63 Market Terminology

63 Market Terminology

BEAR
A person who anticipates market prices will decline.

BEAR MARKET
Markets characterised by declining prices.

BID
The rate at which a dealer is willing to buy the base currency.

BULL
A person who anticipates market prices will rise.

BULL MARKET
A market characterised by rising prices.

BROKER
A Broker is a middle man acting between a client and a market maker – a broker will charge a commission for his services.

CABLE
Market terminology for Sterling/US Dollar exchange rate.

CALL RATE
The interbank interest rate for funds not deposited for a fixed period.

CASH MARKET
The market for the purchase and sale of physical currencies.

CONVERTIBLE CURRENCY
Currency which can be freely exchanged for other currencies or gold without special authorisation from the appropriate central bank.

COUNTERPARTIES
Parties on either side of a transaction.

CROSS RATE
Exchange rate that does not involve the US Dollar. E.g The Euro/Yen is called a cross.

DAY TRADING
Refers to opening and closing of the same position or positions within the same trading day.

DOLLAR RATE
The Dollar Rate is when a variable amount of foreign currency is quoted against one unit of the US Dollar. The exception is Sterling/US Dollar (Cable) which is quoted as units to the US Dollar to one Pound Sterling.

EMS
European Monetary System

EMU
European Monetary Union

ERM
Exchange Rate Mechanism

EXCHANGE RATE DEPRECIATION
Currency which loses in value against one or more currencies.

EXCHANGE RATE RISK
The potential loss that could be incurred from an adverse movement in exchange rates.

FIXED EXCHANGE RATE
Official rate of exchange set by monetary authorities for one or more currencies. In practice, some fixed exchange rates are allowed to fluctuate between defined upper an lower bands.

FLAT / SQUARE
Where a client has not traded in that currency or where an earlier deal is reversed thereby creating a flat (neutral) position. E.g You bought £100,000, then sold £100,0000 = Flat.

FLOATING EXCHANGE RATE
When the value of a currency is decided by supply and demand.

FOREX/FX
An abbreviation of Foreign Exchange.

FORWARD POINTS
The Interest Rate Differential between two currencies expresses in exchange rate points. The forward points are added or subtracted from the spot rate to give the forward or outright rate.

FORWARD RATE
The rate at which a foreign exchange contract is struck today for settlement at a specified future date.

FORWARD CONTRACT
Contract struck at the forward rate as specified above.

FUNDAMENTAL ANALYSIS
Analysis based on economic and political factors.

GTC (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.

HEDGING
A hedging transaction is one which protects an asset or liability against a fluctuation in the foreign exchange rate.

INITIAL MARGIN
The deposit required from a client when they transact a forward order.

INTERBANK RATES
The FX rates large international banks quote other large international banks. The difference between the buy rate and the sell rate, the spread can be around 0.07%. Normally the public and other businesses do not have access to these rates.

INTEREST RATE RISK
The potential for losses arising from changes in interest rates.

LIMIT ORDER
An order given which has restrictions upon execution. The client specifies a price and the order can be executed at the prevailing market price only if the market reaches the specified price.

LONG POSITION
A position where the client has bought a currency not previously held. Normally expressed in base currency terms. E.g. long dollars (short yen).

MARGIN
Cash deposit provided by clients as collateral to cover losses (if any) that may result from the clients foreign exchange trades.

MARGIN CALL
A demand for additional funds to cover positions.

MATURITY
Date for settlement.

OFFER
The rate at which a dealer is willing to sell the base currency.

OCO (One Cancels Other Order)
Where the execution of one order automatically cancels a previous order.

OPEN POSITION
Any deal which has not been settled by a physical payment or reversed by an equal and opposite deal for the same value date.

OUTRIGHT FORWARD
Foreign Exchange transaction involving either the purchase or the sale of a currency for settlement at a future date.

OUTRIGHT RATE
The forward rate of a foreign exchange deal based on the spot price plus or minus the forward adjustment which represents the difference in interest rates between the two currencies.

OVERNIGHT TRADING
Refers to a purchase or sale between the hours of 9pm and 8am.

PIP / POINTS
Depending on context, normally one basis point. E.g. 0.0001on £/$ 1.6000= $1.6001 or $1.5999.

PLAZA AGREEMENT
Agreement made between the US, France, Germany, Japan and the UK in 1985 to work together in influencing exchange rates.

POLITICAL RISK
The potential for loss arising from a change in government policy.

PREMIUM
More expensive than the spot price, e.g. Forward Premium.

PRINCIPAL
A company or individual who buys and sells currencies for their account as opposed to a broker who introduces a buyer to a seller and vice versa.

RESISTANCE
A price level at which you would expect selling to take place.

REUTERS
Screen based information and price reporting system.

ROLLOVER
Where the settlement of a deal is rolled forward to another value date based on the interest rate differential of the two currencies. E.g. Next day.

SETTLEMENT
Actual physical exchange of one currency for another between principal and client.

SHORT
A market position where the principal has sold a currency not already owned. Usually expressed in base currency terms. E.g. short dollars (long yen).

SPOT CONTRACT
Spot means the settlement date of a deal which is two business days forward.

SPREAD
The difference between bid and offer prices.

STOP LOSS ORDER (STOP)
An order to buy or sell when a particular price is reached either above or below the price that prevailed when the order was given.

SUPPORT LEVELS
A price level at which you would expect buying to take place.

TECHNICAL ANALYSIS
Analysis based on market action through chart study, moving averages, volume, open interest, formations and other technical indicators.

TOMORROW to NEXT
Simultaneous buying and selling of a currency for delivery the following day and selling for the next day or vice versa.

US PRIME RATES
The rate at which US Banks will lend to their prime corporate customers.

VALUE DATE
Settlement date of a spot or forward deal.

VARIATION MARGIN
Additional funds to be deposited by a client when an adverse price movement has caused funds to fall below the brokers margin requirement, thus the designated position is not covered with the existing margin value.

VOLATILITY
A measure of price fluctuations.