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An option which may be exercised at any valid business date through out the life of the option.
A risk-free type of trading where the same instrument is bought and sold simultaneously in two different markets in order to cash in on the difference in these markets.
An exchange rate system where a country's exchange rate is "pegged" (i.e. fixed) in relation to another currency. The official rate may be changed from time to time. See peg, and crawling peg.
Total amount of exposure a bank has with a customer for both spot and forward contracts.
The price at which the currency or instrument is offered.
Association Cambiste Internationale
The international society of foreign exchange dealers consisting of national "Forex clubs" affiliated on a worldwide basis.
Used in quoting forward "premium / discount". "Five-five around" would mean five points on either side of the present spot value.
An instruction given to a dealer to buy or sell at the best rate that is currently available in the market.
At Par Forward Spread
When the forward price is equivalent to the spot price.
At the Price Stop-Loss Order
A stop-loss order that must be executed at the requested level regardless of market conditions.
Average Rate Option
A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an "Asian option".
Settlement and related processes
System of recording a country's economic transactions
A charting method which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line to the right of the bar.
Paper issued by the central bank, redeemable as money and considered to be full legal tender.
The currency in which the operating results of the bank or institution are reported.
One hundredth of a percentage point. 50 basis points [50bp] is half a percentage point.
Bear Call Spread
A spread designed to exploit falling exchange rates by purchasing a call option with a high exercise price and selling one with a low exercise price.
Bear Put Spread
A spread designed to exploit falling exchange rates by purchasing a put option with a high exercise price and selling one with a low exercise price.
The difference between the buy (bid) and sell (offer) price of a currency or financial instrument.
An exchange rate system which links all of the central rates of the EMS currencies in terms of the ECU.
A quantitative method which combines a moving average with the instrument's volatility. The bands were designed to gauge whether the prices are high or low on relative basis. They are plotted two standard deviations above and below a simple moving average. The bands look like an expanding and contracting envelope model.
Slang for Russian trading.
A price gap which occurs in the beginning of a new trend, many times at the end of a long consolidation period. It may also appear after the completion of major chart formations.
The price of a financial instrument at which the option buyer recovers the premium.
The site of the conference which in 1944 led to the establishment of the post war foreign exchange system that remained intact until the early 1970s. The conference resulted in the formation of the IMF. The system fixed currencies in a fixed exchange rate system with 1% fluctuations of the 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 week, 2 weeks, 1,2,3,6, and 12 months. Terms also used are odd dates, or cock dates, broken period 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 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.
Rate at which a bank is prepared to buy foreign exchange. Also known as the Bid Rate.
Buying Selling FX
Buying and selling in the foreign exchange market always happens in the currency which is quoted first. "Buy dollar/mark" means buy the dollar/sell the mark. Traders buy when they expect a currency's value to rise and sell when they expect a currency to fall.
A term used in the foreign exchange market for the US Dollar/British Pound rate.
(1) An option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period.
(2) A period of trading.
(3) The right of an bond issuer to pre-pay debt and demand the surrender of its bonds.
An option position comprised of purchase and sale of two option contracts of the same type with different expiration dates at the same exercise price.
A compound option strategy which consists of simultaneous buying of a longer-term straddle and near term straddle with a common strike price.
A type of chart which consist of four major prices: high, low, open, close. The body (jittai) of the candlestick bar is formed by the opening and closing prices. To indicate that the opening was lower than the closing, the body of the bar is left blank. If the currency closes below its opening , the body is filled. The rest of the range is marked by two "shadows": the upper shadow (uwakage) and the lower shadow (shitakage).
Juxtaposition of the long and short term capital imports and exports of a country.
The interest cost of financing securities or other financial instruments held.
A finance charge associated with the storing of commodities (or foreign exchange contracts) from one delivery date to another.
A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.
A central bank provides financial and banking services for a country's government and commercial banks. It implements the government's monetary policy, as well, by changing interest rates.
Exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.
(Clearinghouse House Interbank Payment System) A computerised system used for foreign exchange dollar settlements.
Clearing House Automated Payment System.
An individual who studies graphs and charts of historic data to find trends and predict trend reversals which include the observance of certain patterns and characteristics of the charts to derive resistance levels, head and shoulders patterns, and double bottom or double top patterns which are thought to indicate trend reversals.
A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.
Closing Purchase Transaction
The purchase of an option identical to one already sold to liquidate a position.
A statistical measure referring to the relationship between two or more variables (events, occurrences etc.). A correlation between two variables suggests some causal relationship between these variables. Typically the Swiss Franc is closely correlated with the German Mark.
Cost of Carry
The interest rate parity, where the forward price is determined by the cost of borrowing money in order to hold the position.
Covered Interest Rate Arbitrage
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.
The exchange rate between two currencies e.g. US dollar/Yen.
The type of money that a country uses. It can be traded for other currencies on the foreign exchange market, so each currency has a value relative to another. If one US dollar can buy 1.55 Deutschmarks, then one Deutschmark can buy 0.65 US dollars.
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