” when it strengthens in price in response to market demand.
and simultaneous taking of an equal and opposite position in a related market,
in order to take advantage of small price differentials between markets.
forward premium/discount is near parity. For example, “two-two around”
would translate into 2 points to either side of the present spot.
if offered for sale (as in bid/ask spread).
funds among different markets to achieve diversification for risk management
purposes and/or expected returns consistent with an investor’s objectives.
to the settlement of financial transactions.
minus its imports.
is the currency in which an investor or issuer maintains its book of accounts.
In the FX markets, the US Dollar is normally considered the ‘base’ currency
for quotes, meaning that quotes are expressed as a unit of $1 USD per the other
currency quoted in the pair. The primary exceptions to this rule are the British
Pound, the Euro and the Australian Dollar.
to buy a currency.
and offer price, and the most widely used measure of market liquidity.
first few digits of an exchange rate. These digits rarely change in normal market
fluctuations, and therefore are omitted in dealer quotes, especially in times
of high market activity. For example, a USD/Yen rate might be 107.30/107.35,
but would be quoted verbally without the first three digits i.e. “30/35”.
a ‘book’ is the summary of a trader’s or desk’s total positions.
intermediary, putting together buyers and sellers for a fee or commission. In
contrast, a ‘dealer’ commits capital and takes one side of a position, hoping
to earn a spread (profit) by closing out the position in a subsequent trade
with another party.
that established fixed foreign exchange rates for major currencies, provided
for central bank intervention in the currency markets, and pegged the price
of gold at US $35 per ounce. The agreement lasted until 1971, when President
Nixon overturned the Bretton Woods agreement and established a floating exchange
rate for the major currencies.
Dollar exchange rate. So called because the rate was originally transmitted
via a transatlantic cable beginning in the mid 1800’s.
trading range for the day as well as the opening and closing price. If the open
price is higher than the close price, the rectangle between the open and close
price is shaded. If the close price is higher than the open price, that area
of the chart is not shaded.
organization that manages a country’s monetary policy. For example, the US central
bank is the Federal Reserve, and the German central bank is the Bundesbank.
graphs and interprets historical data to find trends and predict future movements.
Also referred to as Technical Trader.
to spread from one market to another. In 1997, political instability in Indonesia
caused high volatility in their domestic currency, the Rupiah. From there, the
contagion spread to other Asian emerging currencies, and then to Latin America,
and is now referred to as the ‘Asian Contagion’.
or as a guarantee of performance.
to a transaction that states the terms of said transaction.
transaction, including but not limited to legal and political conditions.
currencies that are considered non-standard in the country where the currency
pair is quoted. For example, in the US, a GBP/JPY quote would be considered
a cross rate, whereas in UK or Japan it would be one of the primary currency
or central bank and used as legal tender and a basis for trade.
change in exchange rates.
and closed on the same trading day.
or counterpart to a transaction. Principals take one side of a position, hoping
to earn a spread (profit) by closing out the position in a subsequent trade
with another party. In contrast, a broker is an individual or firm that acts
as an intermediary, putting together buyers and sellers for a fee or commission.
and take actual delivery of the currencies traded.
due to market forces.
in relation to the price movements of a related or underlying security, future
or other physical instrument. An Option is the most common derivative instrument.
of a currency’s price, normally by official announcement.
that indicates current economic growth and stability. Common indicators include
employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.
at a specified price. This order remains open until the end of the trading day
which is typically 5PM ET.
goal of the EMU is to establish a single European currency called the Euro,
which will officially replace the national currencies of the member EU countries
in 2002. On Janaury1, 1999 the transitional phase to introduce the Euro began.
The Euro now exists as a banking currency and paper financial transactions and
foreign exchange are made in Euros. This transition period will last for three
years, at which time Euro notes an coins will enter circulation. On July 1,2002,
only Euros will be legal tender for EMU participants, the national currencies
of the member countries will cease to exist. The current members of the EMU
are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands,
italy, Spain and Portugal.
Union (EMU). A replacement for the European Currency Unit (ECU).
for the new European Monetary Union.
– The regulatory agency responsible for administering bank depository insurance
in the US.
the United States.
a position that has been completely reversed, e.g. you bought $500,000 then
sold $500,000, thereby creating a neutral (flat) position.
buying of one currency and selling of another.
a foreign exchange contract settling at some agreed future date, based upon
the interest rate differential between the two currencies involved.
from the current exchange rate to calculate a forward price.
political information with the objective of determining future movements in
a financial market.
good or instrument at a set price on a future date. The primary difference between
a Future and a Forward is that Futures are typically traded over an exchange
(Exchange- Traded Contacts – ETC), versus forwards, which are considered Over
The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.
buy or sell at a specified price. This order remains open until filled or until
the client cancels.
that reduces the risk of your primary position.
for consumer goods rise, eroding purchasing power.
required to enter into a position as a guarantee on future performance.
at which large international banks quote other large international banks.
to predict future economic activity.
use LIBOR when borrowing from another bank.
maximum price to be paid or the minimum price to be received. As an example,
if the current price of USD/YEN is 102.00/05, then a limit order to buy USD
would be at a price below 102. (ie 101.50)
large transaction with minimal to no impact on price stability.
through the execution of an offsetting transaction.
value if market prices increase.
must deposit to collateralize a position.
for additional funds or other collateral to guarantee performance on a position
that has moved against the customer.
both bid and ask prices and is ready to make a two-sided market for any financial
open positions with the current market prices. These new values then determine
of a financial instrument.
to sell a currency.
to cancel or offset some or all of the market risk of an open position.
for two orders whereby one part of the two orders is executed the other is automatically
a market moves to its designated price. Normally associated with Good ’til Cancelled
with a physical payment.
transaction that is not conducted over an exchange.
next business day.
fourth decimal place, i.e. 0.0001. Also called Points.
policy which will have an adverse effect on an investor’s position.
the amount by which the forward or futures price exceed the spot price.
every market participant has equal access.
used for information purposes only.
another, typically used for dealing purposes.
indicating a specific price level at which analysis concludes people will sell.
for a currency as a result of central bank intervention. Opposite of Devaluation.
used with a negative connotation of adverse change.
analysis and trading techniques to reduce and/or control exposure to various
types of risk.
a deal is rolled forward to another value date. The cost of this process is
based on the interest rate differential of the two currencies.
entered into the books and records of the counterparts to a transaction. The
settlement of currency trades may or may not involve the actual physical exchange
of one currency for another.
benefits from a decline in market price.
of spot transactions usually occurs within two business days.
position is automatically liquidated at a specific price. Often used to minimize
exposure to losses if the market moves against an investor’s position. As an
example, if an investor is long USD at 156.27, they might wish to put in a stop
loss order for 155.49, which would limit losses should the dollar depreciate,
possibly below 155.49.
analysis that indicates a specific price ceiling and floor at which a given
exchange rate will automatically correct itself. Opposite of resistance.
and purchase of the same amount of a given currency at a forward exchange rate.
by analyzing market data, i.e. historical price trends and averages, volumes,
open interest, etc.
and selling of a currency for delivery the following day.
a financial instrument.
transactions in a given time period; volume.
is quoted for a FX transaction.
than the preceding quote.
a security may not be sold short unless the last trade prior to the short sale
was at a price lower than the price at which the short sale is executed.
banks will lend to their prime corporate customers
a financial transaction agree to settle their respective obligations, i.e.,
exchanging payments. For spot currency transactions, the value date is normally
two business days forward. Also known as maturity date.
from the client to have the required margin deposited. The term usually refers
to additional funds that must be deposited as a result of unfavorable price
market’s price movements over time.
market where a sharp price movement is quickly followed by a sharp reversal.