Financial Glossary

A record of all transactions.

Account Balance
See Balance.

An individual employed to act on behalf of another (the principal).

Aggregate Demand
The sum of government spending, personal consumption expenditures and business expenditures.

All or None
A limit price order that instructs the FCM to fill the whole order at the stated price or not at all.

An increase in the value of an asset; the rising of a price in response to market demand.

The use of countervailing prices in different markets to profit from small price differentials via the purchase or sale of an instrument and simultaneous taking of an equal and oppostie position in a related market.

Ask Size
The amount of shares being offered for sale at the ask rate.

Ask Rate
The lowest price at which a financial instrument is offered for sale.

Attorney in Fact
A person who, by virtue of having power of attorney, is allowed to transact business and execute documents on behalf of another person.

Asset Allocation
The distribution of funds among different markets (such as Forex, stocks, bonds, commodities and real estate) to achieve diversification for risk management purposes and/or expected returns.

Back Office
The departments and processes related to the settlement of financial transactions.

The amount of money in an account.

Balance of Payments
A systematic record of a nation's total payments to foreign countries, including the price of imports and the outflow of capital and gold, along with the total receipts from abroad, including the price of exports and the inflow of capital and gold.

Base Currency
1) The currency in which an investor or issuer maintains his/her book of accounts; the currency against which other currencies are quoted. In the Forex market, the US Dollar is normally considered the "base" currency for quotes, meaning that quotes are expressed as a unit of one USD per the other currency quoted in the pair. 2) The first currency quoted in a pair.

The difference between the spot price and the futures price.

Basis Point
One hundredth of a percent.

An investor who believes that market prices will decline.

Bear Market
A trend distinguished by a prolonged period of declining prices accompanied with widespread pessimism.

The price at which a buyer is prepared to purchase; the price offered for a currency.

Bid/Ask Spread
See spread.

Big Figure
A dealer phrase referring to the 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/JPY rate might be 107.30/107.35, but would be quoted verbally without the first three digits as, "30/35".

Tradable instruments (debt securities) issued by a borrower to raise capital. They pay either fixed or floating interest, known as the coupon. As interest rates fall, bond prices rise and vice versa.

Bretton Woods Accord of 1944
An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets and set the price of gold at USD 35 per ounce. The agreement lasted until 1971.

An individual or firm that acts as an intermediary between buyers and sellers, usually for a fee or commission. A dealer, by contrast, performs the same service but 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.

An investor who believes that market prices will rise.

Bull Market
A trend distinguished by a prolonged period of rising prices; the opposite of bear market.

The central bank of Germany.

Nickname for the Great Britain Pound

Candlestick Chart
A chart that indicates the trading ranges for the day as well as the opening and closing price. If the close price is lower than the open price, the rectangle is shaded or filled. If the open price is higher than the close price, the rectangle is not filled.

Capital Markets
Markets intended for medium- to long-term investment, such as US government bonds and Eurobonds.

Central Bank
A nation or group of member state’s principal monetary authority, such as the Federal Reserve Bank, which regulates the money supply and credit, issues currency, and manages the rate of exchange.

An individual who interprets historical data to find trends, predicts future movements and aids in technical analysis.

The process of settling a trade.

Close a Position (Position Squaring)The act of exiting a trade by the trader and not using limit, stop, or any other pending orders designed to exit the market.

The fee a broker charges for a transaction.

A document exchanged by participants in a transaction that confirms the terms of said transaction.

When an economic crisis in one country's bond or equity markets spreads to other countries which experience the same problems. The term comes from the more general definition of contagion, which is a highly transmittable disease.

Contract (Unit or Lot)
The standard unit of trading on certain exchanges.

Convertible Currency
A currency which can be exchanged freely for other currencies at market rates, or gold.

Cost of Carry
The cost associated with borrowing money in order to maintain a position. It is based on the interest parity, which determines the forward price.

Counter party
The opposite party in a given transaction; e.g., the buyer as opposed to the seller or vice versa.

Credit Checking
A check performed to be sure both parties have the credit to cover the trade they wish to transact.

Credit Netting
An arrangement that maximizes free credit and speeds the dealing process by reducing the need to constantly re-check credit. Large banks and trading institutions may have agreements to net outstanding deals.

Cross Rates
An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a non-standard rate; whereas in the UK or Switzerland, GBP/CHF would be one of the primary currency pairs traded.

Any form of money that is in public circulation. Currency includes both hard money (coins) and soft money (paper money). Typically currency refers to money that is legally designated as such by the governing body, but in some cultures currency can refer to any object that has a perceived value and can be exchanged for other objects.

Currency Risk
The risk of incurring loss due to an adverse change in exchange rates.

Day Trading
The opening and closing of a position within the same trading session.

One who acts as a principal or counterpart to a transaction; places the order to buy or sell.

A negative balance of trade or payments.

The process by which both sides transfer possession of the currencies traded.

Money transferred into a customer's account at a financial institution.

A decline in the value of a currency due to market forces.

A contract between two or more parties that establishes the value of underlying assets. Examples of derivative instruments include Options, Interest Rate Swaps, Forward Rate Agreements, Caps, Floors and Swap options.

A substantial drop in the value of a currency, relative to the price of gold or the currencies of other countries.

Economic Indicator
A statistic that measures economic growth and stability; e.g., Gross Domestic Product (GDP), employment rates, trade deficits, industrial production and business inventories.

Efficient Market
A market in which the current price reflects all available information from past prices and volumes.

End Of Day
Described as the moment when a particular market closes. Example: New York Market end of day is at 5 p.m. EST.

Estimated Annual Income
Projected yearly earnings.

The currency of the European Monetary Union (EMU), which replaced the European Currency Unit (ECU).

European Central Bank
The Central Bank for the European Monetary Union.

Exchange Rate Risk
See Currency Risk.

Economic Exposure
The risks faced by a company that does business or holds investments abroad. Economic exposure can include changes in foreign exchange rates or the chance of foreign countries defaulting on their debt. Companies often hedge against this type of risk through the foreign exchange market.

Federal Deposit Insurance Corporation (FDIC)
The regulatory agency responsible for administering bank depository insurance in the US.

Federal Reserve (Fed)
The Central Bank of the United States.

Fixed Exchange Rate
An official exchange rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.

Fixed Interest
An interest rate that remains constant for the term of the deal, as in bonds or fixed-rate mortgages.

Flat (or Square)
The state of being neither short nor long. A "flat book" would contain no positions, or positions that cancel one another out.

Floating Rate Interest
An interest rate that fluctuates with market or benchmark rates, as in a standard mortgage.

Foreign Exchange (or Forex or FX)
The simultaneous buying of one currency type and selling of another in an over-the-counter market.

Foreign Exchange Risk
See Currency Risk.

A deal that will commence at an agreed-upon date in the future. Unlike in the futures market, forward trading can be customized according to the needs of the two parties and involves more flexibility. Also, there is no centralized exchange.

Forward Points
The pips added to or subtracted from the current exchange rate to calculate a forward price. Transactions that allow one to borrow/lend at a stated interest rate over a specific time period in the future.

Front Office
Sales and corporate finance personnel at a financial institution.

A method of trading financial instruments, currencies or commodities for a specific price at a specific date in the future. Unlike options, futures entail the obligation (not the option) to buy or sell instruments at a later date. They can be used to both protect and speculate against the future value of the underlying product.

An abbreviation for "Foreign Exchange." Common misspellings include FORX, 4X and FourX

Forex Trader
A person or company who buys and sells currency to make a profit.

Good till Cancelled (GTC)
An acronym for "Good Til Cancelled," which is an order left with a dealer to buy or sell at a fixed price. The GTC will remain in place until executed or cancelled.

The act of opening a position or trade in the opposite direction in which previously trading to offset risk.

The highest traded price and the lowest traded price for a given period.

An increase in the price of consumer goods that erodes purchasing power.

Initial Margin
The required initial deposit to enter into a trade position.

Interbank Rates
The Foreign Exchange rates at which large international banks quote other large international banks.

Interest Rate Swaps (IRS)
The transaction usually exchanges two parallel loans; one fixed and the other floating.

Introducing Broker (IB)
A person or organization that solicits or accepts clients to trade in the forex market, but does not directly accept money or other assets from customers for trading.

An acronym for "International Swaps and Derivatives Association," which is the body that sets terms and conditions for derivative trades.

Junk Bond
A bond that is rated below the investment grade before the purchase.

Keepwell Agreement
A contract between a parent company and its subsidiary to maintain solvency and financial backing throughout the term set in the agreement.

Leading Indicators
Economic variables that are considered to predict future economic activity; e.g., unemployment, Consumer Price Index, Producer Price Index, retail sales, personal income, Prime Rate, Discount Rate and Federal Funds Rate.

An acronym for the "London Interbank Offer Rate," which is an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market.

London International Financial Futures and Options Exchange. It is a futures exchange based in London and following its takeover by Euronext in 2002 and Euronext’s merger with New York Stock Exchange in 2007 is a part of NYSE Euronext.

Limit Order
An order to buy at or below a specified price, or to sell at or above a specified price.

Liquid and Illiquid Markets
Market with a low degree of liquidity, often resulting from a small number of buyers and sellers.

To close an open position by executing an offsetting transaction.

Liquid Assets
Assets that can be easily converted into cash. Examples: money market fund shares, US Treasury Bills, bank deposits, etc.

A position characterized by purchasing more of an instrument than is sold in hopes that the value will appreciate.

Funds deposited as collateral to cover any potential losses from adverse movements in prices.

Margin Call
A request by a broker or dealer for additional funds or other collateral in order to guarantee performance on a position that has moved against the trader.

Mark to Market
See "End of Day."

Market liquidity
Refers to an asset’s ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value.

Market Maker
A dealer who supplies prices and is prepared to buy or sell at those prices. A market maker runs a trading book.

Market Order
An order to buy/sell at the best price available when the order reaches the market.

Market Risk
Risk relating to the market in general that cannot be extinguished by hedging or holding a variety of securities.

The date a debt becomes due for payment.

Jargon used in buying and selling. A prospective buyer might say or type, "Mine." The seller might then reply, "Yours" to confirm the sale.

Money Markets
Short-term investment opportunities (e.g. under one year.) Participants include banks and other financial institutions. Examples include Deposits, Certificates of Deposit, Repurchase Agreements, Overnight Index Swaps and Commercial Paper.

Net Worth
The value of a person's assets, including cash, minus all liabilities. The amount by which the individual's assets exceed their liabilities is considered the net worth of that person. Pegging - Holding prices or exchange rates fixed over some time period.

The price at which a seller is prepared to sell.

Offsetting Transaction
A trade that serves to offset the market risk of an open position.

One Cancels Other Order (OCO Order)
A contingent order in which the execution of one part of the order automatically cancels the other part.

Open Order
An order to buy or sell when the market moves to a pre-designated price.

Open Position
A deal, not yet reversed or settled, in which the investor is subject to exchange rate movements.

An agreement that allows the holder to have the option to buy/sell a specific security at a set price within a set time period. Two examples of options are "call" and "put." A call is the right to buy, while a put is the right to sell.

An instruction from a client to a broker to trade. An order can be placed at a specific price or at the market price. It can be good until filled or until close of business.

A trade that remains open until the next business day.

Over The Counter (OTC)
Any transaction that is not conducted on an exchange.

Pip (Price Interest Point)
The smallest incremental move an exchange rate can make. Depending on context, this is normally one basis point (0.0001 in the case of EUR/USD, GBD/USD and USD/CHF; and .01 in the case of USD/JPY).

Political Risk
The risk of loss when investing in a given country caused by changes in a country's political structure or policies, such as tax laws, tariffs, expropriation of assets, or restriction in repatriation of profits. For example, a company may suffer from such loss in the case of expropriation or tightened foreign exchange repatriation rules, or from increased credit risk if the government changes policies to make it difficult for the company to pay creditors.

A trading viewpoint expressed by buying or selling. Can also refer to the amount of a currency either owned or owed by an investor.

The number of points added to the spot price to determine a forward or futures price.

Price Transparency
Condition in which every market participant has equal access to the description of quotes.

Summation that shows the highest bid and/or lowest ask price available on a security at any given time.

The price of one currency in terms of another.

Realized Profit/Loss
Profit or loss that occurs when an asset is sold.

Re-purchase (or Repo)
Involves the sale of an instrument to be re-purchased at a specified time and date. Occurs in the short-term money market.

A term used in technical analysis indicating a specific price level above which a currency is unable to cross. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line.

Revaluation Rates
Market rates used when a trader runs an end-of-day to establish profit and loss.

Exposure to uncertain change.

Risk Capital
The amount of money that an individual can afford to invest that, if lost, would not affect his/her lifestyle.

Risk Management
The process of analyzing exposure to risk and determining how to best handle such exposure.

The interest rate variation between the two currencies when the settlement of a deal is rolled forward to a different date.

The finalizing of a transaction.

Short Selling
To sell an instrument without actually owning it in hopes that the price will decline so it can be bought back in the future at a profit.

Short Position
An investment position that results from short selling.

A transaction that occurs immediately. The funds will usually change hands within two days after deal is struck.

Spot Price
The current market price.

The difference between the bid and offer (ask) prices, which is used to measure market liquidity. Narrower spreads usually signify high liquidity.

Stop Order
An order to buy/sell at an agreed-upon price.

Support Levels
A term used in technical analysis indicating a specific price level below which a currency is unable to cross. Recurring failure for the price to move below that point produces a pattern that can be displayed using an approximate straight line.

Another term for the Great British Pound.

The temporary holding of a security that is then exchanged after a fixed period of time. To calculate the swap, find the interest rate differential between the two currencies. The value may be used for speculative purposes to exploit anticipated movement in the interest rates.

Technical Analysis
An effort to forecast future market activity by analyzing market data such as charts, price trends, and volume.

Minimum price move.

An instrument that shows current and/or recent history of a currency in either graph or table format.

Tomorrow Next (Tom/Next)
Simultaneous buying and selling of a currency for delivery the following day.

Transaction Cost
The cost associated with buying or selling of a financial instrument.

Transaction Date
The date at which the trade occurs.

The volume traded over a specified period.

Two Way Price
Both the bid and offer rates quoted for a Forex transaction.

A new price quote that is higher than the preceding quote for the same currency.

Uptick Rule
In the U.S., a regulation stating that a security may not be sold short unless the trade prior to the short sale was at a price lower than the price at which the short sale was executed.

U.S. Prime Rate
The interest rate at which US banks will lend to their prime corporate customers.

Value Date
The date that both parties of a transaction agree to exchange payments.

Variation Margin
An additional margin requirement that a broker will need from a client due to market fluctuation.

The relative rate at which the price of a security moves up and down. Volatility is found by calculating the annualized standard deviation of daily change in price. If the price of a currency pair moves up and down rapidly over short time periods, it has high volatility. If the price almost never changes, it has low volatility.

The number of assets traded during a specific period.

A form of traded options; rights to purchase shares or bonds issued by a company at a specific price within a specific time span.

A condition in a highly volatile market characterized by a sharp price movement quickly followed by a sharp reversal.

A symbol used to signify that a security is trading ex-dividend.

Another term for a billion.

Zero Balance Account - ZBA
A checking account in which a balance of zero is maintained by automatically transferring funds from a master account in an amount only large enough to cover checks presented.

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