The Investment  Strategists

Accrual

The distribution of premiums and discounts on forward exchange transactions that relate to deposit swap deals, over the period of each deal.

Adjustment

Is normally an official action to either change the internal economic policies to correct a payment imbalance or the official currency rate.

American-Style Option

American options allow the trader to exercise the option at any time up to and including its end-date. This allows a trader more freedom than a European option, which may only be exercised on the end-date of the contract.

Appreciation

The growth of value in any financial instrument.

Arbitrage

The purchase or sale of an instrument and the simultaneous taking of an equal and opposite position in a related market, in order to take advantage of a price differential of the instrument between markets.

Ascending Trend Channel

An ascending line that connects the bottoms of the down waves and is parallel to a trend-line.

Ask

The quoted price at which a customer can buy a currency pair.  Also referred to as the ‘offer,’ ‘ask price,’ or ‘ask rate.’

Asset

Either a positive balance or in the context of foreign exchange the right to receive a specific currency from a counterparty (broker) as brought about from an outstanding forward or spot deal.

Asset Allocation

Dividing funds amongst different instruments in order to reduce risk.

At Best

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

At or Better

An order to deal or buy or sell at a specific rate or better.

Aussie

Slang for the Australian Dollar

Authorized Dealer

A financial institution that is authorized to deal in foreign exchange.

Net Position

The difference between the total long position against the total short position in any currency.

Back Office

A financial institutions area that is responsible for settlement, administration and reporting.

Back Testing

Is a test of the performance of a trading strategy based on historical data prior to applying the strategy to live data.

Balance of Payments

A systematic record of the economic transactions during a given period for a country.

Band

Or Trading Band, is the range in which a currency is permitted to move against another, according to restrictions imposed on the currency by the local Government.

Bank Line

Line of credit granted by a bank to a customer, also known as a "line" or "credit line". 

Bank Rate

The rate at which a central bank is prepared to lend money to its domestic banking system.

Base Currency

For foreign exchange the base currency refers to the first currency in a currency pair. For example, in a EUR/USD currency pair, the EUR is the base currency. 

Basis

The difference between the cash price and futures price.

Basis Point

The last decimal point shown for trading. In most currency pairs this is equivalent to 1/10,000. The most popular exception to the rule is USD/JPY where the basis point is 1/100.

Basis Trading

Taking opposite positions in the cash and futures market with the anticipation of profiting from favorable movements in the basis.

Basket

A group of currencies normally used to manage the exchange rate of a currency, usually each currency in the basket is weighted to form the exchange rate.

Bear

An investor who believes that prices or the market are going to fall.

Bear Market

A prolonged period of generally falling prices.

Bid

The quoted price where a customer can sell a currency pair. This is also known as the "bid price" or "bid rate."

Bid/Ask Spread

The difference in pips between the “bid” and the “ask” (offer) price.

Bollinger Bands

A technical indicator that allows users to compare volatility and relative price levels over a period of time. It consists of three bands designed to encompass the majority of a security’s price action. Prices will often meet resistance at the upper band and support at the lower band.

Broker

Often referred to as an agent, brings buyers and sellers together for a commission paid by the initiator of the transaction. Brokers do not take market positions.

Bull

An investor who believes that prices are going to rise.

Bull Market

A prolonged period of generally rising prices.

Bundesbank

The Central Bank of Germany.

Buying Rate

The rate at which the market maker is willing to buy the currency. Often called bid rate.

Buy Signal

A condition that indicates a good time to buy an instrument. The exact circumstances of the signal will be determined by the indicator that an analyst is using. For example, it is considered a buy signal when the MACD crosses above its signal line.

Cable

A term used in the foreign exchange market for the GBP/USD rate.

Call Rate

The overnight inter-bank interest rate.

Candlestick Chart

A form of Japanese charting system that has become popular in the West. A narrow line shows the day’s price range. A wider body marks the area between the open and the close. If the close is above the open, the body is green or blue; if the close is below the open, the body is red.

Capital Risk

The risk arising from a bank having to pay to the counter party without knowing whether the other party will or is able to meet its side of the bargain.

Carry Trade

Is the strategy of buying high interest currencies against low interest currencies for a long period of time, with the intention of closing the trade at spot at a future date and taking a profit. As long as the higher interest rate currency does not depreciate against the lower interest rate currency by the i/r differential, then a profit will be made.

Cash

(Value same day) 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.

Cash Delivery

Same day settlement.

Cash Market

The market for the purchase and sale of physical currencies.

Cash Settlement

A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.

Central Bank

A nation's main regulatory bank. Traditionally, the primary responsibility is development and implementation of monetary policy.

Central Rate

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.

Commission

The fee that a broker may charge clients for a service or trade that is performed.

Confirmation

A memo sent from the bank or broker to its client describing all the necessary details of the transaction performed.

Contract

An agreement to buy or sell a specified amount of a particular currency or option for a specified month in the future (See Futures contract).

Conversion

The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.

Convertible Currency

Currency which can be freely exchanged for other currencies or gold without special authorization from the appropriate central bank.

Correspondent Bank

The foreign banks representative who regularly performs services for a bank which has no branch in the relevant centre, e.g. to facilitate the transfer of funds.

Counter Parties

The other organization or party with whom the exchange deal is being transacted.

Country Risk

The risk attached to a borrower by virtue of its location in a particular country. This involves examination of economic, political and geographical factors.

Cover

To hedge or close an existing trade.

Credit Risk

Risk of loss that may arise on open positions should a counter party default on its obligations.

Cross Rate

An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, measured against the USD.

Currency Option

(European) Option contract which gives the right to buy or sell a currency against another currency at a specified exchange rate at a specified period.

Currency Pair

The two currencies that make up a foreign exchange rate. For example, EUR/USD is a currency pair.

Currency Risk

The risk of incurring losses resulting from an adverse change in exchange rates.

Currency Swap

Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.

Currency Warrant

OTC Option; long-dated (more than one year) currency option.

Current Account

The net balance of a country’s international payment arising from exports and imports together with unilateral transfers such as aid and migrant remittances, it excludes capital flows.

Day Trader

Speculators who take positions in financial markets which are then liquidated prior to the close of the same trading day.

Day Trading

Refers to opening and closing the same position or positions within one day’s trading.

Deal Date

The date on which a transaction is agreed upon.

Deal Ticket

The primary method of recording the basic information relating to a transaction.

Deflator

Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate.

Delivery Date

The date of maturity of the contract, when the exchange of the currencies is made; this date is more commonly known as the value date in the FX or Money markets.

Delivery Risk

A term to describe when a situation when a counter-party will not be able to complete his side of the deal, although willing to do so.

Depreciation

A fall in the value of a currency or any financial instrument.

Desk

Term referring to a group dealing with a specific currency or currencies.

Details

All the information required to finalize a foreign exchange transaction, i.e. instrument, rate, dates, and point of delivery.

Devaluation

Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement.

Direct Quotation

Quoting in fixed units of foreign currency against variable amounts of the domestic currency.

Doji

A candlestick formation with a body so small that the open and close prices are equal. A Doji occurs when the open and close for that day are the same, or very close to being the same.

Double Top

A reversal chart pattern displaying two prominent peaks. The reversal is complete when the support trough is broken. The double bottom is a mirror image of the top.

Easing

Modest decline in price.

Exponential Moving Average (EMA)

Statistics which indicate current economic growth rates, trends and health of the local economy such as retail sales and employment.

EFT

Electronic Fund Transfer.

EMS

Abbreviation for European Monetary System, an agreement between member nations of the European Union to maintain an alignment between the exchange rates of their respective currencies.

Entry Limit

An order to buy or sell a foreign currency against another at a specific price. As opposed to a market order, limit orders might not be filled if the market moves away from the specified price.

Entry Stop

An instruction to the dealer to buy or sell a currency pair when it trades beyond a specified price. A buy order is at a rate that is higher than the current market rate; a sell order is at a rate that is lower than the current market rate. They serve to either protect a trader’s profits or limit your losses.

EUR

A single European currency called the Euro, which officially replaced the national currencies of the member EU countries.

European Style Option

Is an option contract that can be exercised only on the day of expiration.

Expiration

This is the last day on which an option may either be exercised.

Exponential Moving Average (EMA)

A moving average that gives greater weight to more recent data in an attempt to reduce the lag of (or "smooth") the moving average.

Exposure

In foreign exchange this relates to a potential for gain or a loss because of a movement in a foreign exchange rate.

Fed Fund Rate

The interest rate where registered banks can borrow from the Fed. This also indicates the Fed's view as to the state of the money supply.

Federal Reserve (Fed)

The Central Bank of the United States. (It is important to note that the Federal Reserve is a private corporation and not a part of the federal government.)

Fibonacci Numbers

The Fibonacci number sequence (1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144,...) is constructed by adding the first two numbers to arrive at the third. The ratio of any number to the next number is 61.8 percent, which is a popular Fibonacci retracement number. The inverse of 61.8 percent is 38.2 percent, also used as a Fibonacci retracement number. It is the ratio of the Fibonacci sequence that is important and valuable, not the actual numbers in the sequence.

Fixed Exchange Rate

Official rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower bands, leading to intervention.

Flat/Square

To be neither long nor short is the same as to be flat or square. One would have a flat book if he has no positions or if all the positions cancel each other out.

Flexible Exchange Rate

Exchange rates with a fixed parity against one or more currencies with frequent revaluations, a form of a managed float.

FOMC

Federal Open Market Committee, the committee that sets money supply targets in the US which tend to be implemented through Fed Fund interest rates etc.

Foreign Exchange

The purchase or sale of a currency against sale or purchase of another. We trade off-exchange Forex transactions.

Foreign Exchange Swap

Transaction which involves the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed at the time of the conclusion of the contract (short leg), at a date further in the future at a rate agreed at the time of the contract (the long leg), in reality this is a combination of a spot and an opposite forward deal.

Forex

A term commonly used when referring to the foreign exchange market.

Forex Club

Groups formed in the major financial centers to encourage educational and social contacts between foreign exchange dealers, under the umbrella of Association Cambiste International (ACI).

Forward

A deal trade that is executed today for a period longer then two working days (spot value). The forward rate is made up of the spot rate plus or minus the interest rate differentials between the two currencies over time. The interest rate differentials are often known as a premium or discount.

Forward Margins

Discounts or premiums between spot rate and the forward rate for a currency, normally quoted in points (pips).

Free Reserves

Total reserves held by a bank less the reserves required by the authority.

Front Office

The activities carried out by the dealer, normal trading activities.

Fundamental Analysis

Thorough analysis of economic and political data with the goal of determining future movements in a financial market.

Fundamentals

The macro economic factors that are accepted as forming the foundation for the relative value of a currency, these include inflation, growth, trade balance, government deficit, and interest rates.

FX

A term commonly used when referring to the foreign exchange market or a short for foreign exchange.

G7

The seven leading industrial countries, being made up of the United States, Germany, Japan, France, UK, Canada and Italy.

G10

Made up of ten leading industrialized nations, including the G7 countries plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.

Gap

Gaps form when there is no trading in a particular series of rates. In normal market conditions price changes occur with increment movements. When the market is taken by surprise either by a major world event, lack of liquidity, major economic announcement; a gap may appear as the market is attempting to correct its view of the exchange rate immediately.

Gold Standard

The original system for supporting the value of currency issued. When this was used the price of gold was fixed against the currency, this meant that any increase in the supply of gold did not lower the price of gold but caused prices to increase.

Grid

Fixed margin within which exchange rates are allowed to fluctuate.

Gross Domestic Product

Total value of a country’s output, income or expenditure produced within the country’s physical borders.

Gross National Product

Gross domestic product plus "factor income from abroad" - income earned from investment or work abroad.

GTC

"Good Till Cancelled". 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 client.

Hard Currency

Any one of the major world currencies that is well traded and easily converted into other currencies.

Head and Shoulders

A pattern in price trends which chartists consider indicates a price trend reversal. The price has risen for some time, at the peak of the left shoulder; profit taking has caused the price to drop or level. The price then 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.

Head and Shoulders Bottom

Also known as a reverse head and shoulders, a well-known reversal pattern marked by three (or more) prominent troughs with a middle trough (the head) that is lower than the other troughs (the shoulders). When the trend line (neckline) connecting the peaks at the top of the pattern is broken, the pattern is complete.

Hedge

The purchase or sale of options, spot, forward or futures contracts as a temporary substitute for a transaction to be made at a later date. Usually it involves opposite positions in the cash or futures or options market.

Hedged Position

One open buy position and one open sell position in the same currency.

Hedging

The practice of undertaking one investment activity in order to protect against loss in another, e.g. selling short to nullify a previous purchase, or buying long to offset a previous short sale. While hedges reduce potential losses, they also tend to reduce potential profits.

High/Low

Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.

If Done Order

(I/D) a conditional order usually based on an existing limit order.

IMF

International Monetary Fund, established in 1946 to provide international liquidity on a short and medium term and encourage liberalization of exchange rates. The IMF supports countries with balance of payments problems with the provision of loans.

Implied Rates

The interest rate determined by calculating the difference between spot and forward rates.

Inflation

(CPI) Continued rise in the general price level in conjunction with a related drop in purchasing power. Sometimes referred to as an excessive movement in such price levels.

Initial Margin

The required initial deposit of collateral to enter into a position as a guarantee on future performance.

Inter-Bank Market

A loose network of currency transactions negotiated between financial institutions and other large companies.

Inter-Bank Rates

The foreign exchange rates at which large international banks quote other large international banks.

Interest Arbitrage

Switching into another currency by buying spot and selling forward, and investing proceeds in order to obtain a higher interest yield. Interest arbitrage can be inward, i.e. from foreign currency into the local one or outward, i.e. from the local currency to the foreign one. Sometimes better results can be obtained by not selling the forward interest amount. In that case some treat it as no longer being a complete arbitrage, as if the exchange rate moved against the arbitrageur, the profit on the transaction may create a loss.

Interest Parity

One currency is in interest parity with another when the difference in the interest rates is equalized by the forward exchange margins.

Interest Rate Swap

An agreement to swap interest rate exposures from floating to fixed or vice versa. There is no swap of the principal.

Intervention

Action by a central bank to affect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.

Kiwi

Slang for the New Zealand dollar.

Leading Indicators

A statistic that is considered to precede changes in economic growth rates and total business activity, e.g. factory orders.

Leverage

The usage of a margin to trade on a larger capital base. Leverage is a double-edged sword, of course, as it can significantly increase your losses as well as your gains.

Liability

In terms of foreign exchange , the obligation to deliver to a counterparty an amount of currency either in respect of a balance sheet holding at a specified future date or in respect of an un-matured forward or spot transaction.

Limit Order

An order to buy or sell a foreign currency against another at a specific price. AVA guarantees all Limit and Entry Limit Orders at the specified price, not a better price.

Line Chart

Price charts that connect periodical prices of a given market over a span of time that form a curving line on the chart. This type of chart is most useful with overlay or comparison charts that are commonly employed in inter-market analysis.

Liquidation

Any transaction that offsets or closes out a previously established position.

Liquidity

The ability of a market to accept large transactions.

Long

A market position where the client has bought a currency he previously did not hold. Normally expressed in base currency terms.

Looney

Slang for the Canadian Dollar.

MACD (Moving Average Convergence/Divergence)

A technical indicator that is calculated by subtracting the 26-period exponential moving average of a given security from its 12-period exponential moving average.

MACD Histogram

A technical indicator shows a visual representation of the difference between the MACD line and the MACD signal line. The plot of this difference is presented as a histogram, making the centerline crossovers and divergences easily identifiable.

Maintenance Margin

The minimum margin which an investor must keep on deposit in a margin account at all times in respect of each open contract. (See margin).

Make a Market

A dealer is said to make a market when he or she quotes bid and offer prices at which he or she stands ready to buy and sell.

Managed Float

When the monetary authorities intervene regularly in the market to stabilize the rates or to aim the exchange rate in a required direction.

Margin

The amount of money or collateral that must be, in the first instance, provided or thereafter, maintained, to ensure against losses on open contracts. Initial must be placed before a trade is entered into.

Margin Call

The amount of money or collateral that must be, in the first instance, provided or thereafter, maintained, to ensure against losses on open contracts. Initial must be placed before a trade is entered into.

Mark To Market

The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins.

Market Maker

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

Market Order

An order to buy or sell a security at the prevailing market price.

Mid-Price or Middle Rate

The price half-way between the two prices, or the average of both buying and selling prices offered by the market makers.

Momentum

A technical indicator measuring a security’s rate-of-change. The ongoing plot forms an oscillator that moves above and below 100. Bullish and bearish interpretations are found by looking for divergences, centerline crossovers and extreme readings.

Monetary Base

Currency in circulation plus banks required and excess deposits at the central bank.

Moving Average (MA)

A technical indicator showing an average of data for a certain number of time periods. It "moves" because for each calculation, we use the latest x number of time periods" data. By definition, a moving average lags the market. An exponentially smoothed moving average (EMA) gives greater weight to the more recent data, in an attempt to reduce the lag.