Arbitrage - The simultaneous purchase and sale on different markets, of the same or equivalent financial instruments to profit from price or currency differentials. The exchange rate differential or Swap points. May be derived from Deposit Rate differentials.

Asset Allocation - Dividing instrument funds among markets to achieve diversification or maximum return.

Ask - The price at which the currency or instrument is offered.

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

Base Currency - The currency in which the operating results of the bank or institution are reported.

Basket - A group of currencies normally used to manage the exchange rate of a currency.

Bear market - A prolonged period of generally falling prices.

Bear - An investor who believes that prices are going to fall.

Bid - The price at which a buyer has offered to purchase the currency or instrument.

Broker - An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread basis.

Bull Market - A prolonged period of generally rising prices.

Bull - An investor who believes that prices are going to rise.

Cash market - The market in the actual financial instrument on which a futures or options contract is based.

Central Bank - A bank, which is responsible for controlling a county’s monetary policy. It is normally the issuing bank and controls bank licensing, and any foreign exchange control regime.

Closed position - A transaction, which leaves the trade with a zero net commitment to the market with respect to a particular currency.

Commission - The fee that a broker may charge clients for dealing on their behalf.

Confirmation - A memorandum to the other party describing all the relevant details of the transaction.

Contract - An agreement to buy or sell a specified amount of a particular currency or option for a specified month in the future

Cover - (1) To take out a forward foreign exchange contract. (2) To close out a short position by buying currency or securities which have been sold.

Credit Risk - The risk that a debtor will not repay.

Cross Rates - Rates between two currencies, neither of which is the US Dollar.

D - F

Day Trader - Speculators who take positions (in select markets) that are then liquidated prior to the close of the same trading day.

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.

Dealer - An individual or firm acting as a principal, rather than as an agent, in the purchase and/or sale of securities.

Delivery date - The date of maturity of the contract, when the exchange of the currencies is made

Depreciation - A fall in the value of a currency due to market forces rather than due to official action.

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. name, rate, dates, and point of delivery.

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

Easing - Modest decline in price.

Economic Indicators – Statistics that indicate current economic growth rates and trends such as retail sales and employment.

ECU - European Currency Unit.

EFT - Electronic Funds Transfer.

European Monetary System - A system designed to stabilize if not eliminate exchange risk between member states of the EMS as part of the economic convergence policy of the EU. It permits currencies to move in a measured fashion (divergence indicator) within agreed bands (the parity grid) with respect to the ECU and consequently with each other.

Exotic - A less broadly traded currency.

Fast market - Rapid movement in a market caused by strong interest by buyers and/or sellers. In such circumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported.

Fed Funds Rate - The interest rate on Fed funds. This is a closely watched short-term interest rate as it signals the Feds view as to the state of the money supply.

Fed - The United States Federal Reserve. Federal Deposit Insurance Corporation Membership is compulsory for Federal Reserve members. The corporation had deep involvement in the Savings and Loans crisis of the late 80s.

Federal Reserve System - The central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board.

Foreign Exchange - The purchase or sale of a currency against sale or purchase of another.

Forex - Foreign Exchange.

Forward Rate - Forward rates are quoted in terms of forward points, which represent the difference between the forward and spot rates. In order to obtain the forward rate from the actual exchange rate the forward points are either added or subtracted from the exchange rate.

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.

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 - Foreign Exchange.

G - J

G7 - The seven leading industrial countries; US, Germany, Japan, France, UK, Canada, Italy.

G10 - G7 countries plus Belgium, Netherlands and Sweden. Switzerland is sometimes peripherally involved.

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.

Hard Currency - A currency whose value is expected to remain stable or increase in terms of other currencies.

Hedge - The purchase or sale of options 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.

Hit the bid - Acceptance of purchasing at the offer or selling at the bid.

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.

Inflation - 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 margin required by a Foreign Exchange firm to initiate the buying or selling of a determined amount of currency.

Interbank rates - The bid and offer rates at which international banks place deposits with each other.

L - M

Leading Indicators - Statistic that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders.

Limit order - An order to buy or sell a specified amount of a currency at a specified price or better.

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

Liquidity - The ability of a market to accept large transactions.

Long Position - The purchase of a stock, commodity, or currency for investment or speculation.

Maintenance Margin - The minimum margin, which an investor must keep on deposit at all times in respect to each open contract.

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.

Margin Call - A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse future price movements.

Margin - For currencies a deposit is made to the FOREX firm for establishing a futures position account.

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 market maker is a person or firm authorized to create and maintain a market in an instrument.

Market Order - An order to buy or sell a financial instrument immediately at the best possible price.
Minimum Price Fluctuation - The smallest increment of market price movement possible in a given futures contract.

N - P

Net Position - The amount of currency bought or sold which have not yet been offset by opposite transactions.

Offer - The price at which a seller is willing to sell. The best offer is the lowest such price available.

Offset - The closing-out or liquidation of a futures position.

Offshore - The operations of a financial institution, which although physically located in a country, has little connection with that country's financial systems. This is known as an offshore banking unit.

Overnight limit - Net long or short position in one or more currencies that a dealer can carry over into the next dealing day.

Overnight - A deal from today until the next business day.

Parity - (1) Foreign exchange dealer's slang for your price is the correct market price. (2) Official rates in terms of SDR or other pegging currency.

Pegged - A system where a currency moves in line with another currency, some pegs are strict while others have bands of movement.

Pip - Minimum fluctuation or smallest increment of price movement.

Position - The netted total commitments in a given currency. A position can be either flat or square (no exposure), long, (more currency bought than sold), or short (more currency sold than bought).

Profit Taking - The unwinding of a position to realize profits.

Q - R

Quote - An indicative price. The price quoted for information purposes but not to deal.

Rally - A recovery in price after a period of decline.

Range - The difference between the highest and lowest price of a future recorded during a given trading session.

Rate - (1) The price of one currency in terms of another, normally against USD.

Reaction - A decline in prices following an advance.

Resistance Point or Level - A price recognized by technical analysts as a price, which is likely to result in a rebound, but if broken through is likely to result in a significant price movement.

Revaluation - Increase in the exchange rate of a currency as a result of official action.

Revaluation Rate - The rate for any period or currency, which is used to revalue a position or book.

Risk Management - The identification and acceptance or offsetting of the risks with respect to foreign exchange involves among others consideration market, sovereign, country, transfer, delivery, credit, and counterparty risk.

Risk Position - An asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates.

Round Trip - Buying and selling of a specified amount of currency.

S

Same Day Transaction - A transaction that matures on the day the transaction takes place.

Selling Rate - Rate at which a bank is willing to sell foreign currency.

Settlement Date - The date by which an executed order must be settled by the transference of instruments or currencies and funds between buyer and seller.

Settlement Risk - Risk associated with the non-settlement of the transaction by the counter party.

Short Position- The selling of a currency or instrument not owned by the seller.

Short Sale - The sale of a specified amount of currency not owned by the seller at the time of the trade. Short sales are usually made in expectation of a decline in the price.

Short-Term Interest Rates - Normally the 90-day rate.

Soft Market - More potential sellers than buyers, creating an environment in which rapid price declines are likely.

Spot - (1) The most common foreign exchange transaction. (2) Spot or Spot date refers to the spot transaction value date that requires settlement within two business days, subject to value date calculation.

Spot Price/Rate - The price at which the currency is currently trading in the spot market.

Spread -The difference between the bid and ask price of a currency.

Squeeze - Action by a central bank to reduce supply in order to increase the price of money.

Stable Market - An active market, which can absorb large sale or purchases of currency without major moves.

Stop Loss Order – Ensures that if a currency weakens by a certain percentage, the trading position will be covered (despite taking a loss).

Support Levels - When an exchange rate depreciates or appreciates to a level where (1) Technical analysis techniques suggest that the currency will rebound, or not go below; (2) the monetary authorities intervene to stop any further downward movement.

Swap Price - A price as a differential between two dates of the swap.

Swap - The simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another. Any rate of return or cost of funds is expressed in the price differential between the two sides of the transaction.

T

Technical Correction - An adjustment to price not based on market sentiment but technical factors such as volume and charting.

Thin Market - A market in which trading volume is low and in which consequently bid and ask quotes are wide and the liquidity of the instrument traded is low.

Tick - A minimum change in price, up or down.

Trade Date - The date on which a trade occurs.

Tradable Amount - Smallest acceptable transaction size.

Transaction Date - The date on which a trade occurs.

Transaction - The buying or selling of currencies resulting from the execution of an order.

Two-Way Quotation - When a dealer quotes both buying and selling rates for foreign exchange transactions.

U - Z

Under-Valuation - An exchange rate is (considered to be) undervalued when below its purchasing power parity.

Up Tick - A transaction executed at a price greater than the previous transaction.

Value Spot - Normally settlement for two working days from today.

Volatility - A measure of the amount by which an asset price is expected to fluctuate over a given period.

Wash Trade - A matched deal, which produces neither a gain nor a loss.

Whipsaw - Term for where a trader takes a position, then has to move against it triggering stop loss limits and liquidation of positions, then having to move in the original direction. Normally occurs in volatile markets.

Working Day - A day on which the banks in a currency's principal financial center are open for business. For FX transactions, a working day only occurs if the banks in both financial centers are open for business (all relevant currency centers in the case of a cross are open).