Easy-Forex™

The following offers brief explanation of the most popular terms used in the
market today.
Value Definition
Total exposure a bank has with a customer for both spot
Aggregate (Risk)
and forward contracts.
Total demand for goods and services in the economy.
Aggregate demand includes private and public sector
Aggregate Demand
demand for goods and services within the country, and the
demand of consumers and firms in other countries for goods
and services.
Total supply of goods and services in the economy (including
Aggregate Supply
imports) available to meet aggregate demand.
Difference in the value between currencies. Also used to
Agio
describe percentage charges for conversion from paper
money into cash, or from a weak into a strong currency.
An option which may be exercised on any valid business
American Option
date throughout the life of the option. A European option
can only be exercised on a specific date.
Describes a currency strengthening in response to market
Appreciation
demand as opposed to increasing in value as a result of
official action.
A risk-free type of trading where the same instrument is
Arbitrage
bought and sold simultaneously in two different markets in
order to cash in on the difference between the markets.
Around
Used in quoting forward “premium/discount”.
The price at which the currency or instrument is offered.
Ask Price
Ask is the lowest price acceptable to the buyer.
The right to receive from a counterparty an amount of
currency either in regards to a balance sheet asset (e.g. a
Asset
loan), or at a specified future date in regards to an
unmatched Forward or spot deal.
The international society of foreign exchange dealers
Association Cambiste
consisting of national "Forex clubs" affiliated on a worldwide
International
basis.
An instruction given to a dealer to buy or sell at the best
At Best
rate that is currently available in the market.
At or Better
An order to deal at a specific rate or better.
At Par Forward Spread
When the forward price is equivalent to the spot price.
At the Price Stop-Loss
A stop-loss order that must be executed at the requested
Order
level regardless of market conditions.
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Value Definition
An option whose strike/exercise price is equal to or near
At-the-Money
the current market price of the underlying instrument.
Sale of an item to the highest bidder. (1) A method
commonly used in exchange control regimes for the
allocation of foreign exchange. (2) A method for allocating
government paper, such as US Treasury Bills. Small investors
Auction
are given preferential access to the bills. The average
issuing price is then computed on the basis of the
competitive bids accepted. In some circumstances, such as
government auctions, it is the yield rather than the price
which is bid.
A contract where the exercise price is based on the
difference between the strike price and the average spot
Average Rate Option
rate over the contract period. Sometimes called an “Asian
option”.
Back Office
Settlement and related processes.
(1) Transaction where all the obligations and liabilities in
one transaction are mirrored in a second transaction. (2)
Back to Back
Transaction where a loan is made in one currency in one
country against a loan in another country in another
currency.
A systematic record of the economic transactions during a
given period for a country. (1) The term is often used to
mean either: (i) balance of payments on “current account”;
or (ii) the current account plus certain long term capital
movements. (2) The combination of the trade balance,
Balance of Payments
current balance, capital account and invisible balance,
which together make up the balance of payments total.
Prolonged balance of payment deficits tend to lead to
restrictions in capital transfers, and or decline in currency
values.
The value of exports less imports. Invisibles are normally
excluded, which is why balance of trade is also referred to
Balance of Trade
as mercantile or physical trade. Figures can be quoted as
FoB/FaS , customs cleared, or FoB export.
The range in which a currency is permitted to move. A
Band
system used in the ERM.
Line of credit granted by a bank to a customer, also known
Bank Line
as a "line".
Bank notes are paper issued by the central or issuing bank.
They are legal tender, but are not usually considered to be
part of the FX market. However bank notes can be
Bank Notes
converted, in some counties, into FX. Bank notes are
normally priced at a premium to the current spot rate for a
currency.
The rate at which a central bank is prepared to lend money
Bank Rate
to its domestic banking system.
Banking Day
See trading day and value date.
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Value Definition
A family of path dependent options whose pay-off pattern
and survival to the expiration date depend not only on the
final price of the underlying currency, but also on whether
Barrier Option
or not the underlying currency breaks a predetermined
price level at any time during the life of the option. See
Down and Out call/put, Down and in call/put, Up and out
call/put, Up and in call/put.
The currency in which the operating results of the bank or
Base Currency
institution are reported.
A term used in the UK for the rate used by banks to
Base Rate
calculate the interest rate to borrowers. Top quality
borrowers will pay a small amount over base.
Basis
The difference between the cash price and futures price.
The process whereby the basis tends towards zero as the
Basis Convergence
contract expiry approaches.
Basis Point
One per cent of one per cent.
The price expressed in terns of yield maturity or annual rate
Basis Price
of return.
Taking opposite positions in the cash and futures market
Basis Trading
with the intention of profiting from favorable movements in
the basis.
A group of currencies normally used to manage the
Basket
exchange rate of another currency, sometimes referred to
as a unit of account.
Bear
A person (investor) who believes that prices will decline.
A market in which prices decline sharply against a
Bear Market
background of widespread pessimism (opposite of Bull
Market).
A spread designed to exploit falling exchange rates by
Bear Put Spread
purchasing a put option with a high exercise price and
selling one with a low exercise price.
The price at which a buyer has offered to purchase the
currency or instrument. Bid is the highest price that the
buyer is offering for the particular currency at the moment;
Bid Price
the difference between the ask price and the bid price is
the spread. Together, the two prices constitute a quotation.
The bid-ask spread is stated as a percentage cost of
transacting in the foreign exchange.
Refers normally to the first three digits of an exchange rate
that dealers treat as understood in quoting. For example, a
Big Figure
quote of "30/40" on dollar mark could indicate a price of
1.5530/40BIS: Bank of International Settlement.
A system used where foreign currency is limited. In such a
system, payments are usually routed through the central
Bilateral Clearing
banks, and sometimes require that the trade balance is
equaled every year.
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Value Definition
A binary “call” (or “step up”) is like a standard European
call option except that the pay off at expiry is fixed at one
Binary Options
unit of the counter currency when the call expires in the
money.
An option pricing formula initially derived by Fisher Black
and Myron Scholes for securities options and later refined by
Black-Scholes Model
Black for options on futures. It is widely used in the
currency markets.
The recording of a transaction outside the country where
Booked
the transaction is itself negotiated.
Boris
Slang for Russian trading.
The price of a financial instrument at which the option
buyer recovers the premium, meaning that either a loss or
Break Even Point
gain is made. In the case of a call option, the break even
point is the exercise price plus the premium.
In the options market, undoing a conversion or a reversal to
Break Out
restore the option buyer's original position.
The site of the 1944 conference which led to the
establishment of the post war foreign exchange system that
remained intact until the early 1970s. The conference also
Bretton-Woods
resulted in the formation of the IMF. The fixed exchange
rate system established at Bretton-Woods allowed 1%
fluctuations of a given currency to gold or the dollar.
Deals that are undertaken for value dates that are not
standard periods e.g. 1 month. The standard periods are 1
Broken Dates or Period
week, 2 weeks, 1, 2, 3, 6 and 12 months. Terms also used
are odd dates, or cock dates, broken dates or broken
period.
An agent, who executes orders to buy and sell currencies
and related instruments either for a commission or on a
spread. Brokers are agents working on commission and not
principals or agents acting on their own account. In the
foreign exchange market, brokers tend to act as
Broker
intermediaries between banks bringing buyers and sellers
together for a commission paid by the initiator or by both
parties. There are four or five major global brokers
operating through subsidiaries, affiliates and partners in
many countries.
Brokerage
Commission charged by a broker.
Broker-Dealer
See Dealer.
BUBA
Bundesbank, the central bank of Germany.
Bull
A person (investor) who believes that prices will rise.
An option position composed of both long and short options
of the same type, either calls or puts, designed to be
Bull (call or put) Spread
profitable in a declining market. An option with a lower
strike price is bought and one with a higher strike price is
sold.
Bull Market
A market characterized by rising prices.
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Value Definition
Bulldogs
Sterling bonds issued in the UK by foreign institutions.
Bullion
A term for gold bars, not coin.
Bundesbank
Central bank of Germany.
(1) A futures butterfly spread is a spread trade in which
multiple futures months are traded simultaneously at a
differential. The trade basically consists of two futures
spread transactions with either three or four different
futures months at one differential. (2) An options butterfly
Butterfly Spread
spread is a combination of a bear and bull spread trade in
which multiple options months and strike prices are traded
simultaneously at a differential. The trade basically consists
of two options spread transactions with either three or four
different options months and strikes at one differential.
The purchaser of an option, whether a call or put option.
The buyer may also be referred to as the option holder.
Buyer/Taker
Option buyers receive the right, but not the obligation, to
enter a futures/securities market position.
Rate at which the market and a market maker in particular
Buying Rate
are willing to buy the currency. Sometimes called bid rate.
To buy the nearby contract and simultaneously sell the
Buying The Spread
deferred contract. Also referred to as a bull spread.
A term used in the foreign exchange market for the US
Cable
Dollar/British Pound rate.
Telegraphic transfer of funds from one centre to another.
Cable Transfer
Now synonymous with interbank electronic fund transfer.
An option position comprising the purchase and sale of two
Calendar Spread
option contracts of the same type with different expiration
dates at the same exercise price.
An option that gives the holder the right to buy the
Call
underlying instrument at a specified price during a fixed
period.
A call option confers the right but not the obligation to buy
Call Option
stock, shares or futures at a specified price.
Cambiste
French term for foreign exchange dealer.
Juxtaposition of the long and short term capital imports and
Capital Account
exports of a country.
The interest cost of financing securities or other financial
Carry
instruments held.
A finance charge associated with the storing of commodities
Carry-Over Charge
(or foreign exchange contracts) from one delivery date to
another.
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Value Definition
Normally refers to an exchange transaction contracted for
settlement on the day the deal is struck. This term is mainly
used in the North American markets and those countries
Cash
that rely on these markets for foreign exchange services
because of time zone preferences i.e. Latin America. In
Europe and Asia, cash transactions are often referred to as
“value same day” deals.
The buying of an asset today and selling of a future contract
Cash and Carry
on the asset. A reverse cash and carry is possible by selling
an asset and buying a future.
Cash Delivery
Same day settlement.
A procedure for settling futures contract where the cash
Cash Settlement
difference between the future and the market price is paid
instead of physical delivery.
CBOE
Chicago Board Options Exchange.
CBOT or CBT
Chicago Board of Trade.
CD
Certificate of Deposit.
A central bank provides financial and banking services for a
country's government and commercial banks. It implements
Central Bank
the government's monetary policy as well by changing
interest rates. It is normally the issuing bank and controls
bank licensing, and any foreign exchange control regime.
Exchange rates against the ECU adopted for each currency
Central Rate
within the EMS. Currencies have limited movement from the
central rate according to the relevant band.
A negotiable certificate in bearer form issued by a
commercial bank as evidence of a deposit with that bank
which states the maturity value, maturity rate and interest
rate payable. CDs vary in size with maturities ranging from
Certificate of Deposit (CD)
a few weeks to several years. CDs may normally be
redeemed before maturity only by sale on the secondary
market, but may also be redeemed back to issuing bank
through payment of a penalty.
The Commodity Futures Trading Commission, the US Federal
CFTC
regulatory agency for futures traded on commodity
markets, including financial futures.
CHAPS
Clearing House Automated Payment System.
An individual who studies graphs and charts of historic data
to find trends and predict trend reversals. These include
the observance of certain patterns and characteristics of
Chartist
the charts to derive resistance levels, head and shoulders
patterns, and double bottom or double top patterns which
are thought to indicate trend reversals.
The New York clearing house clearing system. (Clearing
CHIPS
House Interbank Payment System). Most euro transactions
are cleared and settled through this system.
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Value Definition
Copenhagen Interbank Rate, the rate at which the banks
lend the Danish Krone on an unsecured basis. The rate is
CIBOR
calculated daily by the Denmark’s Nationalbank (the Danish
Central Bank), based on rules set out by the Danish Banker's
Association.
The process of setting a number of items against one
Clearing
another and making fund transfers only on the net balance
as part of the settlement process.
A transaction which leaves the trade with a zero net
Closed Position
commitment to the market with respect to a particular
currency.
Closing Purchase
The purchase of an option identical to one already sold to
Transaction
liquidate a position.
CME
Chicago Mercantile Exchange Cock Dates (see broken dates).
An economic indicator that generally moves in line with the
Coincident Indicator
general business cycle such as industrial production.
Comex
Commodity Exchange of New York.
The fee that a broker may charge clients for dealing on
Commission
their behalf.
An option on an option, the dates and price of such option
Compound Option
being fixed.
Comptant
French term for spot settlement in foreign exchange.
A memorandum to the other party describing all the
Confirmation
relevant details of the transaction.
Monthly measure of the change in the prices of a defined
basket of consumer goods including food, clothing, and
transport. Countries vary in their approach to rents and
mortgages. Rising CPI is normally associated with
Consumer Price Index
expectations of higher short term interest rates and may
therefore be supportive for a currency in the short term.
Nevertheless, a longer term inflation problem will
eventually undermine confidence in the currency and
weakness will follow.
An agreement to buy or sell a specified amount of a
Contract
particular currency or option during a specified month in
the future (See Futures contract).
The date on which a currency must be delivered to fulfill
the terms of the contract. For options, the last day on
Contract Expiration Date
which the option holder can exercise his right to buy or sell
the underlying instrument or currency.
The month in which a futures contract matures or becomes
Contract Month
deliverable if not liquidated or traded out before the date
specified.
The bank that regularly performs services on behalf of a
foreign bank that has no branch in the relevant centre, e.g.
Correspondent Bank
to facilitate the transfer of funds. In the US, this often
occurs domestically due to interstate banking restrictions.
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Value Definition
The interest rate parity, where the forward price is
Cost of Carry
determined by the cost of borrowing money in order to hold
the position.
Cost of Living Index
Broadly equivalent to Retail Price Index or Consumer price.
Where a person buys a currency against the dollar, it is the
Counter Value
dollar value of the transaction.
The other side to a deal (customer, or bank) with which a
Counterparty
foreign exchange deal is executed.
Foreign Currency Inter-bank Exchange (FOREX) instruments
are Positions (Buy and/or Sell) between the Client and its
Counterparty and, unlike exchange-traded foreign exchange
instruments which are, in effect, guaranteed by a clearing
organization affiliated with the exchange on which the
instruments are traded, are not guaranteed by a clearing
Counterparty Risks
organization. Thus, when the Customer purchases an OTC
foreign exchange instrument, it relies on the Counterparty
from which it has purchased the instrument to fulfill the
contract. Failure of a Counterparty to fulfill a Position could
result in losses of any prior payment made pursuant to the
Positions, as well as the loss of the expected benefit of the
transaction.
Factors that affect currency trading unique to the specific
Country Risk
country including political, regulatory, legal and holiday
risks.
(1) On bearer stocks, the detachable part of the hide behind
Coupon
nominee status. Certificate exchangeable for dividends. (2)
Denotes the rate of interest on a fixed interest security.
Coupon Value
The annual rate of interest of a bond.
Cours du Change
(French) Exchange rate.
Cours Libre
(French) Free exchange rate.
Cours Officiel
(French) Official exchange rate.
Court
French for "short" as in “une position courte”.
Courtier
(French) Broker.
(1) To take out a forward foreign exchange contract. (2) To
Cover
close out a short position by buying currency or securities
which have been sold.
A term used in the foreign exchange market for the US
Covered Call
Dollar/British Pound rate.
A strategy of writing call options against a long position in
Covered Call Write
the underlying asset. A covered put write being based on a
short position in the asset.
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Value Definition
An arbitrage approach which consists of borrowing currency
A, exchanging it for currency B, investing currency B for the
duration of the loan, and, after taking off the forward cover
on maturity, showing a profit on the entire set of deals. It is
based on the theorem of interest rate parity (one of the key
Covered Interest Rate
theoretical economic relationships), which says that the
Arbitrage
return on a hedged foreign investment will just equal the
domestic interest rate on investments of identical risk.
When the covered interest rate differential between the
two money markets is zero, there is no arbitrage incentive
to move funds from one market to another.
The interest rate margin between two instruments
Covered Margin
denominated in different currencies after taking into
account of the cost of forward cover.
Consumer Price Index. Monthly measure of the change in
the prices of a defined basket of consumer goods including
CPI
food, clothing, and transport. Countries vary in their
approach to rents and mortgages.
CPSS
Committee on Payment and Settlement Systems.
An exchange rate system where a country's exchange rate is
Crawling Peg (Adjustable
"pegged" (i.e. fixed) in relation to another currency. The
Peg)
official rate may be changed from time to time.
Credit Lombard
See Lombard rate.
The risk that a debtor will not repay; more specifically the
Credit Risk
risk that the counterparty does not have the currency
promised for delivery.
A foreign exchange deal entered into involving two
Cross Deal
currencies, neither of which is the base currency.
A technique using financial futures to hedge different but
Cross Hedge
related cash instruments based on the view that the price
movements between the instruments move in concert.
An exchange rate between two currencies, usually
constructed from the individual exchange rates of the two
Cross Rate
currencies, as most currencies are quoted against the
dollar.
The situation which exists when a broker's bid is higher than
Crossed Market
the lowest offer of another broker.
A cross-trade transaction is a transaction in which either the
Cross-Trade
buy-broker and the sell-broker are the same, or the buy-
broker and the sell-broker belong to the same firm.
The type of money that a country uses. It can be traded for
Currency
other currencies on the foreign exchange market, so each
currency has a value relative to another.
Various weightings of other currencies grouped together in
relation to a basket currency (e.g. ECU or SDR). Sometimes
Currency Basket
used by currencies to fix their rate, often on a trade
weighted basket.
Currency Swaps
See swaps.
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Value Definition
The net balance of a country's international payments
arising from exports and imports together with unilateral
Current Account
transfers such as aid and migrant remittances. It excludes
capital flows.
The value of all exports (goods plus services), less all
imports of a country over a specific period of time, equal to
Current Balance
the sum of trade and invisible balances plus net receipts of
interest, profits and dividends from abroad.
The set of expiration dates applicable to different classes of
Cycle
options.
An order that if not executed on the specific day, is
Day Order
automatically canceled.
Speculators who take positions that are liquidated prior to
Day Trader
the close of the same trading day.
A Day-Trading deal is a currency exchange deal which
renews automatically every night at 22:00 (GMT time)
starting the day the deal was made and until it ends. The
deal ends in one of the following events: 1. Termination
Day Trading
initiated by the trader. 2. The day trading rate has reached
the Stop-Loss rate (or Take-Profit rate) you predefined. 3.
The deal end date. As long as the deal is open, it is charged
a renewal fee every night at 22:00 (GMT time).
Daylight Exposure Limit
See intra-day position.
Deal Date
The date on which a transaction is agreed upon.
The primary method of recording the basic information
Deal Ticket
relating to a transaction.
An individual or firm acting as a principal, rather than as an
agent, in the purchase and/or sale of securities. Dealers
Dealer
trade for their own account and risk, in contrast to brokers,
who do trade only on behalf of their clients.
The panel of communications equipment forming part of a
Dealing Board
dealer's desk.
The latest day or time by which the buyer of an option must
Declaration Date
intimate to the seller his willingness or unwillingness to
exercise the option.
Shortfall in the balance of trade, balance of payments, or
Deficit
government budgets.
Difference between real and nominal Gross National
Deflator
Product, which is equivalent to the overall inflation rate.
The settlement of a transaction by receipt, or tender of a
Delivery
financial instrument or currency.
The date of maturity of the contract, when the final
settlement of transaction is made by exchanging the
Delivery Date
currencies. This date is more commonly known as the value
date.
The calendar month in which a futures contract comes to
Delivery Month
maturity and becomes deliverable.
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Value Definition
Those locations designated by futures exchanges at which
Delivery Points
the currency represented by a futures contract may be
delivered in fulfillment of the contract.
A term to describe when counterparty is not able to
complete his side of the deal. This risk is very high in the
Delivery Risk
case of over the counter transactions where there is no
exchange which can stand as a guarantee to the trade
between the two parties to the contract.
The change in the value of the option premium made fully
paid by the capitalization of reserves, and given relative to
Delta
the instantaneous change in the value of the underlying
instrument, expressed as a coefficient.
A method used by option writers to hedge the risk exposure
Delta Hedging
of written options by purchase or sale of the underlying
instrument in proportion to the delta.
A ratio spread of options established as a neutral position by
Delta Spread
using the deltas of the options concerned to determine the
hedge ratio.
Depo
Deposit.
Deport
(French) Discount.
Deposit Dealings
Money Market operations.
Describes a currency weakening in response to market
Depreciation
demand as opposed to increasing in value as a result of
official action.
A broad term relating to risk management instruments such
as futures, options, swaps, etc.. The contract value moves
in relation to the underlying instrument or currency. The
Derivatives
issue of derivatives and their control following large losses
by banks and corporations has been the subject of much
debate.
Term referring to a group dealing with a specific currency
Desk
or currencies.
All the information required to finalize a foreign exchange
Details
transaction, i.e. name, rate, dates and point of delivery.
Deliberate downward adjustment of a currency against its
Devaluation
fixed parities or bands, which is normally accompanied by
formal announcement.
Devisen, Devises
Foreign exchange in German and French respectively.
Devisenkassamarkt
German for spot exchange market.
Devisenterminmarkt
German for forward exchange market.
The purchase of a longer maturity option and the sale of a
Diagonal (bull or bear)
shorter maturity, lower exercise price option. The choice of
Spread
calls or puts will determine its bear or bull character.
Quoting in fixed units of foreign currency against variable
Direct Quotation
amounts of the domestic currency.
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Value Definition
(1) See also “forward rate”. Less than the spot price.
Example: forward discount. Forward rate is lower than spot
Discount
rate. (2) An option that is trading for less than its intrinsic
value.
The rate at which a bill is discounted. Specifically it refers
to the rate at which a central bank is prepared to discount
Discount Rate
certain bills for financial institutions as a means of easing
their liquidity, and is more accurately referred to as the
official discount rate.
Disposable Income
Earnings after tax.
The interest rates applicable to deposits domiciled in the
Domestic Rates
country of origin. Values may vary from Eurodeposits due to
taxation and varying market practices.
Durable Goods Orders are a measure of the new orders
placed with domestic manufacturers for immediate and
Durable Goods Orders
future delivery of factory hard goods. Durable Goods Orders
are a major indicator of manufacturing sector trends
because most industrial production is done to order.
Easing
Modest decline in price.
Reflects the impact of foreign exchange changes on the
future competitive position of a company in the sense of
Economic Exposure
the impact it can have on the future cash flows of the
company.
A statistic which indicates current economic growth rates
Economic Indicator
and trends such as retail sales and employment.
A basket of the member currencies. As a composite unit,
the ECU consists of all the European Community currencies,
ECU - European Currency
which are individually weighted. It was created by the
Unit
European Monetary System with the eventual goal of
replacing the individual European member currencies.
An attempt to summarize the effects on a country's trade
Effective Exchange Rate
balance of its currency's changes against other currencies.
EFT
Electronic Funds Transfer.
In the Euro Interbank deposit market where both bid and
Either Way Market
offer rates for a particular period are the same.
EMS
European Monetary System.
EMU
European Monetary Union.
Indicates that both the spot and forward maturity, or two
End/End
forward maturities in a swap transaction, fall due on the
last business day of appropriate calendar months.
EOE
European Options Exchange.
The change in the price of an option associated with a 1%
change in implied volatility (technically the first derivative
Epsilon
of the option price with respect to volatility). Also referred
to as eta, vega, omega and kappa.
ERM
Exchange Rate Mechanism.
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Value Definition
A computerized settlement and depository system for safe
Euro Clear
custody, delivery of, and payment for Eurobonds.
A long-term loan issued in a currency other than that of the
Eurobonds
country or market in which it is issued. Interest is paid
without the deduction of tax.
A currency domiciled outside its country of origin normally
Eurocurrency
held by non-residents.
US dollars deposited in a bank (US or non US) located
Eurodollars
outside the USA.
Swiss Franc (formerly also Belgian Francs) traded on the
Eurofranc
Eurocurrency market. Normally Swiss Francs are the more
common currency.
Euromark
Deutschmarks traded on the Eurocurrency market.
An option that can be exercised only on its expiration date
European Option
rather than before that date.
European Union
The group formerly known as the European Community.
A system of controlling inflows and outflows of foreign
exchange. Exchange Control devices include licensing
Exchange Control
multiple currencies, quotas, auctions, limits, levies and
surcharges.
The potential loss that could be incurred from an adverse
Exchange Rate Risk
movement in exchange rates.
A limit on the number of options contracts a holder may
Exercise Limit
exercise within a specific period.
The formal notification that the holder of a call (or put)
Exercise Notice
option wishes to buy (or sell) the underlying security at the
exercise price.
Exercise Price
See Strike price.
For a call option, this is the amount by which the strike
price is below the underlying investment; for a put option,
Exercise Value
it is the amount by which the strike price is above the
underlying investment.
Exotic
A less broadly traded currency.
(1) Options - the last date after which the option can no
Expiration Date
longer be exercised. (2) Bonds - the date on which a bond
matures.
Expiration Month
The month in which an option expires.
The last day on which the holder of an option can exercise
Expiry Date
his right to buy or sell the underlying security.
Expiry Date
The last date on which an option can be bought or sold.
The total amount of money loaned to a borrower or
country. Banks set rules to prevent overexposure to any
Exposure
single borrower. In trading operations, it is the potential for
running a profit or loss from fluctuations in market prices.
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Value Definition
Rapid movement in a market caused by strong interest by
buyers and/or sellers. In such circumstances price levels
Fast Market
may be omitted and bid and offer quotations may occur too
rapidly to be fully reported.
The United States Federal Reserve. Federal Deposit
Insurance Corporation Membership is compulsory for Federal
Fed
Reserve members. The corporation had deep involvement in
the Savings and Loans crisis of the late 80s.
The interest rate on Fed funds. This is a closely watched
Fed Fund Rate
short term interest rate as it signals the Feds view as to the
state of the money supply.
Cash balances held by banks with their local Federal
Reserve Bank. The normal transaction with these funds is an
Fed Funds
interbank sale of a Fed fund deposit for one business day.
Straight deals are where the funds are traded overnight on
an unsecured basis.
Foreign Exchange Dealers Association of India is an
association of all dealers in foreign exchange which sets the
ground rules for fixation of commissions and other charges
FEDAI
and also determines the rules and regulations relating to
day-to-day transactions in foreign exchange in India. The
FEDAI has recognized 38 currencies for dealing.
A privately owned, but US government sponsored,
Federal National Mortgage
corporation that trades in residential mortgages. Its
Association
activities are funded by the sale of instruments commonly
known as Fannie Maes.
Federal Open Market
See FOMC.
Committee
The board of the Federal Reserve System, appointed by the
Federal Reserve Board
US President for 14 year terms. One member of the board
is appointed chairman every four years.
The central banking system of the US comprising 12 Federal
Reserve Banks controlling 12 districts under the Federal
Federal Reserve System
Reserve Board. Membership in the Fed is compulsory for
banks chartered by the Comptroller of Currency, and
optional for state chartered banks.
Financial Future
A futures contract based on a financial instrument.
(1) A quote with a narrow spread. (2) The most favorable
Fine Rate
rate charged to a high quality borrower.
The price given in response to a request for a rate at which
the quoting party is willing to execute a deal for a
reasonable amount, for spot settlement. Screen quotes are
Firm Quotation
indicative. Quotes on matching systems are normally firm
depending on the system’s requirement to reconfirm rate
prior to completing matching.
Fiscal Policy
Use of taxation as a tool in implementing monetary policy.
The monthly calendar dates similar to the spot. There are
Fixed Dates
two exceptions. For detailed description see value dates.
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Value Definition
Official rate set by monetary authorities for one or more
currencies. In practice, even fixed exchange rates are
Fixed Exchange Rate
allowed to fluctuate between definite upper and lower
bands, leading to intervention by the central bank.
A method of determining rates by normally finding a rate
that balances buyers to sellers. Such a process occurs either
Fixing
once or twice daily at defined times. Used by some
currencies, particularly for establishing tourist rates . The
system is also used in the London Bullion market.
Where a client has not traded in that currency, or where an
earlier deal is reversed thereby creating a neutral (flat)
Flat/Square
position. For example, you bought $500,000 then sold
$500,000 = FLAT .
Exchange rates with a fixed parity against one or more
Flexible Exchange Rate
currencies with frequent revaluation. A form of managed
float.
(1) See Floating exchange rate. (2) Cash in hand or in the
course of being transferred between banks. (3) The Federal
Float
Reserve Float exists because checks sent to the Federal
Reserve Banks are sometimes credited in advance of the
depositing bank loosing the reserve.
When the value of a currency is decided by the market
Floating Exchange Rate
forces dictating the supply and demand of that particular
currency.
(1) An agreement with a counterparty that sets a lower
limit to interest rates for the floor buyer for a stated time.
Floor
(2) A term for an exchanges trading area (cf. screen based
trading), normally the trading area is referred to as a pit in
the commodities and futures markets.
Federal Open Market Committee, the committee that sets
FOMC
money supply targets in the US, which tend to be
implemented through Fed Fund interest rates etc.
The purchase or sale of a currency against the sale or
Foreign Exchange
purchase of another.
A position in which one party agrees to purchase from or
Foreign Position
sell to the other party an agreed amount of foreign
currency.
Forex
An abbreviation of foreign exchange.
The purchase or sale of a currency against the sale or
purchase of another currency. The maximum time for a deal
Forex Deal
is defined when the deal opens. The deal can be closed at
any moment until the expiry date and time. For technical
reasons, a deal cannot be closed in its first 3 minutes.
Sometimes used as synonym for “forward deal” or “future”.
Forward Contract
More specifically, it referes to arrangements with the same
effect as a forward deal between a bank and a customer.
Forward contracts intended to protect against movements
Forward Cover Taking
in the exchange rate.
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Value Definition
Forward Deal
A deal with a value date greater than the spot value date.
A forward / forward deal is one where both legs of the deal
Forward / Forward
have value dates greater than the current spot value date.
Discounts or premiums between spot rate and the forward
Forward Margins
rate for a currency. Normally quoted in points.
Trading days on which day contracts can be transacted later
Forward Maturities
than the spot date.
Foreign exchange transactions for which the fulfillment of
the mutual delivery obligations is made on a date later than
Forward Operations
the second business day after the transaction was
concluded.
A commitment to buy or sell a currency for delivery on a
specified future date or period. The price is quoted as the
Forward Outright
spot rate minus or plus the forward points for the chosen
period.
The interest rate differential between two currencies
expressed in exchange rate points. The forward points are
Forward Points
added to or subtracted from the spot rate to give the
forward or outright rate, depending on whether the
currency is at a forward premium or discount.
The rate at which a foreign exchange contract is struck
today for settlement at a specified future date, which is
decided at the time of entering into the contract. The
decision to subtract or add points is determined by the
differential between the deposit rates for both currencies
concerned in the transaction. The base currency with the
Forward Rate
higher interest rate is said to be at a discount to the lower
interest rate quoted currency in the forward market.
Therefore the forward points are subtracted from the spot
rate. Similarly, the base currency with the lower interest
rate is said to be at a premium, and the forward points are
added to the spot rate to obtain the forward rate.
The FRA is an agreement between two parties that
Forward Rate Agreements
determines the interest rate that will apply to a notional
future loan or deposit of an agreement.
Total reserves held by a bank less the reserves required by
Free Reserves
the authority.
The activities carried out by the dealer, normal trading
Front Office
activities.
Fundamental Analysis
Analysis based on economic and political factors.
The macro economic factors that are accepted as forming
the foundation for the relative value of a currency. These
Fundamentals
include inflation, growth, trade balance, government
deficit, and interest rates.
A term for USD/CAD/Fungibles Instruments that are
equivalent, substitutable and interchangeable in law. May
Funds
apply to certain exchange traded currency contracts offered
on a number of exchanges.
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Value Definition
A contract traded on a futures exchange that requires the
delivery of a specified quality and quantity of a commodity,
Futures Contract
currency or financial instruments within a specified future
month, if not liquidated before the contract matures.
They are firm agreements to deliver (or take delivery of) a
standardized amount of something on a certain date at a
predetermined price. Futures exist in currencies, money
Futures Exchange-Traded
market deposits, bonds, shares and commodities. They are
Contracts
traded on an exchange with the clearing corporation
guaranteeing the contract and moreover the trade is done
on a mark to market basis.
FX
Foreign Exchange.
G7 plus Belgium, Netherlands and Sweden, a group
G10
associated with IMF discussions. Switzerland is sometimes
peripherally involved.
The Group of Five. The five leading industrial countries: US,
G5
Germany, Japan, France, UK.
The seven leading industrial countries, being US , Germany,
G7
Japan, France, UK, Canada, Italy.
The rate at which a delta changes over time, or for one unit
Gamma
change in the price of the underlying asset.
A mismatch between maturities and cash flows in a bank, or
Gap
individual dealer’s position book. Gap exposure is
effectively interest rate exposure.
A system for global after hours electronic trading in futures
and options developed by Reuters for CME and CBOT, for
GLOBEX
use in conjunction with various exchanges around the
world.
Removes inflation from the GNP figure. Usually expressed as
GNP Deflator
a percentage and based on an index figure.
The difference between the actual real GNP and the
GNP Gap
potential real GNP. If the gap is negative an economy is
overheated.
The purchase of a stock or commodity for investment or
Going Long
speculation.
The selling of a currency or instrument not owned by the
Going Short
seller.
The original system for supporting the value of currency
issued. Accordingly, the monetary system backs its currency
Gold Standard
with a reserve of gold, and allows currency holders to
convert their currency into gold. This system was in vogue
before 1973 when the fixed exchange rates were prevalent.
Gross
Before deduction of tax.
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Value Definition
Total value of a country's output, income or expenditure
produced within the country's physical borders. GDP is the
broadest measure of aggregate economic activity available.
Reported quarterly, GDP growth is widely followed as the
Gross Domestic Product
primary indicator of the strength of economic activity. GDP
represents the total value of a country’s production during
the period and consists of the purchases of domestically
produced goods and services by individuals, businesses,
foreigners and governments.
Gross National Product
Gross domestic product plus “factor income from abroad” -
(GNP)
income earned from investment or work abroad.
GTC
See “Good until canceled”.
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
GTC "Good Till Cancelled"
client. Different than normal practice, the order does not
expire at the end of the trading day, although normally
terminates at the end of the trading month.
A currency whose value is expected to remain stable or
Hard Currency
increase in terms of other currencies.
A pattern in price trends which chartists consider indicative
of a price trend reversal. In this pattern, the price has risen
for some time, and at the peak of the left shoulder, profit
taking has caused the price to drop or level. The price then
Head and Shoulders
rises steeply again to the head before more profit taking
causes the price to drop to around the same level as the
shoulder. A further modest rise or level will indicate that a
further major fall is imminent. The breach of the neckline is
the indication to sell.
The purchase or sale of options or futures contracts as a
temporary substitute for a transaction to be made at a later
Hedge
date. Usually it involves opposite positions in the cash,
futures or options markets.
A hedging transaction is one whose main aim is to protect
an asset or liability against a fluctuation in the foreign
Hedging
exchange rate, rather than profit from the exchange rate
fluctuations.
HIBOR
Hong Kong Inter-bank Offered Rate.
The annualized standard deviation of percentage changes in
Historical Volatility
futures prices over a specific period. It is an indication of
past volatility in the marketplace.
Acceptance of purchasing at the offer, or selling at the bid.
Hit the Bid
Holder
Same as buyer.
Housing starts are a measure of the number of residential
Housing Starts
units on which construction has begun each month.
Very high and self-sustaining inflation levels. One definition
Hyperinflation
is the period from which inflation exceeds 50%, until it
drops below that level for 12 months.
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Value Definition
International Commodities Clearing House Limited, a
ICCH
clearing house based in London operating worldwide for
many futures markets.
IFEMA
International Foreign Exchange Master Agreement.
International Monetary Fund, established in 1946 to provide
international liquidity on a short and medium term, and to
IMF
encourage liberalization of exchange rates. The IMF helps
its members to tide over the balance of payments problems
by supplying the necessary loans.
International Monetary Market, part of the Chicago
IMM
Mercantile Exchange that lists a number of currency and
financial futures.
The interest rate determined by calculating the difference
Implied Rates
between spot and forward rates.
A measurement of the market's expected price range of the
Implied Volatility
underlying currency futures based on the traded option
premiums.
The implied volatility variances for different strikes of an
Implied Volatility Skews
option.
A call option is in the money when the strike price is less
In the Money
than the current price of the underlying instrument. A put is
when the strike price is greater.
Currency which cannot be exchanged for other currencies
either because it is forbidden by the foreign exchange
Inconvertible Currency
regulations or the currency experiences extreme volatility
that it is not perceived to be a safe haven for parking the
funds.
Indicative Quote
A market-maker's price which is not firm.
Indirect quote
See reciprocal currency.
Industrial Production
A coincident indicator measuring physical output of
Index
manufacturing, mining and utilities.
Continued rise in the general price level in conjunction with
Inflation
a related drop in purchasing power. Sometimes referred to
as an excessive movement in such price levels.
Info Quote
Rate given for information purposes only.
The deposit required by the Broker before a client can
Initial Margin
trade/transact a particular deal in order to have some
cushion in the event of default by the party.
The Forex rates large international banks quote to other
Interbank Rates
large international banks. Normally the public and other
businesses do not have access to these rates.
An agreement which provides the buyer of the floor with a
Interest Rate Floor
minimum interest rate for future lending requirements.
An agreement permitting a party to obtain a particular
Interest Rate Options
interest rate, issued both OTC and by exchanges.
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Value Definition
The potential for losses arising from changes in interest
Interest Rate Risk
rates.
An agreement to exchange interest rate exposures from
floating to fixed or vice versa. There is no swap of the
Interest Rate Swaps
principal. The principal amount is notional as at the end of
the tenure only cash flows related with the interest
payments (whether payment or receipt) are exchanged.
Action by a central bank to affect the value of its currency
Intervention
by entering the market. In India the intervention by Reserve
Bank of India is confined to the events of extreme volatility.
A call option is in-the-money if the price of the underlying
instrument is higher than the exercise/strike price. A put
In-the-Money
option is in-the-money if the price of the underlying
instrument is below the exercise/strike price.
Limit set by bank management on the size of each dealer's
Intra Day Limit
Intra Day Position.
Open positions run by a dealer within the day. Usually
Intra Day Position
squared by the close.
The amount by which an option is “in-the-money”. The
Intrinsic Value
intrinsic value is the difference between the exercise/strike
price and the price of the underlying security.
Index and Options Market part of the Chicago Mercantile
IOM
Exchange.
Industrial Production Index. A coincident indicator
IPI
measuring physical output of manufacturing, mining and
utilities.
ISDA (International
Organization that foreign currency exchange banks have
Securities Dealers
formed to regulate inter-bank markets and exchanges.
Association)
A term describing the expected effect of devaluation on a
J Curve
country's trade balance. It is expected that import bills will
rise before export orders and receipts increase.
Small countries, which are highly dependent on exports,
Key Currency
orient their currencies to their major trading partners, the
constituents of a currency basket.
Kiwi
Slang for the New Zealand dollar.
A process where a barrier option (European) becomes active
Knock In
as the underlying spot price is in-the-money.
Has a corresponding meaning to “Knock In” (see above),
Knock Out
although the option may permanently cease to exist.
Last Trading Day
The day on which trading ceases for an expiring contract.
To carry out a transaction in the market to offset a previous
Lay Off
transaction and return to a square position.
Less developed countries, often used with respect to a
LDC
secondary debt market.
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Value Definition
Statistics that are considered to precede changes in
Leading Indicators
economic growth rates and total business activity, e.g.
factory orders.
The effect on foreign trade payments of an anticipated
move in the exchange rate, normally devaluation. The
Leads and Lags
importers speed up the payment for the imports, and
exporters delay receiving payment for the exports.
In options terminology, this expresses the disproportionately
Leverage
large change in the premium in terms of the relative price
movement of the underlying instrument.
In terms of foreign exchange: the obligation to deliver to
counterparty an amount of currency, either in regards to a
Liability
balance sheet holding at a specified future date, or in
regards to an un-matured forward or spot transaction.
The London Interbank Bid Rate. The rate charged by one
LIBID
bank to another for a deposit.
The London Interbank Offered Rate, the rate charged by
LIBOR
one bank to another for lending money.
British Bankers' Association average of interbank offered
LIBOR (London Interbank
rates for dollar deposits in the London market based on
Offer Rate)
quotations at 16 major banks. Effective rate for contracts
entered into two days from date appearing.
LIFFE
London International Financial Futures Exchange.
(1)The maximum price fluctuation permitted by an
exchange from the previous session's settlement price for a
given contract. (2) In international banking the limit a bank
Limit
is willing to lend in a country. (3) The amount that one bank
is prepared to trade with another. (4) The amount that a
dealer is permitted to trade in a given currency.
The maximum price decline from the previous trading day's
Limit Down
settlement price permitted in one trading session.
An order to buy or sell a specified amount of a security at a
Limit Order
specified price or better.
An order to perform a Day-Trading deal at a rate pre-
defined by the customer, when and if such rate comes up in
real market time. The Limit rate is superior to the existing
Limit Order – Reserved
rate at the time of reservation. The reservation order lasts
Day Trading Deal
for a period defined by the customer, and is associated by
the necessary collaterals to facilitate the potential
Day Trading deal when, and if, activated under the pre-
defined terms.
The maximum price advance from the previous trading day's
Limit Up
settlement price permitted in one trading session.
When residents of a country are prohibited from buying
other currencies even though non-residents may be
Limited Convertibility
completely free to buy or sell the national currency, and
foreign institutional investors have the liberty to buy and
sell shares on the stock exchange of that country.
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Value Definition
An arrangement by which a bank agrees to lend to the line
Lines
holder during some specified period any amount up to the
full amount of the line.
Any transaction that offsets or closes out a previously
Liquidation
established position.
The ability of a market to accept large transactions without
Liquidity
having any major impact on interest rates.
One of the key commercial interest rates, normally
referring to Germany although such rates exist in France,
Lombard Rate
Belgium, and Switzerland. An interest rate for a loan
against the security of pledged paper.
A market position where the Client has bought a currency
Long
not previously owned. For example: long Dollars.
The purchase of futures contracts for price protection
Long Hedge
purposes, as a defensive position against an increase in cash
prices or falling interest rates.
M0
Cash in circulation. Only used by the UK.
Cash in circulation plus demand deposits at commercial
M1
banks. There are variations between the precise definitions
used by national financial authorities.
Includes demand deposits, time deposits and money market
M2
mutual funds excluding large CDs.
In the UK, it is M1 plus public and private sector time
M3
deposits and sight deposits held by the public sector.
M4
In the US, it is M2 plus negotiable CDs.
The minimum margin which an investor must keep on
Maintenance Margin
deposit in a margin account at all times in regards to each
open contract.
A dealer is said to make a market when he quotes both the
Make a Market
bid and offer prices at which he stands ready to buy and
sell.
When the monetary authorities intervene regularly in the
market to stabilize the rates or to push the exchange rate in
Managed Float
a required direction. It is also called the “dirty float”, as in
India.
Collateral that the holder of a position in securities,
options, Forex or futures contracts, has to deposit to cover
the credit risk of his counterparty. Other definitions to
MARGIN, used in other areas are: (1) Difference between
the buying and selling rates, also used to indicate the
Margin
discount or premium between spot or forward. (2) For
options, the sum required as collateral from the writer of
an option. (3) For futures, a deposit made to the clearing
house on establishing a futures position account. (4) The
percentage reserve required by the US Federal Reserve to
make an initial credit transaction.
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Value Definition
A demand for additional funds to cover positions. A demand
for additional funds to be deposited in a margin account to
Margin Call
meet margin requirements because of adverse future price
movements.
The possibility that a customer goes bankrupt after entering
into a forward contract. In such an event, the issuer must
Marginal Risk
close the commitment, running the risk of having to pay the
marginal movement on the contract.
The profits and/or losses are tallied at the end of the
session according to the closing prices of the security, and
the account is "marked to the market" daily. The party will
Mark-to-Market
be called upon to make good the losses if there has been an
adverse movement in the prices, and it can book the profits
in the event there has been a favorable movement in the
prices.
Mark Up
Premium.
The minimum amount conventionally dealt for between
Market Amount
banks.
A market maker is a person or firm authorized to create and
Market Maker
maintain a market in an instrument.
An order to buy or sell a financial instrument immediately
Market Order
at the best possible price.
Market value of a Forex position at any time is the amount
of the domestic currency that could be purchased at the
Market Value
then market rate in exchange for the amount of foreign
currency to be delivered under the Forex Contract.
MATIF
Marche a Terme International de France.
Date for settlement of the transaction which is decided at
Maturity
the time of entering into the contract.
(1) The last trading day of a futures contract. (2) Date on
which a bond matures, at which time the face value will be
Maturity Date
returned to the purchaser. Sometimes the maturity date is
not one specified date, but a range of dates during which
the bond may be repaid.
The study of economic activity as it applies to individual
Micro Economics
firms or well defined small groups of individuals or
economic sectors.
The control of the trading activity including position
Mid Office
keeping.
The price half-way between the two prices, or the average
Mid-Price or Middle Rate
of both buying and selling prices offered by the market
makers.
Milliard
European term for 1,000 million.
Expression used to indicate that the contacting party is
Mine
willing to buy at the rate offered by the quoting bank.
Minimum Price
The smallest increment of market price movement possible
Fluctuation
in a given futures contract.
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Value Definition
Reserves required to be deposited at central banks by
Minimum Reserve
commercial banks and other financial institutions,
sometimes referred to as Registered Reserves.
Mio
Million.
MITI
Japanese ministry of International Trade & Industry.
MM
Money Markets.
A market consisting of financial institutions and dealers in
Money Market
money or in credit, who wish to either borrow or lend.
Comprises the acceptance and re-lending of deposits on the
Money Market Operations
money market.
The amount of money in the economy, which can be
Money Supply
measured in a number of ways. In India there are four
measures of money supply i.e. M1, M2, M3, M4.
A way of smoothing a set of data, widely used in price time
Moving Average
series.
Different exchange rates for different types of transaction.
Multiple Exchange Rates
The South African Rand is an example.
Mutual Fund
An open-end investment company. Equivalent to unit trust.
The nearest actively traded delivery month, a.k.a. current
Nearby Month
delivery month, lead month.
The number of futures contracts bought or sold which have
Net Position
not yet been offset by opposite transactions.
Nickel
US term for five basis points.
A foreign currency current account maintained with another
bank. The account is used to receive and pay currency
Nostro Account
assets and liabilities denominated in the currency of the
country in which the bank is resident.
An order whereby the price may trade through or better
Not Held Basis Order
than the client's desired level, but the principal is not held
responsible if the order is not executed.
A financial instrument consisting of a promise to pay rather
Note
than an order to pay, or a certificate of indebtedness.
Organization for Economic Cooperation and Development,
an international organization helping governments tackle
OECD
the economic, social and governance challenges of a
globalized economy.
The rate at which a dealer is willing to sell the base
Offer
currency.
Offered Market
Temporary situation where offers exceed bid.
A US balance of payments measure based on movement of
Official Settlements
dollars in foreign official holdings and US reserves. Also
Account
referred to as reserve transaction account.
Offset
The closing-out or liquidation of a futures position.
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Value Definition
The operations of a financial institution which although
physically located in a country, has little connection with
that country's financial systems. In certain countries a bank
Off-Shore
is not permitted to do business in the domestic market, but
can do business with other foreign banks. This is known as
an off-shore banking unit.
Old lady of Threadneedle Street, a term for the Bank of
Old Lady
England.
Where the execution of one order automatically cancels a
One Cancels Other Order
previous order - also referred to as OCO or “One cancels the
other”.
The total number of outstanding option or futures contracts
Open Interest
that have not been closed out by offset or fulfilled by
delivery.
Open Market Committee
See Federal Open Market Committee.
Central bank operations in the markets to influence
Open Market Operations
exchange and interest rates.
Any deal which has not been settled by physical payment or
reversed by an equal and opposite deal for the same value
Open Position
date. It can be termed as a high risk, high return
proposition.
A contract conferring the right but not the obligation to buy
Option
(call) or to sell (put) a specified amount of an instrument at
a specified price within a predetermined time period.
All options of the same type - calls or puts -listed on the
Option Class
same underlying instrument.
All options of the same class having the same
Option Series
exercise/strike price and expiration date.
Original Margin
See Initial Margin.
OTC
See – “Over the Counter”.
A put option is out-of-the-money if the exercise/strike price
is below the price of the underlying instrument. A call
Out-of-the-Money
option is out-of-the money if the exercise/strike price is
higher than the price of the underlying instrument.
Outright Deal
A forward deal that is not part of a swap operation.
A foreign exchange transaction involving either the
Outright Forward
purchase or the sale of a currency for settlement at a
future date.
The forward rate of a foreign exchange deal based on spot
Outright Rate
price plus forward discount/premium.
Over Bought or Over Sold
See long and short.
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Value Definition
A market conducted directly between dealers and principals
via a telephone and computer network rather than a
regulated exchange trading floor. These markets have not
Over The Counter (OTC)
been very popular because of the risks both the parties face
in case the other party fails to honor the contract. They
have never been part of the Stock Exchange since they were
seen as "unofficial".
Is an economy on a high growth rate trajectory placing
Overheated (Economy)
pressure on the production capacity, resulting in increased
inflationary pressures and higher interest rates.
Overnight
A deal from today until the next business day.
Net long or short position in one or more currencies that a
dealer can carry over into the next dealing day. Passing the
Overnight Limit
book to other bank dealing rooms in the next trading time
zone reduces the need for dealers to maintain these
unmonitored exposures.
When a number of exchange and /or deposit orders have to
Package Deal
be fulfilled simultaneously.
(1) The nominal value of a security or instrument. (2) The
Par
official value of a currency.
Parities
The value of one currency in terms of another.
(1) Foreign exchange dealer's slang for “your price is the
Parity
correct market price”. (2) Official rates in terms of SDR or
other pegging currency.
The date on which a dividend or bond interest payment is
Payment Date
scheduled to be delivered.
Payroll employment is a measure of the number of people
being paid as employees by non-farm business
establishments and units of government. Monthly changes in
payroll employment reflect the number of net new jobs
created or lost during the month. Changes are widely
Payroll Employment
followed as an important indicator of economic activity.
Large increases in payroll employment are seen as signs of
strong economic activity that could eventually lead to
higher interest rates that are supportive of the currency at
least in the short term.
It means a foreign currency which is freely convertible, i.e.
a currency which is permitted by the rules and regulations
Permitted Currency
of the country concerned to be converted into major
reserve currencies, and for which a fairly active and liquid
market exists for dealing against the major currencies.
Foreign exchange reserves of oil producing nations arising
Petrodollars
from oil sales.
PIBOR
Paris Inter-bank Offered Rate.
Pip
See point. (0.0001 of a unit).
The 1985 Plaza Hotel agreement by the G5 to lower the
Plaza Accord
dollar.
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Value Definition
(1) 100th part of a per cent, normally 10,000 of any spot
rate. Movements of exchange rates are usually in terms of
Point
points. (2) One percent of an interest rate, e.g. from 8-9%.
(3) Minimum fluctuation or smallest increment of price
movement.
The potential for losses arising from a change in government
Political Risk
policy or due to the risk of expropriation (nationalization by
the government).
The netted total exposure in a given currency. A position
can be either flat or square (no exposure), long, (more
Position
currency bought than sold), or short (more currency sold
than bought).
The maximum position, either net long or net short, in one
Position Limit
future or in all futures of one currency or instrument one
person is permitted to hold or control.
PPI
Producer Price Indices. See Wholesale Price Indices.
(1) The amount by which a forward rate exceeds a spot
rate. (2) The amount by which the market price of a bond
exceeds its par value. (3) In regard to options, the price a
Premium
put or call buyer must pay to a put or call seller for an
option contract. (4) The margin paid above the normal price
level.
(1) The rate from which lending rates by banks are
Prime Rate
calculated in the US. (2) The rate of discount of prime bank
bills in the UK.
Principal
A dealer who buys or sells stock for his/her own account.
PPI is a measure of the average level of prices of a fixed
basket of goods received in primary markets by producers. A
Producer Price Index (PPI)
rising PPI is normally expected to lead to higher CPI, and
thereby to potentially higher short term interest rates.
Profit Taking
The unwinding of a position to realize profits.
Model of exchange rate determination stating that the price
of a good in one country should equal the price of the same
Purchasing Power Parity
good in another country after adjusting for the changes in
the price due to the change in exchange rate. Also known as
the law of one price.
The equilibrium relationship between premiums of call and
Put Call Parity
put options of the same strike and expiry.
A put option confers the right but not the obligation to sell
Put Option
currencies, instruments or futures at the option exercise
price within a predetermined time period.
(1) A limit on imports or exports. (2) A country's
Quota
subscription to the IMF.
An indicative price. The price quoted for information
Quote
purposes but not to deal.
Rally
A recovery in price after a period of decline.
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Value Definition
The difference between the highest and lowest price of a
Range
future recorded during a given trading session.
The price of one currency in terms of another. It has the
Rate
same meaning as the term parities.
Selling more near-term options than longer maturity options
Ratio Calendar Spread
at the same strike price.
Buying a specific quantity of options and selling a larger
Ratio Spread
quantity of out-of-the-money options.
Reaction
A decline in prices following an advance.
A price, interest rate or statistic that has been adjusted to
Real
eliminate the effect of inflation.
A decline in business activity. Often defined as two
Recession
consecutive quarters with a real fall in GNP.
The rate at which interest earned on a loan can be
Reinvestment Rate
reinvested. The rate may not attract the same level of
interest as the principal amount.
Repo Rate
See “Repurchase Agreement”.
Report
French term for premium.
Agreements by a borrower where they sell securities with a
Repurchase Agreement
commitment to repurchase them at the same rate with a
specified interest rate.
A currency held by a central bank on a permanent basis as a
Reserve Currency
store of international liquidity. Reserve currencies are
typically Dollar, Deutschemark, and sterling.
The ratio of reserves to deposits, expressed as a fraction
Reserve Requirement
prescribed by national banking authorities, including US.
(French) The 25% of its quota to which a member of the IMF
Reserve Tranche
has unconditional access, and for which there is no
obligation to repay.
Funds held against future contingencies, normally a
combination of convertible foreign currency, gold, and
Reserves
SDRs. Official reserves are to ensure that a government can
meet near term obligations. They are an asset in the
balance of payments.
Resistance
A price level at which the selling is expected to take place.
A price recognized by technical analysts as a price which is
Resistance Point or Level
likely to result in a rebound but if broken through is likely
to result in a significant price movement.
Measurement of the monthly change in the average level of
Retail Price Index
prices at retail, normally of a defined group of goods.
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Value Definition
Retail Sales are a measure of the total receipts of retail
stores. Monthly percentage changes reflect the rate of
change of such sales and are widely followed as an indicator
Retail Sales
of consumer spending. Rises in Retail Sales are often
associated with a strong economy, and therefore an
expectation of higher short term interest rates that are
often supportive to a currency in at least the short term.
A system for screen based trading that has been in
Reuter Dealing
operation since the early 1980s. Reuter Dealing now has a
matching optional enhancement known as Dealing 2000-2.
Increase in the exchange rate of a currency as a result of
Revaluation
official action.
The rate for any period or currency which is used to revalue
Revaluation Rate
a position or book.
Reversal
Process of changing a call into a put.
The identification and acceptance, or offsetting of the risks
threatening the profitability or existence of an
Risk management
organization. With respect to foreign exchange, involves
among others consideration of market, sovereign, country,
transfer, delivery, credit, and counterparty risk.
An asset or liability, which is exposed to fluctuations in
Risk Position
value through changes in exchange rates or interest rates.
Additional sum payable, or return, to compensate a party
Risk Premium
for adopting a particular risk.
A combination of purchasing put options with the sale of
Risk Reversal
call options. The put limits downside, while the call limits
the upside.
There are risks associated with any market. It means
variance of the returns and the possibility that the actual
return might not be in line with the expected returns. The
Risks
risks associated with trading foreign currencies are: market,
exchange, interest rate, yield curve, volatility, liquidity,
forced sale, counter party, credit, and country risk.
The substituting of a far option for a near option of the
Rolling over
same underlying stock at the same strike/exercise price.
(1) Where the settlement of a deal is carried forward to
another value date, based on the interest rate differential
of the two currencies example: next day. (2) An overnight
Rollover
swap, specifically the next business day against the
following business day (also called Tomorrow Next,
abbreviated to Tom-Next).
Running a Position
Keeping open positions in the hope of a speculative gain.
A transaction that matures on the day the transaction takes
Same Day Transaction
place.
Sandwich Spread
Same as a butterfly spread.
A strategy of buying at the bid and selling at the offer as
Scalping
soon as possible.
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Value Definition
Special Drawing Right. A standard basket of five major
SDR
currencies in fixed amounts as defined by the IMF.
Selling Rate
Rate at which a bank is willing to sell foreign currency.
All options of the same class which share a common strike
Series
price and expiration date.
Settlement
Actual physical exchange of one currency for another.
It means the business day specified for delivery of the
Settlement Date
currencies bought and sold under a Forex contract.
The official closing price for a future set by the clearing
Settlement Price
house at the end of each trading day.
Risk associated with the non-settlement of the transaction
Settlement Risk
by the counterparty.
A market position where the client has sold a currency he
Short
does not already own, usually expressed in base currency
terms.
A shortage of assets in a particular currency. See Short Sale.
Short / Short Position
Short Contracts
Contracts with up to six months to deliver.
Buying to unwind a shortage of a particular currency or
Short Covering
asset.
The term short forward refers to a period of up to two
Short Forward Date/Rate
months, although it is more commonly used with respect to
maturities of less than one month.
The sale of a currency futures not owned by the seller at
Short Sale
the time of the trade. Short sales are usually made in
expectation of a decline in the price.
Shorts
See “Short Forward Date/Rate”.
Short-Term Interest Rates
Normally the 90 day rate.
Standard International Trade Classification. A system for
SITC
reporting trade statistics in a common manner.
Swiss Options and Financial Futures Exchange, a fully
SOFFEX
automated and integrated trading and clearing system.
More potential sellers than buyers, which creates an
Soft Market
environment where rapid price falls are likely.
Split Date
See Broken Date.
(1) The most common foreign exchange transaction. (2)
Spot
Spot refers to the buying and selling of the currency where
the settlement date is two business days forward.
Spot Month
The contract month closest to delivery.
The overnight swap from the spot date to the next business
Spot Next
day.
The price at which the currency is currently trading in the
Spot Price/Rate
spot market.
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Value Definition
A standard period of one week swap measured from the
Spot Week
current value date of the currency spot rate.
(1) The difference between the bid and ask price of a
currency. (2) The difference between the prices of two
Spread
related futures contracts. (3) For options, transactions
involving two or more option series on the same underlying
currency.
Purchases and sales are in balance and thus the dealer has
Square
no open position.
A speaker connected to a phone, often used in broker
Squawk Box
trading desks.
Action by a central bank to reduce supply in order to
Squeeze
increase the price of money.
An active market which can absorb large sales or purchases
Stable Market
of currency without having any major impact on the interest
rates.
Recession or low growth (stagnation) in conjunction with
Stagflation
high inflation rates.
A term referring to certain normal amounts and maturities
Standard
for dealing.
A US firm engaged in assessing the financial health of
Standard and Poor’s (S&P)
borrowers. The firm also lends its name to the S&P 500
Stock Index.
Central Bank activity in the domestic money market to
Sterilization
reduce the impact on money supply of its intervention
activities in the Forex market.
Sterling
British pound, otherwise known as cable.
Stocky
Market slang for Swedish Krona.
Order given to ensure that, should a currency weaken by a
certain percentage, a short position will be covered even
Stop Loss Order
though this involves taking a loss. Realize profit orders are
less common.
US term for the lowest accepted price for Treasury Bills at
Stop Out Price
auction.
The simultaneous purchase/sale of both call and put options
Straddle
for the same share, exercise/strike price and expiry date.
A bond with unquestioned right to repayment of principal
Straight
and interest at the specified dates with no additional
further rights or bonuses.
Straight Date
See “fixed dates”.
Strap
A combination of two calls and one put.
Also called exercise price. The price at which an option
Strike Price
holder can buy or sell the underlying instrument.
Strip
A combination of two puts and one call.
Structural Unemployment
Unemployment levels inherent in an economic structure.
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Value Definition
A price level at which the buying is expected to take place.
When an exchange rate depreciates or appreciates to a
level where (1) Technical analysis techniques suggest that
Support Levels
the currency will rebound, or not go below; (2) The
monetary authorities intervene to stop any further
downward movement. See Resistance Point.
The simultaneous purchase and sale of the same amount of
a given currency for two different dates, against the sale
and purchase of another. A swap can be a swap against a
forward. In essence, swapping is somewhat similar to
Swap
borrowing one currency and lending another for the same
period. However, any rate of return or cost of funds is
expressed in the price differential between the two sides of
the transaction.
Swap Price
A price as a differential between two dates of the swap.
Swap Rate
See “Forward Margin”.
Swaption
An option to enter into a swap contract.
Society for Worldwide Interbank Financial
Telecommunications is a Belgian based company that
Swift
provides the global electronic network for settlement of
most foreign exchange transactions.
Swissy
Market slang for Swiss Franc.
Switch
See Deposit Swap.
Options or futures that create a position that is able to be
achieved directly, but is generated by a combination of
options and futures in the relevant market. In foreign
Synthetics
exchange a SAFE combines two forward contracts into a
single transaction where settlement only involves the
difference in values.
Expresses the price change of an option for a percentage
Tau
change in the implied volatility.
T-Bill
Treasury Bill.
The study of the price that reflects the supply and demand
Technical Analysis
factors of a currency. Common methods are flags, trend-
lines spikes, bottoms, tops, pennants, patterns and gaps.
An adjustment to price not based on market sentiment but
Technical Correction
technical factors such as volume and charting.
(1) A formal offer to supply or purchase goods or services.
Tender
(2) In the UK, the term for the weekly Treasury Bill issue.
Terme
(French) Period.
Terms of Trade
The ratio between export and import price indices.
A measure of the sensitivity of the price of an option to a
Theta
change in its time to expiry.
A market in which trading volume is low and in which
Thin Market
consequently bid and ask quotes are wide and the liquidity
of the instrument traded is low.
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Value Definition
TIBOR
Tokyo Inter-bank Offered Rate.
Tick
A minimum change in price, up or down.
Ticket
See Deal Slip
TIFFE
Tokyo International Financial Futures Exchange.
That part of an option premium which reflects the length of
time remaining in the option prior to expiration. The longer
Time Value
the time remaining until expiration, the higher the time
value.
Simultaneous buying of a currency for delivery the following
Today/Tomorrow
day and selling for the spot day, or vice versa. Also referred
to as overnight.
Tomorrow Next (Tom
Simultaneous buying and selling of a currency for delivery
next)
the following day and selling for the next day or vice versa.
Tradable Amount
Smallest transaction size acceptable.
The Trade Balance is a measure of the difference between
imports and exports of tangible good and services. The level
Trade Balance
of the trade balance, and changes in exports and imports,
are widely followed by foreign exchange markets.
Trade Date
The date on which a trade occurs.
The difference between the value of imports and exports,
Trade Deficit/Surplus
often only reported in visible trade terms.
Trade Ticket
See Deal Ticket.
(French) A portion of. Specifically used for borrowings from
Tranche
the IMF.
The buying or selling of securities resulting from the
Transaction
execution of an order.
Transaction Date
The date on which a trade occurs.
Potential profit or loss generated by current foreign
Transaction Exposure
exchange transactions.
When consolidating into the base currency, the calculation
Translation Loss/Profit
of loss or profit resulting from the valuation of foreign
assets and liabilities for balance sheet purposes.
Short-term obligations of a Government issued for periods
of one year or less. Treasury bills do not carry a rate of
interest, but are issued at a discount on the par value.
Treasury Bills
Treasury bills are repaid at par on the due date. In the UK
they are normally for 91 days, and are offered at weekly
tenders. In the US they are auctioned.
Government obligations with maturities of ten years or
Treasury Bonds
more.
Government obligations with maturities more than one
Treasury Notes
year, but less than ten years.
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Value Definition
Previously issued stock that has been repurchased by,
donated to or otherwise acquired by the issuing firm.
Treasury Stock
Treasury stocks pay no dividends and have no voting
privileges.
Troc, Troquer
(French) FX term for swap.
The total money value of currency contracts traded which is
Turnover
calculated by multiplying size by the number of contracts
traded.
When a dealer quotes both buying and selling rates for
Two-Way Quotation
foreign exchange transactions.
Ultimo
Continental term for month or year end.
Uncovered
Another term for an open position.
Before finalizing a transaction all the details should be
Under Reference (Order)
submitted for approval to the order giver, who has the right
to turn down the proposal.
An exchange rate is normally considered to be undervalued
Under-Valuation
when it is below its purchasing power parity.
A colloquial term for reversing a transaction. e.g. a spot
Undo
sale by means of a forward purchase or, if done in error, a
spot purchase.
A device designed to provide a consistent value with varying
Unit of Account
currencies. e.g. ECU and SDR.
A transaction executed at a price greater than the previous
Up Tick
transaction.
(French) Payments are said to be "valeur compensee" when
Valeur Compensee
payment by one party in one centre, and settlement by the
other party in another centre, takes place on the same day.
For exchange contracts, it is the day on which the two
contracting parties exchange the currencies which are being
bought or sold. For complete description see the chapter on
trading. For a spot transaction, it is two business banking
days forward in the country of the bank providing
quotations which determines the spot value date. The only
exception to this general rule is the spot day in the quoting
centre coinciding with a banking holiday in the country(ies)
of the foreign currency(ies). The value date then moves
forward a day. The enquirer is the party who must make
sure that the spot day coincides with the one applied by the
Value Date
respondent. The forward months maturity must fall on the
corresponding date in the relevant calendar month. If the
one month date falls on a non-banking day in one of the
centers, then the operative date would be the next business
day that is common. The adjustment of the maturity for a
particular month does not affect the other maturities that
will continue to fall on the original corresponding date if
they meet the open day requirement. If the last spot date
falls on the last business day of a month, the forward dates
will match this date by also falling due on the last business
day. Also referred to as maturity date.
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Value Definition
Normally settlement for two working days from the date the
Value Spot
contract is entered into.
Transaction executed for same day settlement; sometimes
Value Today
also referred to as "cash transaction"
A simple option whose terms and conditions do not include
any provisions other than exercise style, expiry and strike.
Vanilla
To compare with exotic options which have additional
terms.
Funds required to be deposited by a client when a price
Variation Margin
movement has caused funds to fall below the stipulated
percentage of the value of the contract.
Expresses the price change of an option for a one per cent
Vega
change in the implied volatility.
The speed with which money circulates, or turnover in the
Velocity of Money
economy. It is calculated as the annual national income;
average money stock in the period.
The sale of an option with a high exercise price and the
Vertical (Bear or Bull)
purchase (in the case of a bull), or the sale (in the case of a
Spread
bear), of an option with a lower exercise price. Both options
will have the same expiration date.
A measure of the amount by which an asset price is
expected to fluctuate over a given period. Normally
Volatility
measured by the annual standard deviation of daily price
changes (historic). Can be implied from futures pricing,
implied volatility.
A local currency account maintained with a bank by another
bank. The term is normally applied to the counterparty's
Vostro Account
account from which funds may be paid into or withdrawn as
a result of a transaction.
Money borrowed in large amounts from banks and
Wholesale Money
institutions rather than from small investors.
Measures changes in prices in the manufacturing and
distribution sector of the economy, and tends to lead the
Wholesale Price Index
consumer price index by 60 to 90 days. The index is often
quoted separately for food and industrial products.
Discretionary element in the monetary reserves of a central
Working Balance
bank.
A day on which the banks in a currency's principal financial
center are open for business. For FX transactions, a working
Working day
day only occurs if the banks in both currencies’ financial
centers are open (all relevant currency centers in the case
of a cross).
A bank made up of members of the IMF whose aim is to
World Bank
assist in the development of member states by making loans
where private capital is not available.
The seller of a position. Also known as the grantor of the
Writer
trade. "Writing a Currency" is to sell it.
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Value Definition
Slang for milliard, one thousand million (1 European milliard
Yard
= 1 US billion = 1,000 million).
The graph showing changes in yield on instruments
depending on time to maturity. A system originally
developed in the bond markets is now broadly applied to
Yield Curve
various financial futures. A positive sloping curve has lower
interest rates at the shorter maturities, and higher at the
longer maturities. A negative sloping curve has higher
interest rates at the shorter maturities.
Certificate issued by the Bank of England to "discount
Z-Certificate
houses" in lieu of stock certificates to facilitate their
dealing in the short dated gilt edge securities.
A bond that pays no interest. The bond is initially offered at
Zero Coupon Bond
a discount to its redemption value.

At
Easy-Forex™
, we believe that proper training is essential to achieving
trading success. Without the appropriate preparation and expertise, a trader's
chances of succeeding are substantially reduced. Our free Forex training was
created to teach our clients a strategy to day-trade currencies. Traders that
use a strategy, or system to trade, tremendously increase their probability of
success as Forex traders. Easy-Forex™ offers the following Forex Training
resources:
This book as well as other Easy-Forex™ books;
•
A Guided Tour on the Easy-Forex™ website;
•
Information (“Info-Center”) on the
Easy-Forex™
website;
•
Technical analysis;
•
Fundamental analysis;
•
Access to charts, news, outlooks and research, once a trader has
•
registered with the system;
Free, live 1-on-1 training online;
•
And finally, you can start trading – and learning – for as little as USD 25.
•
This is your best actual training, and we recommend you view it as
such, “playing small” while you learn the market step-by-step.
Easy-Forex™ not only advises you to start with a small amount of money, but
makes the first step easy for you. However, before you start:
• Carefully read the Terms and Conditions
• We strongly advise that you read the Disclaimers and the Risk Warning
• Remember: Forex is a risky business!
It should not take more that a few trades to familiarize yourself with the
Easy-Forex™
Trading Platform. Ideally, you will start by making a few smaller
trades in order to become familiar with the market and the platform. Only
then should you consider making larger trades.

Learn at your own p ace
Learn at your own pace, and learn from the experiences of others, who can
provide insight, analyses and information, and can help you steer clear of the
hazards novices sometimes encounter. Read (and participate in) Forex forums
and reviews which are available in many places on the net.
Now is the time to expand your trading knowledge. Currency markets differ
from other trading markets due to time zone liquidity, specific currency-
related issues, central bank activity, real and nominal interest rate
differentials and more. This is the time to learn to understand these factors.
Learning Forex trading:
Topics you should be familiar with:
Evaluation of currency trades;
•
Developing a market view;
•
Using trend analysis indicators;
•
Reading and understanding Forex charts;
•
Pinpointing advanced support and resistance levels;
•
Assessing trading signals;
•
Identifying market tops and bottoms;
•
Setting price objectives for winning trades;
•
Handling Stop-Loss and Take-Profit limits.
•
Hands-on Forex training
Easy-Forex™ hands-on trading means immediate access to proven trading
techniques you can use to increase profits. Whether you are a short-term,
breakout, range or position trader,
Easy-Forex™
experts can help you learn
trading techniques that can maximize your ability to identify low-risk/high-
probability trades. Our training is appropriate for a wide range of Forex
traders, from individuals just starting in the spot currency market, to
experienced professionals.
Like anything in life, you don't really understand it until you jump into it. Get
started on Easy-Forex™, risking as little as USD 25 per trade. Take the Guided
Tour through the training material while you are entering and watching your
first trades - because there's nothing quite like trading while you learn. This is

practical, visual, hands-on training. Plus, it allows the new traders to develop
an understanding of basic trading tec hniques, risk control, and the opening
and management of a live trading account.
Whether you are an investor who wants to learn Day-Trading for the first
time, or a day trader with stock market or futures trading experience, who
wants to give Forex trading a try, take the first steps with
Easy-Forex™
. Go
through the basics of the Forex market, experience real time training with
real time trading, take the Guided Tour and then trade. Our training gives
new and experienced traders alike all the necessary tools to start buying and
selling currencies in the foreign exchange market.
Make use of what the
Easy-Forex™
Trading Platform offers:
24-hr commission-free trading in 14+ currency pairs;
•
Web-based trading platform requires no download or installation;
•
Guaranteed fills on stops and limits up to USD 2,000,000;
•
Free access to charting, news, and research;
•
24-hour customer support via phone and web site;
•
Deposits accepted in multiple currencies;
•
Credit card, PayPal and Western-Union deposit facilities;
•
Straightforward withdrawal procedures.
•
Don't attempt to trade until you receive the training needed to become a
successful trader. There are substantial earnings to be made in the foreign
currency market, but trading in Forex is for the well-informed.
Easy-Forex™ offers you a first-rate Forex trading platform and an unmatched
degree of service. Obviously, our experts are real people in real offices and
dealing rooms, ready to assist.
Real-time dealers available 24x7
Trading foreign exchange is exciting and potentially very profitable, but there
are also significant risk factors. It is crucial that you fully understand the
implications of margin trading and the particular hazards and opportunities
that foreign exchange trading offers. However, if you are ever in doubt about
any aspects of a trade, you can always discuss the matter in-depth with one of
our dealers. They are available 24 hours a day.

Forex risk management strategies
The Forex market behaves differently from other markets. The speed,
volatility, and enormous size of the Forex market are unlike anything else in
the financial world. Beware: the Forex market cannot be controlled - no
single event, individual, or factor rules it. As such, it is the closest market to
what economists call “a perfect market”! However, just like any other
speculative business, increased risk entails chances for a higher profits as well
as higher losses.
Currency markets are highly speculative and volatile in nature
.
Any currency can become very expensive or very cheap in relation to any or
all other currencies in a matter of days, hours, or sometimes, in minutes. The
unpredictable nature of currencies is what attracts an investor to trade and
invest in this market.
Truly ask yourself: "How much am I ready to lose?"
When you terminated, closed or exited your position, had you understood the
risks and taken steps to avoid them?
Some foreign exchange risk management issues
The following may come up in your day-to-day foreign exchange transactions.
Unexpected corrections in currency exchange rates
•
Wild variations in foreign exchange rates
•
Volatile markets offering profit opportunities
•
Lost payments
•
Delayed confirmation of payments and receivables
•
Divergence between bank drafts received and the contract price
•
These are issues every trader should cover, both before and during a trade.
Exit the Forex market at profit targets
Limit orders, also known as Take-Profit orders, allow Forex traders to exit the
Forex market at pre-determined profit targets. If you are short (sold) a

currency pair, the system will only allow you to place a limit order below the
current market price, because this is the profit zone. Similarly, if you are long
(bought) the currency pair, the system will only allow you to place a limit
order above the current market price. Take-Profit orders help create a
disciplined trading methodology and make it possible for traders to walk away
from the computer without continuously monitoring the market.
Control risk by capping losses
Stop-Loss orders allow traders to set an exit point for a losing trade. If you are
short a currency pair, the Stop-Loss order should be placed above the current
market price. If you are long the currency pair, the Stop-Loss order should be
placed below the current market price. Stop-Loss orders help traders control
risk by capping losses. Stop-Loss orders are counter-intuitive because you do
not want them to be hit; however, you will be happy that you placed them.
Be disciplined, don’t be greedy.
Close your Forex position as you originally planned!
Where should I place my Stop-Loss and Take-Profit orders?
As a general rule of thumb, traders should set Stop-Loss orders closer to the
opening price than Take-Profit orders. If this rule is followed, a trader needs
to be right less than 50% of the time to be profitable. For example, a trader
who uses 30 pip Stop-Loss and 100-pip Take-Profit orders, needs to be right
only one-third of the time to make a profit. Where traders place Stop-Loss
and Take-Profit orders will depend on how risk-averse they are. Stop-Loss
orders should not be so tight that normal market volatility triggers the order.
Similarly, Take-Profit orders should reflect a realistic expectation of gains
based on the market's trading activity and the length of time one wants to
hold the position. When initially setting up a trade, it is prudent to look to
change the Stop-Loss and set it at a rate in the “middle ground” where you
are not overexposed to the trade, and at the same time, are not too close to
the market.
Trading foreign currencies is a demanding and potentially profitable
opportunity for trained and experienced investors. However, before deciding
to participate in the Forex market, you should soberly reflect on the desired
result of your investment and your level of experience.

Warning! Do not invest money you cannot afford to lose!
There is significant risk in any foreign exchange deal. Any transaction
involving currencies involves risks, including, but not limited to, the potential
for changing political and/or economic conditions, that may substantially
affect the price or liquidity of a currency.
Moreover, the leveraged nature of Forex trading means that any market
movement will have an equally proportional effect on your deposited funds.
This may work against you as well as for you. The possibility exists that you
could sustain a total loss of your initial margin funds and be required to
deposit additional funds to maintain your position. If you fail to meet any
margin call within the time prescribed, your position will be liquidated and
you will be responsible for any resulting losses. “Stop-Loss” or “Take-Profit”
order strategies may lower an investor's exposure to risk.
Easy-Forex™
foreign exchange technology links around-the-clock to the world's
foreign currency exchange trading floors to get the lowest foreign currency
rates and to take every opportunity to make or settle a transaction.
Avoiding/reducing risk when trading Forex:
Trade like a technical analyst does. For the best possible results,
understanding the fundamentals behind an investment also requires
understanding the technical analysis method. When your fundamental and
technical signals point in the same direction, you have a good chance of
having a successful trade, especially with good money management skills. Use
simple support and resistance technical analysis, Fibonacci Retracing and
reversal days.
•
Be disciplined;
•
Create a position and understand your reasons for having that
position;
•
Establish Stop-Loss and Take-Profit levels.
Discipline includes hitting your stops and not following the temptation to stay
with a losing position that has gone through your Stop-Loss level.

A good rule of thumb is: In a bull market, be long or neutral - in a bear
market, be short or neutral. If you forget this rule and trade against the
trend, you will usually cause yourself worries, and frequently, losses.
Never add to a losing position. On the
Easy-Forex™
platform, traders can
change their trade orders as many times as they wish free of charge, either as
a Stop-Loss or as a Take-Profit. The trader can also close the trade manually
without a Stop-Loss or Take-Profit order being hit. Many successful traders
update their Stop-Loss price in their “live” positions beyond the rate at which
they made the trade, so that the worst that can happen is that they get
stopped out and still make a profit.
Never invest in Forex what you are not prepared to lose.