The price at which a trader will buy a currency. Also known as the offer, it’s the price a seller is willing to sell at.
Bank of Canada, Canadian central bank.
Bank of England, UK’s central bank.
Bank of Japan, Japanese central bank.
The currency used as the base to quote a pair. For instance in the EURUSD pair, the EUR is the base currency, in the USDJPY, the USD is the base.
Someone who believes the prices/market will decline.
A market in which prices decline sharply against a background of widespread pessimism (opposite of Bull Market).
The price at which a trader will sell a currency.
An agent who handles investors’ orders to buy and sell currency. In the FX business, no commission is charged as the broker makes money through the spread.
Someone who believes the prices/market will rise.
A market characterised by rising prices.
Dealers slang for the Sterling/US Dollar exchange rate.
The overnight interbank interest rate.
The market for the purchase and sale of physical currencies.
The institution that manages a country’s monetary policy.
The customer or bank with whom a foreign deal is made. The term is also used in interest and currency swaps markets to refer to a participant in a swap exchange.
An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, measured against the United States dollar.
Option contract which gives the right to buy or sell a currency with another currency at a specified exchange rate during a specified period.
The risk of incurring losses resulting from an adverse change in exchange rates.
Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.
OTC Option to enter into a currency swap contract.
OTC Option; long-dated (more than one year) currency option.
Refers to opening and closing the same position or positions within one day’s trading.
When a variable amount of a foreign currency is quoted against one US Dollar, regardless of where the dealer is located or in what currency he is requesting a quote. The exception is the Sterling/US Dollar rate (cable) which is quoted as variable amount of US Dollars to one Sterling.
European Central Bank.
Exchange Rate Risk
See Currency Risk.
Federal Reserve (Fed)
The Central Bank of the United States.
Fixed Exchange Rate
Official rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower bands, leading to intervention.
Flat / Square
To be neither long nor short is the same as to be flat or square. One would have a flat book if he has no positions or if all the positions cancel each other out.
Floating Rate Interest
As opposed to a fixed rate, the interest rate on this type of deal will fluctuate with market rates or benchmark rates. One example of a floating rate interest is a standard mortgage.
Foreign Exchange (or Forex or FX)
The simultaneous buying of one currency and selling of another in an over-the-counter market.
Foreign Exchange Swap
Transaction which involves the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed at the time of the conclusion of the contract (short leg), at a date further in the future at a rate agreed at the time of the contract (the long leg).
A deal that will commence at an agreed date in the future. Forward trades in FX are usually expressed as a margin above (premium) or below (discount) the spot rate. To obtain the actual forward FX price, one adds the margin to the spot rate. The rate will reflect what the FX rate has to be at the forward date so that if funds were re-exchanged at that rate there would be no profit or loss (i.e. a neutral trade). The rate is calculated from the relevant deposit rates in the 2 underlying currencies and the spot FX rate. Unlike in the futures market, forward trading can be customized according to the needs of the two parties and involves more flexibility. Also, there is no centralized exchange.
“Good Till Cancelled”. An order left with a Dealer to buy or sell at a fixed price. The order remains in place until it is cancelled by the client.
The practice of undertaking one investment activity in order to protect against loss in another, e.g. selling short to nullify a previous purchase, or buying long to offset a previous short sale. While hedges reduce potential losses, they also tend to reduce potential profits.
Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.
The required initial deposit of collateral to enter into a position as a guarantee on future performance.
The Foreign Exchange rates at which large international banks quote other large international banks.
An order to buy at or below a specified price or to sell at or above a specified price.
A market position where the Client has bought a currency he previously did not hold own. Normally expressed in base currency terms, e.g., long Dollars (short D.Marks).
Customers must deposit funds as collateral to cover any potential losses from adverse movements in prices.
A demand for additional funds. A requirement by a clearing house that a clearing member (or by a brokerage firm that a client) brings margin deposits up to a required minimu m level to cover an adverse movement in price in the market.
A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices. A market maker runs a trading book.
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The price, or rate, that a willing seller is prepared to sell at.
One Cancels Other Order (O.C.O. Order)
A contingent order where the execution of one part of the order automatically cancels the other part.
Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date.
Over The Counter (OTC)
Used to describe any transaction that is not conducted over an exchange.
Refers to a purchase or sale between the hours of 9.00 pm and 8.00 am. on the following day.
Pip (or Points)
The term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).
The uncertainty in return on an investment due to the possibility that a government might take actions which are detrimental to the investor’s interests.
A price level at which you would expect selling to take place.
The amount of money that an individual can afford to invest, which, if lost would not affect their lifestyle.
Where the settlement of a deal is rolled forward to another value date based on the interest rate differential of the two currencies.
Actual physical exchange of one currency for another.
To go ‘short’ is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit.
A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck.
The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity.
Stop Loss Order
An order to buy or sell at the market when a particular price is reached, either above or below the price that prevailed when the order was given.
A price level at which you would expect buying to take place.
An effort to forecast future market activity by analyzing market data such as charts, price trends, and volume.
Tomorrow to Next (Tom Next)
Simultaneous buying and selling of a currency for delivery the following day and selling for the next day or vice versa.
Rates for which both a bid and offer are quoted.
US Prime Rate
The rate at which US banks will lend to their prime corporate customers.