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Forex Terminology -A- AppreciationA currency is said to “appreciate” when it strengthens in price in response to market demand All or noneA limit price order, that requires the entire order to be filled at the stated price, or not at all. ArbitrageThe simultaneous purchase, and sale of an instrument, in two different markets, to profit from a temporary price disparity. Ask (Offer) PriceThe price at which the market is prepared to sell a specific Currency 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. -B- Base CurrencyThe currency against which other currencies are quoted, for example, the primary base currency is the US dollar. BasisThe spot price minus the futures price Bear MarketA market in which prices decline sharply against a background of widespread pessimism (opposite of Bull Market). Bear Markets are generally shorter in duration than Bull Markets. BidThe rate at which a dealer is willing to buy the base currency/ The price that a buyer is prepared to purchase at; the price offered for a currency. Bull MarketA market characterized by rising prices. BrokerAn agent who handles investors' orders to buy and sell currency. -C- Call RateThe overnight Interbank interest rate. Convertible CurrencyCurrency, which can be freely exchanged for other currencies, or gold, without special authorization from the appropriate central bank. Counter partyThe customer or bank with which a foreign exchange deal is executed. Covered Interest Rate ArbitrageCross-RateAn exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, measured against the United States dollar. -D- Day TradingRefers to opening and closing the same position or positions before the close of that day's trading (3:00p.m. EST). Day TradingRefers to opening and closing the same position or positions within one day’s trading Direct DealingAn approach whereby dealers contact each other to transact with a broker -E- Exotics/Exotic CurrencyA currency with little liquidity, and limited dealing. An Exotic is neither a major nor a minor currency. Expensive to trade as the spreads can be large -F- Federal Reserve(Fed)The Central Bank of the United States ForexAn abbreviation of foreign exchange. Fixed Exchange RateOfficial rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower bands, leading to intervention Fundamental AnalysisAnalysis based on economic factors. FXActiveYour world -class forex trading service provider -G- GTC"Good Till Cancelled." An order left with a Dealer to buy or sell at a fixed price. The order remains in place until the client cancels it. -H- HedgingThe practice of undertaking one investment activity in order to protect against loss in another, e.g. selling short to nullify a previous purchase, or buying long to offset a previous short sale. While hedges reduce potential losses, they also tend to reduce potential profits -I- Initial MarginThe margin paid initially to trade currency futures or margined Forex. A trader’s loss may not exceed this margin per contract/lot Interbank RatesThe FX rates large international banks quote other large international banks. Normally the public and other businesses do not have access to these rates. -L- Limit OrderAn order given which has restrictions upon its execution, where the client may specify a price and the order can be executed only if the market reaches that price. LongA market position where the Client has bought a currency he previously did not own. Normally expressed in base currency terms. For example: long Dollars (short Japanese Yen). -M- MarginMargin is a cash deposit provided by clients as collateral to cover possible future losses that may result from the clients Foreign Exchange trades. Margin CallA demand for additional funds. A requirement by a clearing house that a clearing member (or by a brokerage firm that a client) brings margin deposits up to a required minimum level to cover an adverse movement in price in the market. FXActive offers a margin call when your account reaches $100. -O- OfferThe rate at which a Dealer is willing to sell the base currency. Open PositionAny deal, which has not been offset or reversed by an equal and opposite deal. Overnight TradingRefers to positions held open between 3p.m. EST and 7p.m. EST. -P- Pip or PointsDepending on context, normally one basis point, i.e. 0.0001. -Q- Quotation American TermsA quotation that reflects the number of USD units per foreign currency. Quotation European TermsA quotation that reflects the number of foreign currency units per US dollar -R- Rollover/Tom NextTom Next (Tomorrow Next Day) is the process of aligning the value dates of foreign exchange transactions and rolling a given spot position from one day into the next, while taking respective interest rates of crosses being traded into accordance -S- ShortA market position where the Client has sold a currency he does not already own. Normally expressed in base currency terms, example, short Dollars (long D. Marks). SpreadThe difference in prices between bids and offer rates. Stop Loss OrderAn order to buy or sell at the market when a particular price is reached, either above or below the price that prevailed when the order was given. -T- Technical AnalysisAnalysis based on market action through chart study, moving averages, volume, open interest, formations, and other technical indicators. Tom NextTomorrow Next, is a forex deal, which matures one day prior to a regular spot deal, thus maturity is the next business day. -V- Value DateSettlement date of a spot- or forward deal. VolatilityA measure of price fluctuations.
© Frannor Trading 102 (Pty) Ltd 2002
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