Glossary: Glossary – Currency & Finance

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.

© 2006 TTT Moneycorp Limited

Glossary of terms reproduced with the permission of Moneycorp, the foreign exchange experts.
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