the security is due to be redeemed or repaid.

Micro Economics – The study of economic activity as it applies to individual firms or well defined smallgroups of individuals or economic sectors.

Mid-Price or Middle Rate – The price half-way between the two prices, or the average of both buying andselling prices offered by the market makers.

Mine and Yours – To announce that an FX trader wants to buy he/she may say or type "Mine". This isalso known as taking the offer. To sell he will say "Yours". This is known as "hitting the bid."

Minimum Price Fluctuation – The smallest increment of market price movement possible in a givenfutures contract.

Momentum – Designed to measure the rate of price change, not the actual price level. Consists of the netdifference between the current closing price and the oldest closing price from a predetermined period.The Momentum indicator can be used as either a trend-following oscillator similar to the MACD or as aleading indicator in forex trading.

Monetary Base – Currency in circulation plus banks’ required and excess deposits at the central bank.

Money Market – Highly liquid markets for short-term investing in monetary instruments and debts,typically maturing in less than one year. Because of large transaction cost relative to potential interest,transactions occur in large amounts and thus participants are mainly banks and other large financialinstitutions.

Moving Average – A way of smoothing a set of data, widely used in price time series. There are differenttypes of moving averages, but the simple moving average (SMA) and the exponential moving average(EMA) are the most widely used.

N

Negative or Bearish Divergence – Occurs when the direction of the price of a currency disagrees withthe condition of a technical indicator.

Net Position – The amount of currency bought or sold which have not yet been offset by oppositetransactions.

Net Worth – Amount of assets which exceed liabilities; May also be known as stockholders equity or netassets. For an individual, the total value of all possessions such as houses, stocks, bonds, currencies andother securities, minus all outstanding debts, such as mortgage and loans.

O

Odd Lot – A non standard amount for a transaction.

Off-Balance Sheet – Financing or the raising of money by a company that does not appear on thecompany’s balance sheet, such as Interest Rate Swaps and Forward Rate Agreements.

Offer – The price, or rate, that a willing seller is prepared to sell at. The best offer is the lowest such priceavailable.

Offset – The closing-out or liquidation of a futures position.

Offshore – The operations of a financial institution which although physically located in a country, haslittle connection with that country’s financial systems. In certain countries a bank is not permitted to dobusiness in the domestic market but only with other foreign banks. This is known as an off shore bankingunit.

One Cancels Other Order (O.C.O. Order) – A contingent order where the execution of one part of theorder automatically cancels the other part.

Open Order – An order to buy or sell that remains valid until it is executed or canceled by the trader.

Open Position – A deal not yet reversed or settled and the investor is subject to exchange ratemovements.

Options – An agreement that allows the holder to have the option to buy/sell a specific currency at acertain price within a certain time. Two types of options – call and put. A call is the right to buy while a putis the right to sell. One can write or buy call and put options. Options do not have as much liquidity as theunderlying (spot) currency.

Overbought – A term used to characterize a market in which currency prices have risen at a pace that isabove typical market acceleration, and hence is due for a retracement.

Oversold – The opposite of oversold; exists when the price of a currency decelerates at an abnormallyfast rate, and hence is due for an upwards reversal.

Overnight Limit – Net long or short position in one or more currencies that a dealer can carry over into thenext dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces theneed for dealers to maintain these unmonitored exposures.

Overnight Trading – Refers to a purchase or sale between the hours of 9:00 pm and 8:00 am on thefollowing day.

Over The Counter (OTC) – Used to describe any transaction that is not conducted over an exchange.

P

Parabolic SAR (Stop and Reversal) – The Parabolic SAR (stop-and-reversal) is a time/price trendfollowing system used to set trailing price stops. The Parabolic SAR provides excellent exit points. FXtraders using this technical indicator should close long positions when the price falls below the SAR andclose short positions when the price rises above the SAR. If you are long (i.e., the price is above theSAR), the SAR will move up every day, regardless of the direction the price is moving. The amount theSAR moves up depends on the amount that currency rates move.

Parity – (1) Foreign exchange dealer’s slang for your price is the correct market price. (2) Official rates interms of SDR or other pegging currency.

Parities – The value of one currency in terms of another.

Pegging – A form of price stabilization; typically used to stabilize a country’s currency by making it fixed tothe exchange rate with another country.

Pip (or Points) – One unit of price change in the bid/ask price of a currency. It stands for "price interestpoint." For most currencies, it denotes the fourth decimal place in an exchange rate and represents 1/100of one percent (.01%). Read more information on using pips to calculate profit and loss in FX trading.

Political Risk – Risk that changes in government policies will negatively impact an investor. Political Riskis especially prevalent in third world countries.

Position – The amount of currency or security owned or owed by a forex trader or investor.

Premium – In the forex market, it is the amount of points added to the spot price to determine a forwardor futures price.

Price Transparency – Refers to the degree of access to information regarding bids and offers andrespective prices. Ideally, every investor/trader would have equal access to all information.

Profit Taking – The unwinding of a position to realize profits.

Q

Quote – An indicative price. The price quoted for information purposes but not to deal.

R

Rally – A recovery in the price of a currency after a period of decline.

Range – The difference between the highest and lowest price of a future recorded during a given tradingsession.

Rate – The price of one currency in terms of another (exchange rate).

Reaction – A decline in prices following an advance.

Realized and Unrealized Profit – Unrealized profit is a gain from an increase in the price of a currencythat has not been closed or cashed in. Realized profits are made from the cashing in of the unrealizedgain.

Reciprocal currency – A currency that is normally quoted as dollars per unit of currency rather than thenormal quote method of units of currency per dollar. Sterling is the most common example.

Rectangle – Similar to the consolidation portion of a flag pattern, a rectangle is a continuation patterndenoting a trading range characterized by strong support and resistance lines. Unsurprisingly, rectanglesare often known as trading ranges, consolidation zones, or congestion areas.

Repurchase (REPO) – This type of trade involves the sale and later repurchase of an instrument, at aspecified time and date. Occurs in the short-term money market.

Resistance Point or Level – A price recognized by technical analysts as a price level which a currencypair has trouble breaking through it to the upside, but which is likely to result in a significant price increaseif broken. There are different levels of resistance levels for different time frames.

Retracements – Synonymous with the term correction. Used to denote a temporary reversal in the overalltrend of the market to accommodate for excessive acceleration or deceleration of a movement in theprice of a currency.

Revaluation – Increase in the exchange rate of a currency as a result of official action.

Revaluation Rate – The rate for any period or currency which is used to revalue a position or book.

Risk Capital – The amount of money that an individual can afford to invest, which, if lost would not affecttheir lifestyle.

Risk Management – Term to describe when a forex trader will use analysis and other trading techniquesto avoid substantial risks to his portfolio.

Risk Position – An asset or liability, which is exposed to fluctuations in value through changes inexchange rates or interest rates.

Rollover – An overnight swap, specifically the next business day against the following business day (alsocalled Tomorrow Next, abbreviated to Tom-Next).

Round Trip – Buying and selling of a specified amount of currency.

Rounding Top and Bottom – Similar to a Cup and Handle pattern, a rounding top signifies a roundedresistance line and a bearish overall trend. Alternatively, a rounding bottom is a bullish for which thebottom curve can serve as a support line. Both patterns are best-suited to longer-term analyses.

RSI (Relative Strength Index) – The RSI is a price-following oscillator that ranges between 0 and 100. Apopular method of analyzing the RSI is to look for a divergence in which the price of the currency ismaking a new high, but the RSI is failing to surpass its previous high. This divergence is an indication ofan impending reversal. When the RSI then turns down and falls below its most recent trough, it is said tohave completed a "failure swing." The failure swing is considered a confirmation of the impending reversalin the price of the currency.

S

Same Day Transaction – A transaction that matures on the day the transaction takes place.

Selling Rate – Rate at which a bank is willing to sell a foreign currency.

Settlement – Actual physical exchange of one currency for another.

Settlement Date – The date upon which forex contracts settle.

Settlement Risk – Where a payment is made to a counter party before the counter value payment hasbeen made. The risk is that the counter party’s payment will not be received.

Short Sale – The sale of a specified amount of currency not owned by the seller at the time of the trade. Short Sales are usually made in expectation of a decline in the price.

Short-Term Interest Rates – Normally the 90 day rate.

Sidelined – A major currency that is lightly traded due to major market interest being in another currency.

Slippage – Refers to the negative (or depreciating) pip value between where a stop loss order becomes amarket order and where that market order may be filled.

Soft Market – More potential sellers than buyers, which creates an environment where rapid price fallsare likely.

Spike (High or Low) – A significantly lower low or higher high within a data series. Points where ancurrency spikes often signify a potential reversal in the direction of the trend, and hence can be valuabletools in analyzing a chart.

Spot – (1) The most common foreign exchange transaction. (2) Spot or Spot date refers to the spottransaction value date that requires settlement within two business days, subject to value datecalculation.

Spot Next – The overnight swap from the spot date to the next business day.

Spot Price/Rate – The price at which the currency is currently trading in the spot market.

Spread – The difference between the bid and offer price that is offered by a market maker.

Square – Purchase and sales are in balance and thus the dealer has no open position.

Squawk Box – A speaker connected to a phone often used in broker trading desks.

Squeeze – Action by a central bank to reduce supply in order to increase the price of a currency.

Stable Market – An active market which can absorb large sale or purchases of currency without majorprice moves.

Standard – A term referring to certain normal amounts and maturities for dealing.

Sterilization – Central Bank activity in the domestic money market to reduce the impact on money supplyof its intervention activities in the FX market.

Sterling – Refers to the UK currency, the Pound, otherwise known as "cable."

Stochastics – Stochastic studies are based on the premise that as currency prices rise, closing pricestend to be near the high value. Conversely, as prices fall, closing prices are near the low for the period. Stochastic studies are made of two lines, %D and %K, that move between a scale of 0 and 100. The %Dline is the moving average over a specified period of time of the %K line. The %K line measures wherethe closing price of a currency is compared to the price range for a given number of periods.

Stocky – Market slang for Swedish Krona.

Stop-Loss Order – Order to buy or sell at the best available price when a given price threshold has beenreached.

Support Levels – The opposite of resistance; a point in a chart where a currency pair has repeatedly hadtrouble falling beneath. When a currency pair "tests" support but does not break it, buyers haveoutnumbered sellers; alternatively, sellers have gained control of momentum if support is broken and thecurrency pair continues to plunge downward.

Swap Price – A price as a differential between two dates of the swap.

Swap – The simultaneous purchase and sale of the same amount of a given currency for two differentdates, against the sale and purchase of another. A swap can be a swap against a forward. In essence,swapping is somewhat similar to borrowing one currency and lending another for the same period.However, any rate of return or cost of funds is expressed in the price differential between the two sides ofthe transaction.

Swissy – Market slang for Swiss Franc in foreign exchange.

Symmetrical Triangle – Also referred to as a coil, usually forms during a trend as a continuation pattern. Itcontains at least two lower highs and two higher lows. At the time these points are conjoined, the linesconverge as they are extended and the symmetrical triangle takes shape. One can also think of it as acontracting wedge, wide at the beginning and narrowing over time.

T

Technical Analysis – An effort to forecast future market activity by analyzing market data such as charts.

Technical Correction – An adjustment to price not based on market sentiment but technical factors suchas volume and charting.

Thin Market – A market in which trading volume is low and in which consequently bid and ask quotes arewide and the liquidity of the instrument traded is low.

Thursday/Friday Dollars – A US foreign exchange technicality. If a foreign bank buys dollars on Tuesdayfor Thursday delivery. If the bank leaves the funds overnight and transfers them on Friday by means of aclearing house check, then clearance is not until Monday, the next working day. Higher interest rates forthis period are thus available.

Tick – A minimum change in price, up or down.

Today/Tomorrow – Simultaneous buying of a currency for delivery the following day and selling for thespot day, or vice versa. Also referred to as overnight.

Tomorrow Next (Tom Next) – Simultaneous buying and selling of a currency for delivery the followingday.

Trade Date – The date on which a currency trade occurs.

Tradable Amount – Smallest transaction size acceptable.

Transaction Date – The date on which a trade occurs.

Transaction – The buying or selling of currencies resulting from the execution of an order.

Trend Lines – A straight line drawn across a chart that indicates the overall trend for the currency pair. Inan upward trend, the line is drawn below, and acts as a support line; the opposite holds true for adownward trend. Once the currency breaks the trend line, the trend is considered to be invalid.

Triple Top – A pattern in which a currency has reached a price three times previously, yet has beenunable to sustain movements beyond those three peaks. A triple top signifies a strong resistance level.

Two-Tier Market – A dual exchange rate system where normally only one rate is open to market pressure,e.g. South Africa.

Two-Way Quotation (Price) – When a dealer quotes both buying and selling rates for forex transactions.

U

Uncovered – Another term for an open position.

Under-Valuation – An exchange rate is normally considered to be undervalued when it is below itspurchasing power parity.

Up Tick – A new price quote that is higher than the preceding quote for the same currency.

US Prime Rate – The interest rate at which US banks will lend to their prime corporate customers

V

Value Date – The date that payment is exchanged between two parties. For a spot transaction, it is twobusiness banking days forward in the country of the bank providing quotations which determine the spotvalue date. The only exception to this general rule is the spot day in the quoting center coinciding with abanking holiday in the country(ies) of the foreign currency(ies). In this case, the value date then movesforward a day.

Value Spot – Normally settlement for two working days from today. See value date.

Variation Margin – A call by a broker to increase the margin requirement of a forex account during aperiod of extreme market volatility.

Volatility – A statistical measure of the market or a currency’s price movements over time and iscalculated by using standard deviation. Higher volatility means greater fluctuation in price.

Vostro Account – A local currency account maintained with a bank by another bank. The term is normallyapplied to the counterparty’s account from which funds may be paid into or withdrawn, as a result of atransaction

W

Warrant – A warrants is a form of traded option. It is a right but not obligation to buy shares in a companyat a future date and at a prearranged price.

Wash Trade – A matched deal which produces neither a gain nor a loss.

Whipsaw – A term used to describe a condition in a highly volatile market where a sharp price movementis quickly followed by a sharp reversal. Whipsaw can stop an investor out of a trade.

Working Day – A day on which the banks in a currency’s principal financial center are open for business.For forex transactions, a working day only occurs if the bank in both financial center’s are open forbusiness (all relevant currency centers in the case of a cross are open).

Y

Yard – Slang for a billion.