Value Definition Aggregate (Risk)
At or Better
At Par Forward Spread
Total exposure a bank has with a customer for both spot and forward contracts.
Total demand for goods and services in the economy. Aggregate demand includes private and public sector 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 imports) available to meet aggregate demand.Difference in the value between currencies. Also used to 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 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 demand as opposed to increasing in value as a result of official action.
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 between the markets.
Used in quoting forward “premium/discount”.The price at which the currency or instrument is offered. 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 loan), or at a specified future date in regards to an unmatched Forward or spot deal.
The international society of foreign exchange dealers consisting of national "Forex clubs" affiliated on a worldwide basis.
An instruction given to a dealer to buy or sell at the best rate that is currently available in the market.An order to deal at a specific rate or better.
When the forward price is equivalent to the spot price.
At-the-Money
An option whose strike/exercise price is equal to or near 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 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 rate over the contract period. Sometimes called an “Asian option”.
Settlement and related processes.(1) Transaction where all the obligations and liabilities in one transaction are mirrored in a second transaction. (2) 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, 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 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 system used in the ERM.Line of credit granted by a bank to a customer, also known 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 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 to its domestic banking system.See trading day and value date.
Barrier Option
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 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 institution are reported.A term used in the UK for the rate used by banks to calculate the interest rate to borrowers. Top quality borrowers will pay a small amount over base.
The difference between the cash price and futures price. The process whereby the basis tends towards zero as the contract expiry approaches.One per cent of one per cent.
The price expressed in terns of yield maturity or annual rate of return.
Taking opposite positions in the cash and futures market with the intention of profiting from favorable movements in the basis.
A group of currencies normally used to manage the exchange rate of another currency, sometimes referred to as a unit of account.
A person (investor) who believes that prices will decline.A market in which prices decline sharply against a background of widespread pessimism (opposite of Bull Market).
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 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; 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 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 banks, and sometimes require that the trade balance is equaled every year.
Binary OptionsBrokerage
Broker-Dealer BUBA
Bull
A binary “call” (or “step up”) is like a standard European call option except that the pay off at expiry is fixed at one 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 for options on futures. It is widely used in the currency markets.
The recording of a transaction outside the country where the transaction is itself negotiated.Slang for Russian trading.
The price of a financial instrument at which the option buyer recovers the premium, meaning that either a loss or 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 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 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 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
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.
Commission charged by a broker.
See Dealer.
Bundesbank, the central bank of Germany.
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 profitable in a declining market. An option with a lower strike price is bought and one with a higher strike price is sold.
A market characterized by rising prices.Bulldogs
Bullion
Bundesbank
Sterling bonds issued in the UK by foreign institutions. A term for gold bars, not coin.
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 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. 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 are willing to buy the currency. Sometimes called bid rate. To buy the nearby contract and simultaneously sell the deferred contract. Also referred to as a bull spread. A term used in the foreign exchange market for the US Dollar/British Pound rate.Telegraphic transfer of funds from one centre to another. Now synonymous with interbank electronic fund transfer.
An option position comprising the purchase and sale of two 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 underlying instrument at a specified price during a fixed period.
A call option confers the right but not the obligation to buy stock, shares or futures at a specified price.French term for foreign exchange dealer.
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.
CashCBOE
CBOT or CBT CD
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 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 on the asset. A reverse cash and carry is possible by selling an asset and buying a future.
Same day settlement.A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.
Chicago Board Options Exchange.
Chicago Board of Trade.
Certificate of Deposit.
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. 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 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 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 regulatory agency for futures traded on commodity markets, including financial futures.
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 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 House Interbank Payment System). Most euro transactions are cleared and settled through this system.
CIBORCopenhagen Interbank Rate, the rate at which the banks lend the Danish Krone on an unsecured basis. The rate is 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 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 commitment to the market with respect to a particular currency.
The purchase of an option identical to one already sold to liquidate a position.Chicago Mercantile Exchange Cock Dates (see broken dates). An economic indicator that generally moves in line with the general business cycle such as industrial production. Commodity Exchange of New York.
The fee that a broker may charge clients for dealing on their behalf.
An option on an option, the dates and price of such option being fixed.
French term for spot settlement in foreign exchange. A memorandum to the other party describing all the 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 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 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 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 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. to facilitate the transfer of funds. In the US, this often occurs domestically due to interstate banking restrictions.
Cost of CarryCoupon Value Cours du Change Cours Libre
Cours Officiel Court
Courtier
The interest rate parity, where the forward price is determined by the cost of borrowing money in order to hold the position.
Broadly equivalent to Retail Price Index or Consumer price. Where a person buys a currency against the dollar, it is the dollar value of the transaction.The other side to a deal (customer, or bank) with which a 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 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 including political, regulatory, legal and holiday risks.
(1) On bearer stocks, the detachable part of the hide behind nominee status. Certificate exchangeable for dividends. (2) Denotes the rate of interest on a fixed interest security.
The annual rate of interest of a bond.
(French) Exchange rate.
(French) Free exchange rate.
(French) Official exchange rate.
French for "short" as in “une position courte”.
(French) Broker.
(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.
A term used in the foreign exchange market for the US Dollar/British Pound rate.A strategy of writing call options against a long position in the underlying asset. A covered put write being based on a short position in the asset.
Covered Interest Rate ArbitrageAn 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 theoretical economic relationships), which says that the 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 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 food, clothing, and transport. Countries vary in their approach to rents and mortgages.
Committee on Payment and Settlement Systems.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 Lombard rate.The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised for delivery.
A foreign exchange deal entered into involving two currencies, neither of which is the base currency.A technique using financial futures to hedge different but 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 currencies, as most currencies are quoted against the dollar.
The situation which exists when a broker's bid is higher than the lowest offer of another broker.A cross-trade transaction is a transaction in which either the buy-broker and the sell-broker are the same, or the buybroker and the sell-broker belong to the same firm.
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.
Various weightings of other currencies grouped together in relation to a basket currency (e.g. ECU or SDR). Sometimes used by currencies to fix their rate, often on a trade weighted basket.
See swaps.Current Account
The net balance of a country's international payments arising from exports and imports together with unilateral 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 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 options.An order that if not executed on the specific day, is automatically canceled.
Speculators who take positions that are liquidated prior to 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 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).
See intra-day position.
The date on which a transaction is agreed upon.
An individual or firm acting as a principal, rather than as an agent, in the purchase and/or sale of securities. Dealers 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 dealer's desk.The latest day or time by which the buyer of an option must intimate to the seller his willingness or unwillingness to exercise the option.
Shortfall in the balance of trade, balance of payments, or government budgets.Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate. The settlement of a transaction by receipt, or tender of a financial instrument or currency.
The date of maturity of the contract, when the final settlement of transaction is made by exchanging the currencies. This date is more commonly known as the value date.
The calendar month in which a futures contract comes to maturity and becomes deliverable.Delivery Points
Depo
Deport
Deposit Dealings
Devisen, Devises
Devisenkassamarkt Devisenterminmarkt
Those locations designated by futures exchanges at which the currency represented by a futures contract may be delivered in fulfillment of the contract.
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