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Trading Glossary Index


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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

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.

Aggressive

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.

Analyst

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.

Appreciation

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.

Arbitrage

The simultaneous purchase or sale of a financial product in order to take advantage of small price differentials between markets.

Asian Central Bank

Refers to the central banks or monetary authorities of Asian countries. These institutions have been increasingly active in major currencies as they manage growing pools of foreign currency reserves arising from trade surpluses. Their market interest can be substantial and influence currency direction in the short-term.

Asian Session

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.

ASK (OFFER) Price

The price at which the market is prepared to sell a product. Prices are quoted two-way as Bid/Ask. The Ask price is also known as the Offer.

At Best

An instruction given to a dealer to buy or sell at the best rate that can be obtained at a specific time.

At or Better

An instruction given to a dealer to buy or sell at a specific price or better.

AUS 200

A term for the Australian Securities Exchange (ASX 200), which is an index of the top 200 companies (by market capitalization) listed on the Australian stock exchange.

Aussie

Refers to the AUD/USD (Australian Dollar/U.S. Dollar) pair. Also “Oz” or “Ozzie”.


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B

Balance of Trade

The value of a country’s exports minus its imports.

Bar Chart

A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar; the opening price, which is marked with a horizontal line to the left of the bar; and the closing price, which is marked with a horizontal line to the right of the bar.

Barrier Cevel

A certain price of great importance included in the structure of a Barrier Option. If a Barrier Level price is reached, the terms of a specific Barrier Option call for a series of events to occur.

Barrier Option

Any number of different option structures (such as knock-in, knock-out, no touch, double-no-touch-DNT) that attaches great importance to a specific price trading. In a no-touch barrier, a largely defined payout is awarded to the buyer of the option by the seller if the strike price is not ‘touched’ before expiry. This creates an incentive for the option seller to drive prices through the strike level and creates an incentive for the option buyer to defend the strike level.

Base Currency

The first currency in a currency pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF (U.S. Dollar/Swiss Franc) rate equals 1.6215, then one USD is worth CHF 1.6215. In the forex market, 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.

Base Rate

The lending rate of the central bank of a given country.

Basing

A unit of measurement used to describe the minimum change in the price of a product.

Bearish

Negative for price direction; favoring a declining market. For example, “We are bearish EUR/USD” means that we think the euro will weaken against the dollar.

Bid Price

The price at which the market is prepared to buy a product. Prices are quoted two-way as Bid/Ask. In FX trading, the Bid represents the price at which a trader can sell the base currency, shown to the left in a currency pair. For example, in the quote USD/CHF 1.4527/32, the base currency is USD, and the Bid price is 1.4527, meaning you can sell one US Dollar for 1.4527 Swiss francs. In CFD trading, the Bid also represents the price at which a trader can sell the product. For example, in the quote for UK OIL 111.13/111.16, the Bid price is £111.13 for one unit of the underlying market.*

BIS

The Bank for International Settlements located in Basel, Switzerland, is the central bank for central banks. The BIS frequently acts as the market intermediary between national central banks and the market. The BIS has become increasingly active as central banks have increased their currency reserve management. When the BIS is reported to be buying or selling at a level, it is usually for a central bank and thus the amounts can be large. The BIS is used to avoid markets mistaking buying or selling interest for official government intervention.

Broker

An individual or firm that acts as an intermediary, bringing buyers and sellers together 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.

Bulls

Traders who expect prices to rise and who may be holding long positions.

Buy

Taking a long position on a product.


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C

Cable

The GBP/USD (Great British Pound/U.S. Dollar) pair. Cable earned its nickname because the rate was originally transmitted to the US via a transatlantic cable beginning in the mid 1800s when the GBP was the currency of international trade.

Cad

The Canadian dollar, also known as Loonie or Funds.

CALL OPTION

Call Option

A currency trade which exploits the interest rate difference between two countries. By selling a currency with a low rate of interest and buying a currency with a high rate of interest, the trader will receive the interest difference between the two countries while this trade is open.

Candlestick Chart

A chart that indicates the 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.

Cash Market

The market in the actual underlying markets on which a derivatives contract is based.

Cash Price

The price of a product for instant delivery; i.e., the price of a product at that moment in time.

CBS

Abbreviation referring to central banks.

Central Bank

A government or quasi-governmental 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.

Currency

Any form of money issued by a government or central bank and used as legal tender and a basis for trade.

Currency Pair

The two currencies that make up a foreign exchange rate. For example EUR/USD (Euro/U.S. Dollar).

Currency Risk

The probability of an adverse change in exchange rates.

Currency Symbols

A three-letter symbol that represents a specific currency. For example, USD (U.S. Dollar).

Current Account

The sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). The balance of trade is typically the key component to the current account.


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D

Day Trader

Speculators who take positions in commodities and then liquidate those positions prior to the close of the same trading day.

Deal

A term that denotes a trade done at the current market price. It is a live trade as opposed to an order.

Dealer

An individual or firm that acts as a principal 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.

Deficit

A negative balance of trade or payments.

Delivery

A trade where both sides make and take actual delivery of the product traded.

Delta

The ratio between the change in price of a product and the change in price of its underlying market.

Depreciation

The decrease in value of an asset over time.

Derivative

A financial contract whose value is based on the value of an underlying asset. Some of the most common underlying assets for derivative contracts are indices, equities, commodities and currencies.

Dove

Dovish refers to data or a policy view that suggests easier monetary policy or lower interest rates. The opposite of hawkish.


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E

ECB

European Central Bank, the central bank for the countries using the euro.

ESTX50

A name for the Euronext 50 index.

EURO

The currency of the Eurozone.

Exporters

Corporations who sell goods internationally, which in turn makes them sellers of foreign currency and buyers of their domestic currency. Frequently refers to major Japanese corporations such as Sony and Toyota, who will be natural sellers of USD/JPY, exchanging dollars received from commercial sales abroad.

Extended

A market that is thought to have traveled too far, too fast.


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F

FED

The Federal Reserve Bank, the central bank of the United States, or the FOMC (Federal Open Market Committee), the policy-setting committee of the Federal Reserve.

Fill

When an order has been fully executed.

EURO

The currency of the Eurozone.

Exporters

Corporations who sell goods internationally, which in turn makes them sellers of foreign currency and buyers of their domestic currency. Frequently refers to major Japanese corporations such as Sony and Toyota, who will be natural sellers of USD/JPY, exchanging dollars received from commercial sales abroad.

Fix

One of approximately five times during the forex trading day when a large amount of currency must be bought or sold to fill a commercial customer’s orders. Typically these times are associated with market volatility.

Flat

Economic data readings matching the previous period’s levels that are unchanged.

FOMC

Federal Open Market Committee, the policy-setting committee of the US Federal Reserve.

Forward

The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based on the interest rate differential between the two currencies involved.

FRA40

A name for the index of the top 40 companies (by market capitalization) listed on the French stock exchange. FRA40 is also known as CAC40.

Funds

Refers to hedge fund types active in the market. Also used as another term for the USD/CAD (U.S. Dollar/Canadian Dollar) pair.


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G

G7

Group of 7 Nations – United States, Japan, Germany, United Kingdom, France, Italy and Canada.

G8

Group of 8 – G7 nations plus Russia.

EURO

The currency of the Eurozone.

GAP

A quick market move in which prices skip several levels without any trades occurring. Gaps usually follow economic data or news announcements.

GER 30

An index of the top 30 companies (by market capitalization) listed on the German stock exchange – another name for the DAX.

Given

Refers to a bid being hit or selling interest.

GMTC

Greenwich Mean Time – The most commonly referred time zone in the forex market. GMT does not change during the year, as opposed to daylight savings/summer time.

Going Long

The purchase of a stock, commodity or currency for investment or speculation – with the expectation of the price increasing.

Going Short

The selling of a currency or product not owned by the seller – with the expectation of the price decreasing.

Gold

It is commonly accepted that gold moves in the opposite direction of the US dollar. The long-term correlation coefficient is largely negative, but shorter-term correlations are less reliable.


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H

Handle

Every 100 pips in the FX market starting with 000.

Hedge

A position or combination of positions that reduces the risk of your primary position.

HAWK

A country’s monetary policymakers are referred to as hawkish when they believe that higher interest rates are needed, usually to combat inflation or restrain rapid economic growth or both.

Hit The Bid

To sell at the current market bid.

HK50

Names for the Hong Kong Hang Seng index.


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I

Lllquid

Little volume being traded in the market; a lack of liquidity often creates choppy market conditions.

IMM

International Monetary Market, the Chicago-based currency futures market, that is part of the Chicago Mercantile Exchange.

INDU

Abbreviation for the Dow Jones Industrial Average.

Inflation

An economic condition whereby prices for consumer goods rise, eroding purchasing power.

Interest

Adjustments in cash to reflect the effect of owing or receiving the notional amount of equity of a CFD position.

INX

Symbol for S&P 500 index.

IPO

A private company’s initial offer of stock to the public. Short for initial public offering.


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L

Level

A price zone or particular price that is significant from a technical standpoint or based on reported orders/option interest.

Leverage

Also known as margin, this is the percentage or fractional increase you can trade from the amount of capital you have available. It allows traders to trade notional values far higher than the capital they have. For example, leverage of 100:1 means you can trade a notional value 100 times greater than the capital in your trading account.

Liability

Potential loss, debt or financial obligation.

Libor

The London Inter-Bank Offered Rate. Banks use LIBOR as a base rate for international lending.

Limits

An order that seeks to buy at lower levels than the current market or sell at higher levels than the current market. A limit order sets restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/JPY is 117.00/05, then a limit order to buy USD would be at a price below the current market, e.g. 116.50.

Longs

Traders who have bought a product.

Lot

A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.


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M

Macro

The longest-term trader who bases their trade decisions on fundamental analysis. A macro trade’s holding period can last anywhere from around six months to multiple years.

Maturity

The date of settlement or expiry of a financial product.

Models

Synonymous with black box. Systems that automatically buy and sell based on technical analysis or other quantitative algorithms.

MOM

Abbreviation for month-over-month, which is the change in a data series relative to the prior month’s level.

Momentum

A series of technical studies (e.g. RSI, MACD, Stochastics, Momentum) that assesses the rate of change in prices.

Margin Call

A request from a broker or dealer for additional funds or other collateral on a position that has moved against the customer.

Lot

A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.


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N

NAS100

An abbreviation for the NASDAQ 100 index.

NYA.X

Symbol for NYSE Composite index.


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O

Offered

If a market is said to be trading offered, it means a pair is attracting heavy selling interest, or offers.

Option

A derivative which gives the right, but not the obligation, to buy or sell a product at a specific price before a specified date.

Order

An instruction to execute a trade.

Open Position

An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.


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R

Rally

A recovery in price after a period of decline.

Range

When a price is trading between a defined high and low, moving within these two boundaries without breaking out from them.

Rate

The price of one currency in terms of another, typically used for dealing purposes.

RBA

Reserve Bank of Australia, the central bank of Australia.

RBNZ

Reserve Bank of New Zealand, the central bank of New Zealand.

Revaluation

When a pegged currency is allowed to strengthen or rise as a result of official actions; the opposite of a devaluation.

Risk

Exposure to uncertain change, most often used with a negative connotation of adverse change.


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S

Sec

The Securities and Exchange Commission.

Sector

A group of securities that operate in a similar industry.

Sell

Taking a short position in expectation that the market is going to go down.

Settlement

The process by which a trade is entered into the books, recording the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.

Shorts

Traders who have sold, or shorted, a product, or those who are bearish on the market.

Slippage

The difference between the price that was requested and the price obtained typically due to changing market conditions.

Slippery

A term used when the market feels like it is ready for a quick move in any direction.


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T

Takeover

Assuming control of a company by buying its stock.

Thin

A illiquid, slippery or choppy market environment. A light-volume market that produces erratic trading conditions.

Trade Size

The number of units of product in a contract or lot.

Trading Bid

A pair is acting strong and/or moving higher; bids keep entering the market and pushing prices up.

Trading Offered

A pair is acting weak and/or moving lower, and offers to sell keep coming into the market.

Trading Range

The range between the highest and lowest price of a stock usually expressed with reference to a period of time. For example: 52-week trading range.

Trading Stop

A trailing stop allows a trade to continue to gain in value when the market price moves in a favorable direction, but automatically closes the trade if the market price suddenly moves in an unfavorable direction by a specified distance. Placing contingent orders may not necessarily limit your losses.


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U

UGLY

Describing unforgiving market conditions that can be violent and quick.

UK100

A name for the FTSE 100 index.

Uunderlying

The actual traded market from where the price of a product is derived.

Uptick

A new price quote at a price higher than the preceding quote.


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