Trading Glossary

B2B

Business to Business; A strategy of dealing directly with businesses, rather than consumers.

BACK OFFICE

Clerical operations that support settlement of trades and related processes.

BACK TESTING

Creating a hypothetical performance history by applying current selection criteria to prior time periods.

BALANCE OF PAYMENTS

An account of all transactions between one country and all other countries--transactions that are measured in terms of receipts and payments. The three main components of BOP are the current account, the capital account and the balancing account.

BALANCE OF TRADE

The value of exports less imports of an economy. There are visible and invisible balance figures. The visible balance represents the physical goods while the invisible represents the service economy.

BANK NOTES

Bank notes are paper issued by the central bank and are legal tender.

BANK RATE

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

BANK WIRE

A computer message system linking major banks that is used as a mechanism to advise the receiving bank of some action that occurred.

BANKRUPTCY

Inability to pay debts.

BARRIER OPTION

A path dependent option that has a knock-in or knock-out feature that causes the option to become effective or terminate if a specified barrier level is reached.

BASE CURRENCY

In Foreign exchange markets, the base currency is the first currency in a currency pair. The second currency is named the quote currency or secondary.

BASIS

The difference between the cash price and futures price.

BASIS POINT

One hundredth of a percentage point (0.01%).

BEAR (PUT) SPREAD

A spread designed to exploit falling exchange rates by purchasing a put option with a high strike price and selling one with a low strike price.

BEAR MARKET

A substantial drop in prices over a prolonged period of time BEAR An investor who believes that prices are going to fall.

BENEFICIAL OWNER

Person who enjoys the benefits of ownership even though title is in another.

BETA

The measure of an asset's risk in relation to the market. A security with a beta of 1.5, will move about 1.5 times the market return.

BID

The highest price a dealer will pay at any given time to purchase a currency pair or a financial instrument.

BIG FIGURE

Refers normally to the first three digits of an exchange rate.

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.

BOLLINGER BANDS

A technical study used by chartists; Plus or minus two standard deviations where the standard deviations are calculated historically in a moving window estimation. Hence, the bands will widen if the most recent data is more volatile. If the prices break out of the band, this is considered a significant move.

BOND

Bonds are debt instruments issued by a government or municipality for a period of more than one year. An investor is lending money when buying bonds. The seller of the bond agrees to repay the principal amount of the loan at a specified time plus interest.

BOND RATING

A rating based on the possibility of default by a bond issuer. The ratings range from AAA to D.

BREAK EVEN POINT

The price of a financial instrument where total revenue received equals total costs (TR=TC).

BREAK OUT

A technical term used by chartists to denote a break of a support, a resistance level, or any technical formation.

BROKER

An agent who executes orders to buy and sell currencies and related instruments either for a commission or a spread.

BROKERAGE

The commission charged by a broker.

BUBA (BUNDESBANK)

Bundesbank, the Central Bank of Germany.

BULL

An investor who believes that prices are going to rise.

BULL (CALL) SPREAD

A spread designed to exploit rising exchange rates by purchasing a put option with a lower strike price and selling one with a higher strike price.

BULL MARKET

A substantial rise in prices over a prolonged period of time.

BULLION

A term for gold bars.

BUTTERFLY SPREAD

An option strategy combining a bull and bear spread. It uses three strike prices. The lower two strike prices are used in the bull spread and the higher strike price from the bear spread. Both puts and calls can be used.

BUYER/TAKER

The purchaser of a currency pair or an.

BUYING RATE

Rate at which the dealer is willing to buy the currency; or bid.

BUYING THE SPREAD

In an option, buy the nearby contract and simultaneously sell the deferred contract; also referred to as a bull spread.

CABLE

A term used in the foreign exchange market for the USD/GBP rate.

CALENDAR SPREAD

An option position comprised of purchase and sale of two option contracts of the same type and at the same strike price but with different expiration dates.

CALL OPTION

An option that gives the holder the right, but not the obligation, to buy the underlying instrument at a specified price during a fixed period.

CANCEL

To void a working order in the market.

CAPITAL

Money invested in a company.

CAPITAL GAIN

When securities are sold for a profit, the capital gain is the difference between the net sales price of the securities and their net cost.

CAPITAL MARKETS

A general term encompassing all markets for financial instruments with more than one year to maturity.

CAPM

Capital Asset Pricing Model; An economic theory that describes the relationship between risk and expected return, and serves as a model for the pricing of risky securities.

CAR

A term used to describe the amount of an underlying commodity; one commodity contract.

CASH COW

A company that generates a steady and significant amount of free cash flow.

CASH DELIVERY

Same day settlement.

CASH FLOW

Measure of the actual cash generated by a business rather than the accounting profit.

CASH MARKETS

Also called spot markets; these are markets that involve the immediate delivery of an instrument.

CASH SETTLEMENT

A method of settling certain futures or option contracts whereby the seller pays the buyer the cash value of the commodity traded.

CBOE

Chicago Board Options Exchange.

CBOT

Chicago Board of Trade.

CEILING

The highest price such as an interest rate or other numerical factor allowable in a financial transaction.

CENTRAL BANK

A bank which is responsible for controlling a country's monetary policy.

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.

CHAPTER 11 PROCEEDINGS

Provisions of the Bankruptcy Reform Act under which the debtor is reorganized by a court because the estimated value of the reorganization exceeds the expected proceeds from its liquidation.

CHAPTER 7 PROCEEDINGS

Provisions of the Bankruptcy Reform Act under which the debtor's assets are liquidated by a court because reorganization would fail to establish a profitable business.

CHARTIST

An individual who studies graphs of historic data to find trends and predict support and resistance levels as well as other continuation and reversal patterns.

CLASS

Options of the same type with the same underlying security.

CLEARING

The procedure were a clearing house or principle becomes the buyer and/or the seller, and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.

CLEARING HOUSE

An adjunct to a futures exchange through which transactions executed on its floor are settled by a process of matching trades.

CLOSED POSITION

A transaction which leaves the trade with a zero net exposure to the market with respect to a particular currency.

CME

Chicago Mercantile Exchange.

COMEX

Commodity Exchange of New York.

COMMISSION

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

COMMODITY

A commodity is food, metal, or another fixed physical substance that investors buy or sell, usually through futures contracts.

CONDOR

An option strategy consisting of both puts and calls at different strike prices to capitalize on a narrow range of volatility.

CONFIRMATION

The process immediately following a transaction whereby the traders confirm the details of the trade.

CONSUMER PRICE INDEX

Monthly measure of prices of a specified set of consumer goods and services, providing a measure of inflation. Rising CPI is normally associated with expectation of higher short term interest rates and may therefore be supportive for a currency in the short term.

CONTRACT

An agreement to buy or sell a specified amount of a particular currency on OTC, future or option basis for a specified month in the future.

CONTRACT EXPIRY DATE

The last trading date of a futures or options contract.

CORPORATE FINANCE

The processes by which companies raise capital to fund growth, acquisitions etc; the division of an investment bank which advises on acquisitions, mergers, bid defenses, restructures and disposals.

COST OF LIVING INDEX

An index that measures inflation such as CPI.

COUNTER PARTY

The party that takes the other side of an exchange transaction.

COUNTER VALUE

If a currency is traded against the dollar, the counter value would be the dollar value of the transaction.

COVER

Any transaction taken to limit exposure.

COVERED CALL

Having a long position in a currency or an asset combined with a short call option position on the same underlying currency or asset.

CREDIT RISK

The risk of loss due to a counterparty defaulting or a debtor not repaying, or more generally the risk of loss due to some "credit event".

CROSS DEAL

A foreign exchange deal involving two currencies that neither of which is the US Dollar or the base currency.

CROSS RATES

Rates between two currencies that neither of which is the US Dollar or the base currency.

CURRENCY SWAP

An agreement to swap a series of specified payment obligations denominated in one currency for a series of specified payment obligations denominated in a different currency.

CURRENT ACCOUNT

The net balance of a country's balance of payments (BOP) and contains the import and export items of goods and services as well as transfer payments and net investment income.

DAY ORDER

An order that is automatically canceled if not executed during the day.

DAY TRADER

A trader who takes positions that are closed during the same trading day.

DEAL DATE

The date that the transaction took place

DEAL TICKET

The primary method of recording the basic information of a transaction.

DEALER

An individual or firm acting as a principal in the purchase or sale of currencies or securities. Dealers trade for their own account and risk.

DEBIT BALANCE

The amount that is owed to a broker by a margin customer for loans the customer uses to buy currencies or securities.

DEBT MARKET

The market for trading debt instruments.

DECLARATION DATE

The latest day or time by which the buyer of an option must indicate to the seller his intention to execute the option.

DEFAULT

Failure to make timely payment of interest or principal on a debt security.

DEFICIT

A shortfall that is usually referenced to the balance of trade.

DEFLATOR

A price index measuring changes in prices of all new, domestically produced, final goods and services in an economy.

DELIVERY

The settlement of a futures contract by receipt or tender of a financial instrument, currency or commodity.

DELIVERY DATE

The date when the exchange of the currencies is made on a currency contract, or the value date. Could also refer to the exchange of commodity on a commodities contract.

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 futures contract may be delivered in fulfillment of the contract.

DELTA

Delta measures the sensitivity of the value of a option to changes in the price of its underlying instrument.

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.

DEPO

Deposit.

DEPRECIATION

A fall in the value of a currency due to market forces.

DEREGULATION

The reduction of government's role in controlling markets, which lead to a free and presumably a more efficient marketplace.

DERIVATIVES

A broad term relating to instruments such as futures or options. The value of a derivative instrument moves in relation to the underlying.

DEVALUATION

Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement from the government.

DIAGONAL 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.

DIRECT QUOTE

For foreign exchange, the number of US dollars needed to buy one unit of a foreign currency.

DIRTY FLOAT

A system of floating exchange rates in which a government may intervene to change the direction of the value of the country's currency.

DISCLOSURE

The release of all information pertaining to the company's business activity, regardless of how that information may influence investors.

DISCOUNT

A term used for instruments where the forward rate is lower than the spot rate or where an option is trading for less than its intrinsic value.

DISCOUNT RATE

The rate at which a central bank is prepared to discount certain bills for financial institutions as a means of easing their liquidity.

DISCRETIONARY ACCOUNT

Accounts over which an individual or organization, other than the person in whose name the account is carried, exercises trading authority or control.

DISINFLATION

A decrease in the rate of inflation.

DISINVESTMENT

A reduction in capital investment of a company and its decision not to replace depleted capital goods.

DISPOSABLE INCOME

Earnings after tax.

DIVERGENCE

When two or more averages or indexes fail to show confirming trends.

DIVIDEND

A portion of a company's profit paid to common and preferred shareholders.

DIVIDEND RATE

The fixed or floating rate paid on preferred stock based on par value.

DOMESTIC MARKET

A nation's internal market representing the mechanisms for issuing and trading securities of entities domiciled within that nation.

DOUBLE BOTTOM

A term used in technical analysis to refer to the drop of a stock's price, a rebound, and then a drop back to the same level as the original drop.

DOUBLE TOP

A term used in technical analysis to refer to the rise of a stock's price, a drop, and then a rise back to the same level as the original rise.

DOWNGRADE

A negative change in ratings for a stock, or other rated security.

DUE DILIGENCE

Background check and research conducted by the company to assess validity of a prospective client and that client's customers.

DURABLE GOODS ORDERS

A measure of new orders placed with domestic manufacturers for immediate and future delivery. A major indicator of the health of the manufacturing sector in an economy.

EASING

A modest decline in interest rates or prices.

EBIT

Earnings before Interest and Taxes.

EBITD

Earnings before Interest, Taxes and Depreciation.

EBITDA

Earnings before Interest, Taxes, Depreciation and Amortization.

ECB

European Central bank; Created to monitor the monetary policy of 11 countries that have converted to the Euro from their local currencies.

ECONOMIC INDICATOR

A statistic released by a government body that indicates current economic trends such growth rate, retail sales, employment, etc…

EMPLOYMENT RATE

The percentage of the labor force that is employed.

EPS

Earnings Per Share; A company's profit divided by its number of outstanding shares.

EQUILIBRIUM EXCHANGE

Exchange rate at which demand for a currency is equal to the supply of the currency in the economy.

EQUITY

The residual dollar value of a trading account, assuming its liquidation is at the current market price.

EUROCURRENCY

Currency deposited by companies and federal governments in banks outside their own country, usually currency of a non-European country deposited in Europe.

EURODOLLARS

Deposits denominated in United States Dollar at banks outside the United States.

EUROPEAN OPTION

An option that can be exercised only on its expiration date rather than before that date.

EUROPEAN UNION

The group of countries formally known as the European Community.

EXCHANGE CONTROL

A system of controlling inflows and outflows of foreign exchange.

EXCHANGE RATE

The price of one country's currency expressed in another country's currency.

EXECUTION

The process of completing an order to buy or sell an instrument.

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 PRICE

The price at which an options holder can buy or sell the underlying instrument.

EXERCISE VALUE

The profit amount between the strike price and the underlying investment when the option is exercised.

EXOTIC

A less broadly traded currency or option.

EXPIRATION DATE

The last date after which the option can no longer be exercised.

EXPIRATION MONTH

The month in which an option expires.

EXPIRY DATE

The last date on which an option can be bought or sold.

EXPOSURE

The condition of being subjected to a source of risk.

FAIR MARKET PRICE

Amount at which an asset would change hands between two parties, were both have knowledge of the relevant facts.

FAST MARKET

A financial market that has a combination of high volatility and heavy trading.

FED

The United States Federal Reserve. The 7-member Board of Governors that oversees Federal Reserve Banks, establishes monetary policy, and monitors the economic health of the country.

FED FUND RATE

The interest rate at which banks lend to each other overnight. This is a closely watched short term interest rate that the Fed controls through open market operations.

FEDERAL OPEN MARKET COMMITTEE

A 12-member committee which sets credit and interest rate policies for the Federal Reserve System. This committee consists of 7 members of the Board of Governors, and 5 of the 12 Federal Reserve Bank Presidents. This group, headed by the Chairman of the Federal Reserve Board, sets interest rates either directly (by changing the discount rate) or through the use of open market operations (by buying and selling government securities which affects the federal funds rate).

FEDERAL RESERVE BOARD

The 7-member Board of Governors that oversees Federal Reserve Banks. Its members are appointed by the President subject to Senate confirmation, and serve 14-year terms. Also called the Fed.

FEDERAL RESERVE SYSTEM

The central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board.

FIDUCIARY

One who must act for the benefit of another party.

FILL

The price at which an order is executed.

FILL OR KILL

A exchange traded order that is canceled unless executed within a designated time period.

FINANCE COMPANY

A company whose business and primary function is to make loans to individuals, while not receiving deposits like a bank.

FINANCIAL ANALYSTS

Professionals who analyze financial statements, interview corporate executives, and attend trade shows in order to write reports recommending either purchasing, selling, or holding various stocks.

FINANCIAL FUTURE

A futures contract based on a financial instrument.

FINANCIAL INSTITUTION

An enterprise such as a bank whose primary business and function is to collect money from the public and invest it in financial assets.

FINANCIAL MARKET

An organized institutional structure for creating and exchanging financial assets.

FISCAL POLICY

Government spending and taxing for the specific purpose of stabilizing the economy.

FIXED EXCHANGE RATE

Official rate set by monetary authorities. Often the fixed exchange rate permits fluctuation within a band.

FIXING

A method for determining fixed rates. Such a process occurs either once or twice daily at defined times. 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. A form of managed float.

FLOATING EXCHANGE RATE

An exchange rate where the value is determined by market forces.

FLOATING PROFIT/LOSS

The profit/loss that may only be realized if the open contracts are liquidated (settled).

FLOOR

An exchanges trading area. May also be used as the lower limit of an option or an interest rate.

FOMC

See Federal Open Market Committee.

FORCED LIQUIDATION

The premature closing out of a contract when an investor is unable to meet a margin call.

FOREIGN EXCHANGE

The purchase or sale of a currency against another.

FOREX

An over-the-counter market where buyers and sellers conduct foreign exchange transactions.

FORWARD CONTRACT

A cash market transaction between a bank and a customer in which the seller agrees to deliver a specific cash commodity to the buyer at some point in the future. Unlike futures contracts, forward contracts are privately negotiated and are not standardized.

FORWARD DEAL

A deal with a value date greater than spot.

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

Forward rates are quoted in terms of forward points or pips, which represents the difference between the forward and spot rates. The decision to subtract or add points is determined by the differential between the deposit rates for both currencies concerned in the transaction.

FORWARD RATE AGREEMENTS

FRA - A forward contract that specifies an interest rate to be paid on an obligation beginning on some future date.

FREE RESERVES

Total reserves held by a bank less the reserves required by the authority.

FRONT OFFICE

The activities carried out by the dealer.

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, interest rates, etc…

FUTURES CONTRACT

A standardized, transferable, exchange-traded contract that requires delivery of a commodity, bond, currency, or stock index, at a specified price, on a specified future date.

FX

An over-the-counter market where buyers and sellers conduct foreign exchange transactions.

G10

G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions.

G7

The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.

GAMMA

A measurement of how fast delta changes, given a unit change in the underlying price of the instrument.

GAP

A significant price movement of a currency, security or commodity between two trading sessions.

GDP DEFLATOR

A ratio that is used to account for the effect of inflation on the GDP figure.

GLOBALIZATION

Tendency toward a worldwide investment environment and the integration of national capital markets.

GLOBEX

A system for global after hours electronic trading in futures and options developed by Reuters for CME and CBOT for use in conjunction with various exchanges around the world.

GOLD BULLION

Investment-grade gold which may be smelted into gold coins or bars.

GOLD STANDARD

A monetary system that backs its currency with a reserve of gold, and allows currency holders to convert their currency into gold. The U.S. went off the gold standard in 1971.

GOOD UNTIL CANCELED (GTC)

An instruction to a broker that the order must remain valid until cancelled by the client.

GROSS

Before deduction of tax.

GROSS DOMESTIC PRODUCT

GDP is the broadest measure of aggregate economic activity available. The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports.

GTC

See Good until Canceled.

GTF

(GTF) An instruction to a broker that the order must remain valid until closing of trading day on Friday.

HARD CURRENCY

A freely convertible currency that is not expected to depreciate in value in the foreseeable future.

HEAD AND SHOULDERS

A technical analysis term referring to a chart formation in which a price exhibits three successive rallies, the second one being the highest. The name derives from the fact that on a chart the first and third rallies look like shoulders and the second looks like a head. Bearish indicator.

HEDGE

An investment made in order to reduce the risk of adverse price movements in a currency or security, by taking an offsetting position in the same or a related instrument.

HEDGED PORTFOLIO

A portfolio consisting of a long and short (put option) position in the underlying instrument HEDGE FUND A fund that may employ a variety of techniques to enhance returns.

HEDGE FUND

A fund that may employ a variety of techniques to enhance returns.

HIBOR

Hong Kong Inter-bank Offered Rate.

HISTORICAL VOLATILITY

The historical rate at which the price of an underlying currency or security moves up and down.

HOLDER

Buyer.

HORIZONTAL SPREAD

The simultaneous purchase and sale of two options that differ only in their expiration dates.

HOUSING STARTS

A measure of the number of residential units on which construction is begun each month.

HYPERINFLATION

Very high and self sustaining inflation levels.

ILLIQUID

A security becomes illiquid when a lack of trading activity in the security makes it hard to sell without taking a large loss.

IMF

An organization founded in 1944 to oversee exchange arrangements of member countries and to lend foreign currency reserves to members with short-term balance of payment problems.

IMM

International Monetary Market is part of the CME that lists a number of currency and financial futures contracts.

IMPLIED VOLATILITY

A theoretical value designed to represent the volatility of the underlying instrument as determined by the price of the option. The factors that affect implied volatility are the exercise price, the rate of return, maturity date and the price of the option.

IMPLIED VOLATILITY SKEWS

The implied volatility varies for different strikes of an option.

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.

INCONVERTIBLE CURRENCY

Currency which cannot be exchanged for other currencies, because this is forbidden by the foreign exchange regulations.

INDEX

Statistical composite that measures changes in the economy or in financial markets.

INDICATIVE QUOTE

A price quoted but is not firm.

INDUSTRIAL PRODUCTION

An indicator measuring physical output of manufacturing, mining and utilities.

INFLATION

The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index.

INITIAL MARGIN

The amount of cash collateral required by a brokerage firm to be deposited before buying or selling on margin IPO Initial Public Offering; A company's first sale of stock to the public.

INTER-BANK RATES

The bid and offer rates at which international banks place deposits with each other.

INTEREST RATE FLOOR

The minimum interest rate that could be charged.

INTEREST RATE OPTIONS

An option contract whose underlying security is a debt obligation.

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.

INTERVENTION

Action taken by a central bank to affect the value of its currency.

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. Such options have intrinsic value.

INTRA DAY POSITION

An open position that is usually squared off by the close of the day.

INTRINSIC VALUE

The amount by which an option is In-the-money. The intrinsic value is the difference between the exercise price and the price of the underlying instrument.

IPO

Initial Public Offering; A company's first sale of stock to the public.

KEYNESIAN ECONOMICS

An economic theory of British economist, John Maynard Keynes that active government intervention is necessary to ensure economic growth and stability.

KIWI

Slang for the New Zealand dollar.

KNOCK IN

Where a barrier option becomes active as the underlying spot price hits the barrier level.

KNOCK OUT

Where a barrier option ceases to exist as the underlying spot price hits the barrier level.

LAGGING INDICATORS

Economic indicators that follow rather than precede the country's overall pace of economic activity.

LAISSE-FAIRE

Doctrine that a government should not interfere with business and economic affair.

LAST TRADING DAY

The day on which trading ceases for an expiring contract.

LBO

A transaction used to take a public corporation private that is financed through debt such as bank loans and bonds.

LEAD MANAGER

The commercial or investment bank with the primary responsibility for organizing syndicated bank credit or bond issue. The lead manager recruits underwriting banks, negotiates terms of the issue with the issuer, and assesses market conditions.

LEADING INDICATORS

An economic indicator that changes before the economy has changed. Examples of leading indicators include production workweek, building permits, unemployment insurance claims, money supply, inventory changes, and stock prices.

LEVERAGE

The degree to which an investor or business is utilizing borrowed money.

LIBID

The London Interbank Bid Rate; the rate charged by one bank to another for deposits.

LIBOR

The London Interbank Offered Rate, the rate charged by one bank to another for lending money.

LIFFE

London International Financial Futures Exchange.

LIMIT

The amount that one bank is prepared to trade with another; or the amount that a dealer is permitted to trade in a given currency.

LIMIT DOWN

The maximum price decline permitted in 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 permitted in one trading session.

LINES

An banking arrangement to lend an investor any amount up to the full amount of the line.

LIQUIDATION

Any transaction that closes out a previously established position.

LIQUIDITY

The ability of an asset to be quickly converted into cash; or a market with a large number of buyers and sellers.

LOMBARD RATE

One of the key commercial interest rates in Europe; an interest rate for a loan against the security of pledged paper LONG The state of actually owning a currency, security, or commodity.

LONG HEDGE

The purchase of futures contracts for price protection purposes as a defensive position against an increase in cash prices.

M0

Cash in circulation; only used by the UK.

M1

Cash in circulation plus demand deposits at commercial banks.

M2

Includes demand deposits, time deposits and money market mutual funds, excluding large CDs.

M3

M2 plus large time deposits, repos of maturity greater than one day and institutional money market accounts.

M4

M2 plus negotiable CDs.

MACROECONOMICS

Analysis of a country's economy as a whole.

MAINTENANCE MARGIN

The minimum margin which an investor must keep on deposit in a margin account at all times for of each open contract.

MARGIN

Difference between the buying and selling rates; or the initial deposit made brokerage firm upon establishing an account.

MARGIN CALL

A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse price movements.

MARGINAL RISK

The risk that a customer goes bankrupt after entering into a forward contract.

MARK UP

The difference between the lowest current offered price and the higher price that a dealer charges to a customer.

MARKED-TO-MARKET

An arrangement whereby the profits or losses on a futures contract are settled each day.

MARKET AMOUNT

The conventional amount dealt between banks.

MARKET IF TOUCHED (MIT)

An exchange order that automatically becomes a market order if the specified price is reached.

MARKET MAKER

A brokerage company or a bank that maintains a firm bid and ask price and is ready, willing, and able to buy or sell at publicly quoted prices.

MARKET ON CLOSE (MOC)

An exchange order that is filled as close as possible to the close.

MARKET ORDER

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

MATIF

Marche a Terme International de France.

MATURITY DATE

The last trading day of a futures contract.

MEDIUM TERM NOTE

A corporate debt instrument that has maturity bands of: 9 months to 1 year, more than 1 year to 18 months, more than 18 months to 2 years, etc., up to 30 years.

MICRO ECONOMICS

The study of the behavior of small economic units such as individual consumers or households.

MIDDLE OFFICE

The group of employees responsible for calculating profits and losses and for managing risks.

MID-PRICE

The average of both buying and selling prices.

MINE

Expression used to indicate that the willingness to buy at the rate offered by the counter party.

MINIMUM PRICE FLUCTUATION

The smallest increment of market price movement possible.

MINIMUM RESERVE

Reserves required to be deposited at central banks by commercial banks and other financial institutions.

MIO

Traders' reference for a Million.

MM

Money Markets.

MODERN PORTFOLIO THEORY

Principals underlying the analysis and evaluation of rational portfolio choices based on risk-return trade-offs and efficient diversification.

MOMENTUM INDICATORS

Indicators used in market analysis to quantify the momentum of upward and downward price movements.

MONEY MARKET

Market for short-term debt securities with maturity of one year or less and often 30 days or less.

MONEY SUPPLY

The total supply of money in circulation in a given country's economy at a given time.

MOVING AVERAGE

Moving averages are used on charts to that show whether an instrument's price is trending up or down. It is a technical analysis term meaning the average price of an instrument over a specified time period, used in order to spot pricing trends by flattening out large fluctuations.

MUTUAL FUND

An open-ended fund operated by an investment company that raises money from shareholders and invests in a group of assets in accordance with a stated set of objectives.

NASD

National Association of Securities Dealers; Nonprofit organization formed under the joint sponsorship of the investment bankers' conference and the SEC to provide regulation on the OTC market.

NEARBY MONTH

The nearest actively traded delivery month or the current delivery month.

NET ASSET VALUE

The value of a fund's investments.

NET POSITION

The difference between total open long and open short positions in a given instrument held by an individual.

NET PRESENT VALUE

The present value of the expected future cash flows minus the cost NEUTRAL Describing an opinion that is neither bearish not bullish.

NEUTRAL

Describing an opinion that is neither bearish not bullish.

NEW YORK MERCANTILE EXCHANGE

NYMEX; The world's largest physical commodity futures exchange.

NEW YORK STOCK EXCHANGE

NYSE; Also known as the Big Board or the Exchange.

NOSTRO ACCOUNT

A foreign currency current account maintained with another bank that is used to receive and pay currency assets and liabilities denominated in the currency of the country in which the bank is resident.

NOT HELD ORDER

A futures order, usually a Market order, in which the customer gives the floor broker total discretion to transact on a best-efforts basis.

NOTE

A short-term debt security usually with a maturity of five years or less.

OECD

An international organization helping governments tackle the economic, social and governance challenges of a global economy.

OFFER

The price at which a seller is willing to sell.

OFFERED MARKET

Temporary situation where offers exceed bids.

OFFERING MEMORANDUM

A document that outlines the terms of securities to be offered in a private placement.

OFFSET

The closing-out or liquidation of a position.

OFF-SHORE

The operations of a financial institution that although physically located in a country, has little connection with that country's financial systems.

OMNIBUS ACCOUNT

An account maintained by one broker with another in which all of the accounts of the former are combined and carried only in its name, rather than designated separately.

OPEN INTEREST

The total number of outstanding option or futures contracts that have not been closed out by offset or fulfilled by delivery.

OPEN MARKET COMMITTEE

Same as Federal Open Market Committee.

OPEN MARKET OPERATIONS

Central Bank operations in the markets to influence exchange and interest rates.

OPEN POSITION

A position that is not yet closed.

OPTION

The right, but not the obligation, to buy (call) or sell (put) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (the strike price) during a specified period of time OTC Over-the-Counter; A security which is not traded on an exchange.

OPTION CLASS

Options of the same type as said to be of the same class.

OPTION SERIES

All options of the same class having the same exercise/strike price and expiry.

OTC

Over-the-Counter; A security which is not traded on an exchange.

OUT-OF THE MONEY

A call option whose strike price is higher than the market price of the underlying, or a put option whose strike price is lower than the market price of the underlying.

OVER BOUGHT

Technically too high in price, and hence a technical correction is expected.

OVER SOLD

Technically too low in price, and hence a technical correction to the upside is expected.

OVER THE COUNTER

See OTC.

OVERNIGHT

A deal from today until the next business day.

OVERNIGHT LIMIT

Net long or short position in one or more currencies that a dealer can carry over into the next dealing day.

P/E

Price Earnings Ratio; shows the multiple of earnings at which a stock sells and determined by dividing current stock price by current earnings per share.

PAID-IN CAPITAL

Represents the excess of funds received for stock of a corporation in excess of its book value.

PAR

Equal to the nominal or face value of a security; A bond selling at par is worth an amount equivalent to its original issue value or its value upon redemption at maturity.

PARITY

Equality; the value of one currency in terms of another.

PAYMENT DATE

The date on which a dividend or bond interest payment is scheduled to be delivered.

PAYROLL EMPLOYMENT

Payroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government.

PENSION FUND

A fund set up to pay the pension benefits of workers after retirement.

PETRODOLLARS

Foreign exchange reserves of oil producing nations arising from oil sales.

PHYSICAL COMMODITY

A commodity is food, metal, or another fixed physical substance that investors buy or sell.

PIP

The smallest price unit in a currency (0.0001 of a unit).

PIT

A specific area on the trading floor that is designed for the trading of commodity, index, currency or interest rate futures.

PLAZA ACCORD

The 1985 Plaza Hotel agreement by the G5 to lower the dollar.

POINT

Minimum fluctuation or smallest increment of price movement; One percent on an interest rate.

PORTFOLIO

A collection of investments, real and/or financial.

POSITION

The net of the total commitments in a given currency.

POWER OF ATTORNEY

A written authorization allowing a person to perform certain acts on behalf of another, such as moving of assets between accounts or trading for a person's benefit.

PREFERRED SHARES

Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders.

PREMIUM

The amount by which a forward rate exceeds a spot rate; the margin paid above the normal price level.

PRESENT VALUE

The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future.

PRICE EARNINGS RATIO

See P/E above.

PRICE GAP

Gaps occur when opening price movements create a blank spot on the chart. This occurs when the high of the day is below the low of the previous day or when the low of the day is above the high of the previous day.

PRIMARY DEALER

Usually refers to the select list of securities firms that are authorized to deal in new issues of government bonds.

PRODUCER PRICE INDEX

PPI; An inflationary indicator published by the U.S. Bureau of Labor Statistics to evaluate wholesale price levels in the economy.

PROFIT TAKING

The action taken by investors to sell when prices are rising or to purchase when prices are declining in order to secure gains.

PROGRAM TRADING

Trades based on signals from computer programs, usually entered directly from the trader's computer and executed automatically.

PUT OPTION

Gives the right but not the obligation to sell currencies or instruments at the option exercise price within a predetermined time period.

QUANTITATIVE RESEARCH

Use of advanced econometric and mathematical valuation models to identify the firms with the best possible prospective.

QUOTA

The amount of sales needed to reach a company's sales goal; an amount set by the government to limit imports or exports.

QUOTE

The price quoted for information purposes but not to deal.

RALLY

A substantial rise in the market price following a decline.

RANGE

The high and low transaction prices of a currency, security or commodity during a given period.

RATE

The price of one currency in terms of another.

RATING

An evaluation of credit quality of a company's debt issue by a rating agency. Investors and analysts use ratings to assess the riskness of an investment.

RATIO CALENDAR SPREAD

Selling more near-term options than longer maturity options at the same strike price.

RATIO SPREAD

Buying a specific quantity of options and selling a larger quantity of out of the money options.

REACTION

A reversal of the prevailing trend in price movement. The term is most often used to describe a decline after a period of rising prices.

REAL

Interest rate that has been adjusted to eliminate the effect of inflation.

REAL GDP

Inflation adjusted model of Gross Domestic Product.

REAL TIME

A real-time quote is one that states the most recent bid or offer.

RECESSION

A period of general economic decline; specifically a decline in GDP for two or more consecutive quarters.

REINVESTMENT RATE

The rate at which interest earned on a loan can be reinvested. The rate may not attract the same level of interest as the principal amount.

REPO

A contract in which the seller of fixed income securities such as Treasury Bills agrees to buy them back at a specified time and price.

REPO RATE

The buy back rate of the repurchase agreement.

REPURCHASE AGREEMENT

See Repo

RESERVE REQUIREMENT

The ratio of reserves to deposits, expressed as a fraction, prescribed by national banking authorities.

RESERVES

Funds set aside for emergencies or other future needs; Official reserves are to ensure that a government can meet near term obligations.

RESISTANCE POINT

A price recognized by technical analysts as a price which is likely to result in a rebound but if broken through is likely to result in a significant price movement.

RETAIL PRICE INDEX

RPI; an inflationary indicator that measures the change in the cost of a fixed basket of retail goods.

RETAIL SALES

A monthly measurement of all goods sold by retailers based on a sampling of retail stores of different types and sizes; often a measure of consumer confidence.

RETURN ON EQUITY

Indicator of profitability. Determined by dividing net income for the past 12 months by common stockholder equity.

RETURN ON INVESTMENT

A figure of merit used to help make capital investment decisions. ROI is calculated by considering the annual benefit divided by the investment amount.

REUTER DEALING

A system for award-winning trading between banks in operation since the early 1980s.

REVALUATION

A change, usually an increase, in a country's fixed exchange rate as a result of official.

REVERSAL

Change in the general trend of the market.

RISK MANAGEMENT

The process of analyzing exposure to risk and determining how to best handle such exposure.

RISK REVERSAL

A combination of purchasing put options with the sale of call options. The put limits downside, while the call limits the upside.

ROLLOVER

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

ROUND TURN

A completed transaction involving both a purchase and a subsequent sale, or a sale followed by a liquidating purchase.

RUNNING A POSITION

Keeping open positions in the hope of a speculative gain.

SAME DAY TRANSACTION

A transaction that matures on the day the transaction takes place.

SCALPING

A strategy of buying at the bid and selling at the offer as soon as possible.

SDR

Special Drawing Right; an artificial currency unit based upon several national currencies. SDR serves as the official monetary unit of the IMF, and acts as a supplemental reserve for national banking systems.

SECONDARY MARKET

The market in which securities are traded after they are initially offered in the primary market.

SELLING RATE

Rate that a bank is willing to sell foreign currency.

SERIES

All options of the same class which share a common strike price and expiration date.

SETTLEMENT DATE

The date by which an executed transaction must be settled; in currencies it is 2 days while stocks is 3 days.

SETTLEMENT PRICE

The official closing price for a future set by the clearing house at the end of each trading day.

SETTLEMENT RISK

Risk associated with the non-settlement of the transaction by the counter party.

SHARES

Certificates or book entries representing ownership in a corporation or similar entity.

SHORT COVERING

Buying to unwind a short position.

SHORT POSITION

An investor who has sold a currency or an instrument without having covered it.

SHORT-TERM INTEREST RATES

Normally the 90 day rate.

SLIPPAGE

The difference between estimated transactions costs and actual transactions costs. The difference usually represents revisions to price difference or spread and commission costs.

SOFFEX

Swiss Options and Financial Futures Exchange, a fully automated and integrated trading and clearing system.

SPOT

Refers to a transaction for immediate delivery; spot currency transactions have a value date of 2 business days.

SPOT MONTH

The contract month closest to delivery.

SPOT NEXT

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

SPOT PRICE

The price that a currency is currently trading in the spot market.

SPREAD

The difference between the bid and ask price of a currency; the difference between the price of two related futures contracts.

SQUARE

The buy and sell positions are in balance; no open positions.

SQUAWK BOX

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

SQUEEZE

A period of tight monetary policy, when interest rates are high and borrowing is difficult.

STAGFLATION

Recession or low growth in conjunction with high inflation rates.

STANDARD

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

STANDARD AND POORS

A US firm engaged in assessing the financial health of borrowers. The firm also has generated certain stock indices i.e. S & P 500.

STERILIZATION

Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the FX market.

STERLING

British pound, otherwise known as Cable.

STOP LOSS ORDER

A market order to buy or sell a certain quantity of a certain currency or security if a specified price (the stop price) is touched.

STRADDLE

The simultaneous purchase/sale of both call and put options for the same currency, exercise/strike price and expiry date.

STRAP

A combination of two calls and one put.

STRIKE PRICE

The price at which an options holder can buy or sell the underlying instrument; the exercise price.

STRIP

A combination of two puts and one call.

SUPPORT LEVELS

When an exchange rate depreciates or appreciates to a level where technical analysis techniques suggest that the currency will rebound or not go below.

SWAP

An exchange of streams of payments over time according to specified terms.

SWAP PRICE

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

SWAPTION

An option to enter into a swap contract.

SWIFT

Society for World-wide Interbank Telecommunications is a Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions.

SWISSY

Market slang for Swiss Franc.

SYNTHETICS

The artificial creation of an asset using combinations of other assets; In options, a long call option and a short put option amounts to a synthetic long, or a long put option and a short call option amounts to a synthetic short.

T-BILL

Treasury Bill; Short-term obligations of a Government issued for periods of one year or less.

TECHNICAL ANALYSIS

The study of price action in markets through the use of charts and quantitative techniques to attempt to forecast price trends.

TECHNICAL CORRECTION

An adjustment to the price of an instrument that is based on technical factors rather than market sentiment.

TENDER

The process of inviting parties to submit a formal offer for the supply or purchase of goods and services, followed by evaluation of offers and selecting a successful bidder.

TENOR

Maturity of an option or a loan.

THEORETICAL VALUE

Mathematically determined value of a derivative instrument as dictated by a pricing model such as the Black-Scholes model.

THETA

A measure of the sensitivity of the price of an option to a change in its time to expiry.

THIN MARKET

A market in which trading volume is low and in which consequently bid and ask quotes are wide due to lack of liquidity of the instrument.

TICK

A minimum change in price, up or down.

TICKET

The primary method of recording the basic information of a transaction.

TIME VALUE

The portion of the option premium that is attributable to the amount of time remaining until the expiration of the option contract. Time value is whatever value the option has in addition to its intrinsic value. The longer the time remaining until expiration, the higher the time value.

TOMORROW NEXT

Simultaneous buying of a currency for delivery the following day and selling for the spot day or vice versa.

TOP DOWN APPROACH

A method of security selection that starts with asset allocation and works systematically through sector and industry allocation to individual security selection.

TRADE

An oral or electronic transaction involving one party buying or selling a currency, security, or derivative from another party.

TRADE ABLE AMOUNT

The smallest transaction size acceptable.

TRADE BALANCE

The sum of the money gained by a given economy by selling exports, minus the cost of buying imports; part of the balance of payments.

TRADE DATE

The date on which a trade occurs.

TRADE DEFICIT/SURPLUS

The difference between the value of imports and exports.

TRADE TICKET

The primary method of recording the basic information of a transaction.

TRANSACTION

An executed order to buy or sell an instrument; could be an entry or a liquidation trade.

TRANSACTION DATE

The date on which a trade occurs.

TREASURER

The corporate officer responsible for designing and implementing a firm's financing and investing activities.

TREASURY BILLS

Short-term obligations of a Government issued for periods of one year or less. Treasury bills do not carry a rate of interest and are issued at a discount on the par value. Treasury bills are repaid at par on the due date.

TREASURY BONDS

Government obligations with maturities of ten years or more.

TREASURY NOTES

Government obligations with maturities more than one year but less than ten years.

TREASURY STOCK

Outstanding stock that has been sold and subsequently repurchased by the issuing firm. Treasury stock does not carry voting rights or an ability to collect dividends, and is not used in earnings per share calculations.

TURNOVER

The total money value of currency contracts traded is calculated by multiplying size by the number of contracts traded.

TWO-WAY QUOTATION

When a dealer quotes both buying and selling rates for foreign exchange transactions.

UNCOVERED

A position not covered by an offsetting position.

UNCOVERED CALL

A short call option position in which the writer does not own the underlying product represented by the option contracts.

UNDER WRITER

A firm, usually an investment bank, that buys an issue of securities from a company and resells it to investors.

UNDER WRITING

Acting as the underwriter in the issue of new securities for a firm.

UNDER-VALUATION

An exchange rate is normally considered to be undervalued when it is below its purchasing power parity.

UNEMPLOYMENT RATE

The percentage of the people classified as unemployed as compared to the total labor force.

UNILATERAL TRANSFERS

Items in the current account of the balance of payments of a country that correspond to gifts from foreigners or pension payments to foreign residents who once worked in the particular country.

UP TICK

A transaction executed at a price greater than the previous transaction.

VALUATION

Determination of the value of a company's stock based on earnings and the market value of assets.

VALUE DATE

For exchange contracts it is the day on which the two contracting parties exchange the currencies which are being bought or sold. For a spot transaction it is two business banking days forward in the country of the bank providing quotations which determine the spot value date. The only exception to this general rule is the spot day in the quoting centre coinciding with a banking holiday in the country(ies) of the foreign currency(ies). The value date then moves forward a day.

VALUE SPOT

Spot normally settles after two working days.

VALUE TODAY

Transaction executed for same day settlement; sometimes also referred to as "cash transaction".

VANILLA

A simple option whose terms and conditions do not include any provisions other than exercise style, expiry and strike.

VARIATION MARGIN

Profits or losses on open positions in futures and options contracts which are paid or collected daily.

VEGA

Expresses the price change of an option for a one per cent change in the implied volatility.

VERTICAL (BEAR OR BULL) SPREAD

The sale of an option with a high exercise price and the purchase (in the case of a bull) or the sale (in the case of a bear) of an option with a lower exercise price. Both options will have the same expiration date.

VOLATILITY

A measure of the fluctuations in the underlying instrument over a given time period. It is expressed as a percentage and computed as the annualized standard deviation of percentage change in daily price. High values usually mean high risk.

VOLATILITY RISK

The risk in the value of options portfolios due to the unpredictable changes in the volatility of the underlying asset.

VPS

Virtual private server refers to a private server that contains a virtual machine that a trader can use to make trades and run algorithmic trading programs.

WALL STREET

Generic term for the securities industry firms that buy, sell, and underwrite securities.

WARRANT

A security entitling the holder to buy a proportionate amount of stock at some specified future date at a specified price, usually one higher than current market price. Warrants are traded as securities whose price reflects the value of the underlying stock.

WHOLESALE PRICE INDEX

It measures changes in prices in the manufacturing and distribution sector of the economy and tends to lead the consumer price index by 60 to 90 days. The index is often quoted separately for food and industrial products.

WORKING CAPITAL

The difference between current assets and current liabilities.

WORKING DAY

A day when the banks in a currency's principal financial center are open for business.

WORLD BANK

A bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available.

YARD

Slang for milliard, one thousand million.

YEAR TO DATE

YTD; The period beginning at the start of the calendar year up to the current date.

YIELD CURVE

A graph that shows changes in yield on instruments depending on time to maturity. A positive sloping curve has lower interest rates at the shorter maturities and higher at the longer maturities. A negative sloping curve has higher interest rates at the shorter maturities.

ZERO COUPON BOND

A bond that pays no interest because it was initially offered at a discount to its redemption value.

ZERO INVESTMENT PORTFOLIO

A portfolio of zero net value established by buying and shorting component securities, usually in the context of an arbitrage strategy.