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A
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.
Adjustment - Is normally an official action to either change the internal economic policies to correct a payment imbalance or the official currency rate.
Agent Bank - Usually bank acting for a foreign bank.
Aggregate Demand - Total demand for goods and services in the economy. It includes private and public sector demand for goods and services within the country and the demand of consumers and firms in other countries for good and services.
Aggregate Risk - Size of exposure of a bank to a single customer for both spot and forward contracts.
Aggregate Supply - Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.
Aim - This is the simultaneous sale or purchase of a financial instrument and the taking of an equal and opposite position in a similar instrument in order to achieve a profit. That is, exploiting pricing differences and anomalies across markets. True arbitrage is risk free.
American-Style Option - An option contract that may be exercised at any time before it expires.
Appreciation - The strengthening of a currency relative to another.
Arbitrage - This is the art of buying something cheap in one place and selling it at a profit somewhere else. The rise of global electronic trading has made this process much faster and easier, enabling arbitrageurs to switch huge sums of money across continents in seconds in an attempt to exploit small differences in the quoted prices of investments in different markets, for example foreign currency.
In traditional share trading, risk arbitrageurs attempt to make profits from the usual share price movements of companies that are in takeover situations. These investors will simultaneously buy stock in the target company, whose share price normally rises, while selling that of the bidder, whose share price normally falls. They will also invest in the target company if they think there's a chance the bidder will have to raise the offer price.
Aroon - A technical indicator system that can be used to determine whether or not an instrument is trending and the strength of its trend. The Aroon Oscillator signals an upward trend when it rises above zero and a downward trend when it falls below zero. The farther away the oscillator is from the zero line, the stronger the trend.
Aroon Oscillator - A technical indicator called the Aroon Oscillator can be constructed by subtracting Aroon (down) from Aroon (up). Since Aroon (up) and Aroon (down) oscillate between 0 and +100, the Aroon Oscillator oscillate between -100 and +100 with zero as the center crossover line.
Ascending Trend Channel - An ascending line that connects the bottoms of the down waves and is parallel to a trend-line. The ascending channel line and the trend-line form borders on an uptrend. This is a bullish pattern.
Ascending Triangle - A sideways price pattern between two converging trend-lines in which the lower line is rising while the upper line is flat. This is generally a bullish pattern.
Ask - The quoted price at which a customer can buy a currency pair. Also referred to as the 'offer,' 'ask price,' or 'ask rate.'
Asset - Either a positive balance or in the context of foreign exchange the right to receive a specific currency from a counterparty (broker) as brought about from an outstanding forward or spot deal.
Asset Allocation - Dividing funds amongst different instruments in order to reduce risk.
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.
Aussie - Slang for the Australian Dollar.
Authorized Dealer - A financial institution that is authorized to deal in foreign exchange.
Averaging - Averaging the price you have paid for a currency pair is achieved by buying more on a fall or selling some on a rise in value.
Average Directional Index (ADX) - A technical indicator and part of the Directional Movement Indicator system developed by J. Welles Wilder, the ADX line is based on the spread between the +DI and -DI lines from that same system.
Average True Range (ATR) - A technical indicator that measures an instrument's volatility. High ATR values indicate high volatility and may be an indication of panic selling or panic buying. Low ATR readings indicate sideways movement by the instrument
B
Back Office - A financial institutions area that is responsible for settlement, administration and reporting.
Back Testing - Is a test of the performance of a trading strategy based on historical data prior to applying the strategy to live data.
Balance of Payments - A systematic record of the economic transactions during a given period for a country. (1) The term is often used to mean either: (i) balance of payments on "current account"; or (ii) the current account plus certain long term capital movements. (2) The combination of the trade balance, current balance, capital account and invisible balance, which together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital transfers, and or decline in currency values.
Band - Or Trading Band is the range in which a currency is permitted to move against another, according to restrictions imposed on the currency by the local Government.
Bank Line - Line of credit granted by a bank to a customer, also known as a "line" or "credit line".
Bank Rate - The rate at which a central bank is prepared to lend money to its domestic banking system.
Bargain - Stockbroker jargon for a share transaction.
Base Currency - The foreign exchange deal currency against which another currency is measured. Currency pairs are usually identified by a six letter grouping. The first three letters identify the BASE currency.
Basis Point (bp) - A measure which is mainly used in the statement of interest rates. One hundredth of 1% 25 basis points is equal to 0.25%.
Basis - The difference between the cash price and futures price.
Basis Trading - Taking opposite positions in the cash and futures market with the anticipation of profiting from favorable movements in the basis.
Basket - A group of currencies normally used to manage the exchange rate of a currency, usually each currency in the basket is weighted to form the exchange rate.
Bear - An investor who believes that prices are going to fall.
Bear Market - A prolonged period of generally falling prices.
Bid Price - The highest price a prospective buyer is willing to pay at a particular time for securities, futures contracts or foreign currencies.
Bid/Offer Spread - The standard differential between the price of buying and selling securities. It is usually quoted as a monetary amount for shares, a percentage term for unit trusts.
Blue Chip - The term used to define a company regarded as being a solid, and consequently safe, investment. The company will almost certainly be large, well established and profitable, but be conservatively managed.
Bollinger Band - A Bollinger Band is plotted two standard deviations away from the FX pairs simple moving average. When the FX pair exchange rate increases in volatility, its Bollinger Bands widen away from each other. The bands converge during times of lower volatility. An unusually long period during which the bands are tight often portends a looming spike in volatility. FX pair exchange rates hugging the upper band may indicate overbought conditions, while FX pairs trading at the lower band may be oversold.
Book - The summary of currency positions held by a dealer, desk, or room. A total of the assets and liabilities. If the average maturity of the book is less than that of the assets, the bank is said to be running a short and open book. Passing the Book refers normally to transferring the trading of the Banks positions to another office at the close of the day, e.g. from London to New York.
Bretton Woods - The site of the conference which in 1944 led to the establishment of the post war foreign exchange system that remained intact until 1971. The conference resulted in the formation of the IMF. The system fixed currencies in a fixed exchange rate system with 1% fluctuations of the currency to gold or the dollar.
Broker - Often referred to as an agent, brings buyers and sellers together for a commission paid by the initiator of the transaction. Brokers do not take market positions.
Bull - An investor who believes that prices are going to rise.
Bull Market - A prolonged period of generally rising prices.
Bull, Bullish, Bull Market - A bull is a person who believes that prices in the market will rise. This person would be considered bullish. A bull market is a market that is rising (e.g., if the pound versus the US dollar rate moves higher). If the advance were expected to continue, the market would be bullish.
Bullion - Gold, silver, platinum, or palladium, in the form of bars or ingots.
Bundesbank - Refers to the Central Bank of Germany.
Buying Rate - The rate at which the market maker is willing to buy the currency. Sometimes called bid rate.
Buy Signal - A condition that indicates a good time to buy an instrument. The exact circumstances of the signal will be determined by the indicator that an analyst is using. For example, it's considered a buy signal when the MACD crosses above its signal line.
C
Cable - Foreign exchange jargon for the British pound versus the US dollar exchange rate. It alludes to the cable laid under the Atlantic, which linked the tickertape machines used by trading houses in New York and London during the 1970s and early 1980s.
CAC 40 - An index of the largest 40 companies listed on the French CAC market. The CAC index is published by the Societe des Bourse Francaises.
Call Rate - The overnight inter-bank interest rate.
Candlestick Chart - A form of Japanese charting that has become popular in the West. A narrow line shows the day's price range. A wider body marks the area between the open and the close. If the close is above the open, the body is green or blue; if the close is below the open, the body is red.
Capital Risk - The risk arising from a bank having to pay to the counter party with out knowing whether the other party will or is able to meet its side of the bargain.
Carry - The interest cost of financing securities or other financial instruments held.
Carry Trade - Is the strategy of buying high interest currencies against low interest currencies for a long period of time, with the intention of closing the trade at spot at a future date and taking a profit. As long as the higher interest rate currency does not depreciate against the lower interest rate currency by the i/r differential, then a profit will be made.
Cash - (Value same day) 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.
Cash Delivery - Same day settlement.
Cash Market - The market for the purchase and sale of physical currencies. Settlement is two business days from transaction date.
Cash Settlement - A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.
Central Bank - A nation's main regulatory bank; traditionally, its primary responsibility is development and implementation of monetary policy.
Central Rate - 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 studies graphs and charts of historic data to find trends and predict trend reversals which include the observance of certain patterns and characteristics of the charts to derive resistance levels, head and shoulders patterns, and double bottom or double top patterns which are thought to indicate trend reversals.
Clean Float - An exchange rate that is not materially affected by official intervention.
Closed Position - An original position that has since had an equal but opposite transaction entered against it. This transaction has a closed profit or loss.
Closing Price - The closing price is the last price for a tradable instrument at the time the market closes.
Commodity - A physical substance, such as food, grains, and metals, which is interchangeable with another product of the same type, and which investors buy or sell, usually through futures contracts.
Commission - The fee that a broker may charge clients for a service or trade that is performed.
Contingent Order - An order which is to be executed only if another order is executed first. An example of a contingent order would be to sell one specific security if another specific security has been bought.
Confirmation - A memo sent from the bank or broker to its client describing all the necessary details of the transaction performed.
Contract - An agreement to buy or sell a specified amount of a particular currency or option for a specified month in the future (See Futures contract).
Conversion - The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.
Convertible Currency - Currency which can be freely exchanged for other currencies or gold without special authorization from the appropriate central bank.
Contracts for Difference (CFDs) - CFD means Contract for Difference. They were developed to allow clients to receive all the benefits of owning a stock without having to physically own the stock. In other words you cannot take delivery of a CFD so you have to settle the difference between where you bought the contract and where you sold it. The difference is either profit or loss.
Controlled Risk Bet (CRB) - A Controlled Risk Bet (CRB) is sometimes known as a guaranteed Stop loss order and can be placed on a range of instruments that we offer. A CRB allows you to open a specific bet and attach to it a guaranteed Stop loss order at a price you are prepared to be stopped out. Therefore you have a known worse case scenario' should the market move against you, and you have a defined loss you are prepared to accept on that trade.
Corporate Action -Any event initiated by a corporation which impacts its shareholders. For some such events, shareholders may or must respond to the corporate action or select from a list of possible actions. Examples of corporate actions include dividend payments, mergers, rights issues and stock splits.(See: Dividend, Stock Split, Rights Issue and Consolidation)
Cost of Carry - How much it costs to finance a position.
Copey - Trading slang for the Danish krone.
Correspondent Bank - The foreign banks representative who regularly performs services for a bank which has no branch in the relevant centre, e.g. to facilitate the transfer of funds
Counter Parties - The other organization or party with whom the exchange deal is being transacted.
Country Risk - The risk attached to a borrower by virtue of its location in a particular country. This involves examination of economic, political and geographical factors.
Cover - To hedge or close an existing trade.
Crawling Peg - A method of exchange rate adjustment; the rate is fixed/ pegged, but adjusted at certain intervals in line with certain economic or market indicators.
Credit Risk - Risk of loss that may arise on open positions should a counter party default on its obligations.
Cross Rate - An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, measured against the USD.
Currency Option - (European) Option contract which gives the right to buy or sell a currency against another currency at a specified exchange rate at a specified period.
Currency Hedging - Trying to reduce or eliminate exchange rate risks by buying forward, using financial futures or borrowing in the exposed currency.
Currency Warrant - OTC option; long-dated (more than one year) currency option.
Currency Pair - The two currencies that make up a foreign exchange rate. For example, EUR/USD is a currency pair.
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 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.
Currency Swaption - OTC Option to enter into a currency swap contract.
Current Account - The net balance of a country's international payment arising from exports and imports together with unilateral transfers such as aid and migrant remittances, it excludes capital flows.
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D
DAX 30 Index - The index of the biggest 30 companies listed on the Frankfurt Stock Exchange in Germany. The DAX is a 'total return' index in that it measures the returns from dividends as well as share price performance.
Day Order - The order placed will be active, i.e. pending, until the end of the day, or until it has been executed.
Day Trader - Speculators who take positions in financial markets which are then liquidated prior to the close of the same trading day.
Day Trading - Refers to opening and closing the same position or positions within one day's trading.
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 - A firm or professional working within the firm that is in the business of acting as a counterparty or principle to foreign currency transactions.
Deflator - Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate.
Delivery Date - The date of maturity of the contract, when the exchange of the currencies is made; this date is more commonly known as the value date in the FX or Money markets.
Delivery Risk - A term to describe when a situation when a counter-party 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.
Desk - Term referring to a group dealing with a specific currency or currencies.
Details - All the information required to finalize a foreign exchange transaction, i.e. instrument, rate, dates, and point of delivery.
Devaluation - Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement.
Directional Movement Indicator (DMI) - A technical indicator that plots a positive +DI line measuring buying pressure and a negative -DI line measuring selling pressure. The DMI pattern is bullish as long as the +DI line is above the -DI line. The Average Directional Index line is derived from this system and is based on the spread between the +DI and -DI lines.
Direct Quotation - Quoting in fixed units of foreign currency against variable amounts of the domestic currency.
Dirty Float - Floating a currency when the rate is controlled by intervention by the monetary authorities.
Dividends - That part of a company's profit after tax which is distributed to shareholders.
Doji - A candlestick formation with a body so small that the open and close prices are equal. A Doji occurs when the open and close for that day are the same, or very close to being the same.
Double Top - A reversal chart pattern displaying two prominent peaks. The reversal is complete when the support trough is broken. The double bottom is a mirror image of the top.
Dow Jones Industrial Average - 'The Dow' is the oldest stock market index in the US, measuring the performance of a representative selection of 30 blue-chip companies. The 30 companies are selected by Dow Jones & Co and the Wall Street Journal.
E
Easing - Modest decline in price.
Economic Indicator - Statistics which indicate current economic growth rates, trends and health of the local economy such as retail sales and employment.
ECB - European Central Bank - which manages the euro currency and European interest rates/monetary policy.
EFT - Electronic Fund Transfer.
EMU - From 1/1/02 European Union countries which participate in the union will use a common currency (euro) that will replace the domestic currencies.
EMS - Abbreviation for European Monetary System, an agreement between member nations of the European Union to maintain an alignment between the exchange rates of their respective currencies.
Entry Limit - An order to buy or sell a foreign currency against another at a specific price. As opposed to a market order, limit orders might not be filled if the market moves away from the specified price.
Entry Stop - An instruction to the dealer to buy or sell a currency pair when it trades beyond a specified price. A buy order is at a rate that is higher then the current market rate, a sell order is at a rate that is lower then the current market rate. This type of trade is used by the trader to enter a trade.
EUR - A single European currency called the Euro, which officially replaced the national currencies of the member EU countries.
European-Style Option - An option contract that can be exercised only on the day of expiration (see American Style Option).
European Monetary System - The exchange rate regulation system used between European Community member countries, begun in 1978.
Exchange Rate - The rate at which one currency is traded against another.
Exchange Rate Mechanism - The system by which European Community countries give a central exchange rate against which their currencies fluctuations are regulated.
Exchange Rate Risk - The potential loss that could be incurred from a movement in exchange rates.
Exchange Control - Rules used to preserve or protect the value of a countries currency.
Exotic Currency - A less broadly traded currency, lower liquidity.
Expiration - This is the last day on which an option may either be exercised.
Exposure - In foreign exchange this relates to a potential for gain or a loss because of a movement in a foreign exchange rate
Execution Only Stockbrokers - Those stockbrokers who offer clients, usually, an inexpensive trading facility with no advice, research or recommendations as to investment style or policy.
Exponential Moving Average (EMA) - A moving average that gives greater weight to more recent data in an attempt to reduce the lag of (or "smooth") the moving average.
F
Fast Market - Rapid movement in a market caused by strong interest by buyers and/or sellers. In such circumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported, often occurs during major economic releases or serious world event.
Federal Reserve (Fed) - The Federal Reserve System is comprised of 12 district banks throughout the US, the Federal Reserve Board (FRB) and the Federal Open Market Committee (FOMC). The FOMC, typically headed by the chairman of the FRB, meets eight times each year to set US monetary policy, including key interest rates.
Fed Fund Rate - The interest rate where registered banks can borrow from the Fed. This also indicates the Feds view as to the state of the money supply.
Fibonacci Numbers - The Fibonacci number sequence (1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144,...) is constructed by adding the first two numbers to arrive at the third. The ratio of any number to the next number is 61.8 percent, which is a popular Fibonacci retracement number. The inverse of 61.8 percent is 38.2 percent, also used as a Fibonacci retracement number. It is the ratio of the Fibonacci sequence that is important and valuable, not the actual numbers in the sequence.
Fibonacci Lines - Fibonacci lines are based on ratios that exist naturally. The ratios are based on the "Fibonacci numbers," in which each successive number is the sum of the two previous numbers. e.g. 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. A number of relationships exist between these numbers, such as the fact that any given number (after 3) is roughly 1.618 times the previous number. Changes in trends tend to take place near the lines created by Fibonacci studies such as arcs, fans, retracements, and time zones.
Financing Costs - CFD Share positions carried overnight will incur financing costs for the full consideration of the position. If a client opens a position with a 5% margin, finance overnight will be on the 100% balance. Clients who are long a CFD will pay interest to IC Markets, clients who are short may receive interest from IC Markets.
Fisher Effect - The relationship that exists between interest rates and exchange rate movements, so that in an ideal situation interest rate differentials would be exactly off set by exchange rate movements. See interest rate parity.
Fixed 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.
Flexible exchange rate - Exchange rates with a fixed parity against one or more currencies with frequent revaluations, a form of a managed float.
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.
Floating exchange rate - An exchange rate where the value is determined by market forces. Even floating currencies are subject to intervention by the monetary authorities. When such activity is frequent the float is known as a dirty float.
FOMC - Federal Open Market Committee, the committee that sets money supply targets in the US which tend to be implemented through Fed Fund interest rates etc.
Foreign Exchange - The purchase or sale of a currency against sale or purchase of another.
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), in reality this is a combination of a spot and an opposite forward deal.
Forward - A deal trade that is executed today for a period longer then two working days (spot value
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