A | |
| Accrual: | The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (Interest Arbitrage) deals, over the period of each deal.
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| Adjustable Peg: | An exchange rate system where a country's exchange rate is 'pegged' (ie. fixed) in relation to another currency. The official rate may be changed from time to time.
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| Aggregate Risk: | Total amount of exposure a bank has with a customer for both spot and forward contracts.
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| Algorithmic Trading: | Placing a buy or sell order of a defined quantity into a quantitative model that automatically generates the timing of orders and the size of orders based on goals specified by the parameters and constraints of the algorithm.
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| All or None: | A limit price order that requires the entire order to be filled at the stated price or not at all.
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| All-or-none: | Order is not considered filled unless the total/amount is traded.
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| Alpha: | Alpha is a risk-adjusted measure of the so-called 'excess return' on an investment. It is a common measure of assessing active managers' performance.
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| Amount: | The quantity traded.
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| API (trading): | Application program (or programming) interface. In the 'market API' sense, it is the specific method prescribed by a market by which a programmer writing an automated trading model can communicate with the market so that the model may place orders, receive market data etc.
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| Appreciation: | A currency is said to 'appreciate' when it strengthens in price in response to market demand.
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| Arbitrage: | The simultaneous purchase and sale of an instrument in two different markets to profit from a temporary price disparity.
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| Around: | Used in quoting forward 'premium/discount'. 'Five-five around' would mean five points on either side of the present spot value.
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| Ask (Offer) Price: | The price at which the market is prepared to sell a specific currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation. For example, in the quote USDCHF 1.4527/32, the ask price is 1.4532; meaning you can buy one US dollar for 1.4532 Swiss francs.
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| Association Cambiste Internationale (ACI): | The international society of foreign exchange dealers consisting of national 'Forex clubs' affiliated on a worldwide basis.
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| At Best: | An instruction given to a dealer to buy or sell at the best rate that can be obtained.
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| At or Better: | An order to deal at a specific rate or better.
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| At Par Forward Spread: | When the forward price is equivalent to the spot price.
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| At the Price Stop-Loss Order: | A stop-loss order that must be executed at the requested level regardless of market conditions.
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| Auto-matching: | ICAP will automatically match a bid and an offer when the Dealable Bid equals or exceeds the Dealable Offer.
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| Automated Trading Model: | A set of rules for market entry/exit that are monitored by a computer, and when the conditions for entry/exit are satisfied, the computer automatically places the order(s) into the market.
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| 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'.
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B | |
| Back office: | The part of a financial institution responsible for settlement and related processes.
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| Balance of Trade: | The value of a country's exports minus its imports.
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| Balance-of-Payments: | System of recording a country's economic transactions
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| Bank for International Settlements (BIS):
| An international organisation located in Basel, Switzerland and intended to foster cooperation among central banks and international financial institutions. In effect, the BIS acts as a central bank for central banks and does not itself provide financial services to corporations and individuals. It also publishes a detailed triennial survey of activity in the FX market.
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| Bank Notes: | Paper issued by the central bank, redeemable as money and considered to be full legal tender.
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| Bar Chart: | A type of chart which consists of four significant points: the high and the low prices, which are represented by top and bottom of a vertical bar, the opening price, which is marked with a small horizontal line attached to the left of the bar, and the closing price, which is marked with a small horizontal line attached to the right of the bar.
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| Base Currency: | The first currency in a currency pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USDCHF rate equals 1.6215 then one USD is worth CHF 1.6215 In the FX markets, the US dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of 1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British pound, the euro and the Australian dollar.
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| Base Price: | One hundredth of a percentage point. 50 basis points [50bp] is half a percentage point.
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| Basis: | The spot price minus the futures price.
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| Bear Market: | A market distinguished by declining prices.
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| Bear: | A trader expecting a market decline.
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| Best Bid Field: | Shows the best dealable bid price. Only the pips are shown. The big figure component of the price is displayed separately in the Best Big Figure.
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| Best Effort: | An order to be executed at the best available price. Discretion is given to the dealer as to when to execute the order.
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| Best Local Bid: | The best bid as submitted by the same trading floor.
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| Best Local Price: | The best local bid on that floor (highest in price and earliest in submission time).
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| Best Local Trader ID: | The Trader ID of best bid as submitted by the same trading floor.
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| Bid Price: | The bid is the price at which the market is prepared to buy a specific currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can sell the base currency. It is shown on the left side of the quotation. For example, in the quote USDCHF 1.4527/32, the bid price is 1.4527; meaning you can sell one US dollar for 1.4527 Swiss francs.
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| Bid/Ask (Bid/Offer) Spread: | The difference between the bid and offer price.
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| Big Figure Malformed: | Error Message for Figure which is formatted other than as prescribed in the EBS Precesio file.
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| Big Figure: | Dealer expression referring to the first few digits of an exchange rate. These digits are often omitted in dealer quotes. For example, a USDJPY rate might be 117.30/117.35, but would be quoted verbally without the first three digits ie. '30/35'.
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| Bollinger Bands: | 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 typically plotted two standard deviations above and below a simple moving average. The bands look like an expanding and contracting envelope model.
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| Book: | In a professional trading environment, a 'book' is the summary of a trader's or desk's total positions.
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| Breakaway gap: | 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.
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| Bretton Woods Agreement: | An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at USD 35 per ounce. The agreement lasted until 1971, when US President Nixon overturned it.
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| Bro: | Brokerage Fee.
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| Broken Dates: | Deals that are undertaken for value dates that are not standard periods eg. 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, or broken period.
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| Broker: | An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a 'dealer' commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.
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| Broker: | An EBS system component to which each trading floor connects whose functions include deal completion and credit limit management.
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| Bull Market: | A market distinguished by rising prices.
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| Bull: | A trader expecting a market rise.
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| Bundesbank: | Germany's Central Bank.
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| Buying Rate: | Rate at which a bank is prepared to buy foreign exchange. Also known as the Bid Rate.
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| Buying Selling FX: | Buying and selling in the foreign exchange market always happens in the currency which is quoted first. 'Buy dollar/euro' means buy the dollar/sell the euro. Traders buy when they expect a currency's value to rise and sell when they expect a currency to fall.
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C | |
| Cable: | Trader jargon referring to the Sterling/US dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 19th century.
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| Calendar Spread: | 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.
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| Call: | (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 a bond issuer to pre-pay debt and demand the surrender of its bonds.
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| Candlestick Chart: | A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
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| Capital Account: | Juxtaposition of the long and short term capital imports and exports of a country.
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| Carry: | The interest cost of financing securities or other financial instruments held.
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| Carry Trade: | An investment position that consists of buying a higher yielding currency with the capital of a lower yielding currency to gain an interest rate differential.
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| Carry-Over Charge: | A finance charge associated with the storing of commodities (or foreign exchange contracts) from one delivery date to another.
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| Cash Market: | The market in the actual financial instrument on which a futures or options contract is based.
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| Cash Settlement: | A procedure for settling financial contract where the cash difference between the contract and the market price is paid instead of making physical delivery.
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| Central Bank: | A government or quasigovernmental organisation that manages a country's monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.
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| Central Counterparty: | An entity which interposes itself as the buyer to every seller and as the seller to every buyer of a specified set of contracts.
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| CHAPS: | Clearing House Automated Payment System.
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| Chartist: | An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as a Technical Trader.
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| Check Big Figure: | (On Both Sides) The Quote Panel Big Figure is over XX minutes old. The trader must make sure this is the Big Figure he wants to use. (On Bid Side) The EBS market and the FXT calculated price are not in sync. That is, the EBS offer is less than the FXT calculated bid, so the EBS offer was used to populate the Bid Figure. (On Offer Side) The EBS Market and the FXT calculated price are not in sync. That is, the EBS bid is greater than the FXT calculated offer, so the EBS bid was used to populate the Offer Figure.
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| Check Price: | Confirmation panel. The Bid/Offer submitted is different from the FXT calculated price by more than the XX pips. The number of pips (75) is carried in the Precesio file. The Check Price Validation switch in the trader profile must be enabled for this Panel to appear.
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| Check Rate: | This occurs when the Market Rate and the Bid/Offer pips have a 30-pip difference. This is set on the Central Node. The Check Rate Warning Threshold (CRWT) for each currency pair can be found on the Currency Pair Table.
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| CHIPS: | (Clearinghouse House Interbank Payment System) A computerised system used for foreign exchange dollar settlements.
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| Choice: | A condition of the market when the best bid and best offer prices are the same.
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| Cleared Funds: | Funds that are freely available to settle a trade.
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| Clearing: | The process of settling a trade.
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| Clearing House: | An agency or separate corporation of a futures exchange responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery and reporting trading data. Clearing houses act as third parties (central counterparties) to all futures and options contracts - as a buyer to every clearing member seller and a seller to every clearing member buyer.
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| Closed form solution: | A closed form solution (sometimes referred to as a closed form expression) is any formula that can be evaluated in a finite number of standard operations. The Black Scholes and Garman Kohlhagen option pricing models are both closed form solutions, while the Cox, Ross, Rubinstein (often referred to as the binomial model) is not.
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| Closed position: | A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.
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| Closing purchase transaction: | The purchase of an option identical to one already sold to liquidate a position.
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| Collateral: | Something given to secure a loan or as a guarantee of performance.
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| Commission: | A transaction fee charged by a broker.
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| Confirmation: | A document exchanged by counterparts to a transaction that states the terms of said transaction.
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| Contagion: | The tendency of an economic crisis to spread from one market to another. In 1997, political instability in Indonesia caused high volatility in the domestic currency, the rupiah. From there, the contagion spread to other Asian emerging currencies, and then to Latin America, and is now referred to as the 'Asian Contagion'.
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| Continuous Linked Settlement (CLS): | Continuous Linked Settlement (CLS) is a financial clearing system used mainly by banks to settle foreign exchange trades. The primary characteristic of CLS compared to other clearing systems is that it settles transactions on a 'Payment versus Payment' basis, also known as PVP. When a foreign exchange trade is settled, each of the two parties to the trade pays out (sells) one currency and receives (buys) a different currency; PVP ensures that these payments and receipts happen simultaneously. Without PVP there is a (small) chance that one party could pay out without receiving, this is known as Settlement, or Herstatt, risk.
CLS was created by many of the world's largest banks and began operation in September 2002. Since then it has rapidly become the standard for foreign exchange settlement between major banks and as of January 2006 it settles some 220,000 trades a day with a value of about USD 2.6trn.
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| Contract: | The standard unit of size/terms for a futures trade.
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| Correlation: | 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. For example, before the advent of the euro, the Swiss franc had a close correlation with the German mark.
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| Cost of Carry: | The cost of borrowing money in order to maintain a position. It is based on the interest parity which determines the forward price.
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| Counter Currency: | The second listed currency in a Currency Pair.
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| Counterparty: | One of the participants in a financial transaction.
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| Country Risk: | Risk associated with a crossborder transaction, including but not limited to legal and political conditions.
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| 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.
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| Credit Limit Matrix: | Indicates whether bilateral credit is available with other trading floors. There is an entry in the matrix for each trading floor.
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| Credit Limit: | The monetary amount available to be settled in all currencies, with a particular counterparty.
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| Credit Line: | The amount of foreign currency exposure a firm will allow a client or counterparty to take.
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| Credit Risk: | The idea that an outstanding currency position will not be repaid as agreed by the counterparty, either voluntarily or not. Also known as counterparty risk.
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| Cross Rates: | Often referred to as the exchange rate between any two currencies not involving the US dollar. In reality, however, all rates are technically cross rates.
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| Cumulative normal density function: | An accumulation function of a normal probability density function. The cumulative normal density function shows how probabilities accumulate as the value of the random variable increases.
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| Currency Convertibility Risk: | Currency convertibility risk is the risk that investors will not be able to exchange local currency revenues for the foreign exchange required to make debt service and other foreign currency payments, or that they will have to convert at discriminatory or artificially low exchange rates.
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| Currency Pair: | The two currencies that make up a foreign exchange rate. For example, EURUSD
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| Currency Risk: | The probability of an adverse change in exchange rates.
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| Currency: | 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 pound can buy 1.55 euros, then one euro can buy 0.65 pounds.
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D | |
| Day-Count Convention: | A system used to determine the number of days between two coupon dates, which is important in calculating accrued interest and present value when the next coupon payment is less than a full coupon period away. Each market has its own day-count convention.
For example, a 30/360 day-count convention assumes there are 30 days in a month and 360 days in a year. An actual/actual day-count convention uses the actual number of days in the month and year for a given interest period.
This concept might sound illogical, as (leap years apart) there will always be 365 days in a year. However, these conventions are standards that have evolved over time and help to avoid confusion when calculating interest payable.
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| Day Trader: | Speculators who take positions in commodities that are then liquidated prior to the close of the same trading day.
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| Daylight Position Limit: | Position limits on a currency or aggregate on a series of currencies that a trader can carry during regular trading hours.
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| Deal Ticket/Deal Slip: | The primary method of recording the basic information relating to a transaction.
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| Dealable Bid: | A bid submitted by a trading floor which has bilateral credit with the given floor.
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| Dealable Price: | The best price on which a trader can deal.
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| Dealer: | An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
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| Dealing Systems: | On-line computers which link the contributing banks around the world on a one-on-one basis
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| DEaR (Daily Earnings at Risk): | VaR with a one-day horizon.
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| Deficit: | A negative balance of trade or payments.
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| 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.
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| Delivery Risk: | A term to describe when a counterparty will not be able to complete his side of the deal, although willing to do so.
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| Delivery: | An FX trade where both sides make and take actual delivery of the currencies traded.
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| Depreciation: | A fall in the value of a currency due to market forces.
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| Depth of Market: | The amount of business that can be done without causing a material change in prices. A thin market would see noticeable price changes on a limited amount of transactions.
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| Derivative: | A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument.
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| Devaluation: | Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement.
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| Diamond Caution Icon: | Both bid/offer prices are different from the FXT Calculated Price by more than the Check Rate Warning Threshold. The difference between the dealable bid and the dealable offer is greater than the Wide Spread Warning Threshold.
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| Direct Dealing: | An approach whereby dealers contact each other to transact without a broker.
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| Direct Quotation: | Quoting in fixed units of foreign currency against variable amounts of the domestic currency.
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| Discount Forward Spread: | The forward points subtracted from the spot to arrive at the forward price. This means that the foreign interest rate is lower than the USD rate for the period. Also known as swap points.
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| Discount Rate: | The interest rate at which eligible depository institutions may borrow funds directly from the Federal Reserve Banks. This rate is controlled by the Federal Reserve and is not subject to trading.
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| Dollar: | Million dollars.
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| Double: | An option either to buy or sell an instrument or currency at a specified price. The exercise of the right to sell causes the right to buy to expire and vice versa.
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| Due diligence: | The process of examining the financial underpinnings of an organisation as a preliminary step prior to establishing some for of trading relationship.
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| Durable Goods Order: | An economic indicator which measures the changes in sales of products with a life span in excess of three years.
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E | |
| EBS Best Price: |
The single best price in the EBS market for a given currency pair, regardless of a counterparty's credit worthiness.
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| EBS Prime: |
An FX application offered by EBS that enables customer banks to view and deal on the best dealable prices from the EBS Dealing System through another bank.
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| EBS Prime bank: |
A bank that loans its credit to an EBS Prime customer so that it can view and deal on the EBS Spot Dealing System
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EBS Prime customer: |
A customer bank or hedge fund that can view and deal on the best dealable prices from the EBS Dealing System using its Prime bank's credit.
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| EBS Trading Day: |
The EBS Trading Day ends at 17.00 hrs local New York time. At that point, the Value Date is refreshed and all trades for the next 24 hours are considered part of the next Trading Day. Thus, any trades done after 17.00 hrs local New York time and before midnight (GMT) will have an Effective EBS Trade Date advanced by one day from the actual date and a refreshed Value Date based on that Effective Trade Date. The Deal Ticket will show the current and actual date. However, the Value Date will be calculated by counting forward from the Effective Trade Date a number of business days (usually two). An exception to this rule occurs on Friday when the Effective Trade Date does not move forward until 17.00 hrs local New York time on Saturday. Trades done after 17.00 hrs Saturday and before 17.00 hrs Monday local New York time will have an Effective Trade Date of Monday. |
| Economic and Monetary Union (EMU): | The irrevocable fixing of exchange rates between member currencies and their replacement by a single European currency, the euro.
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| Economic Exposure: | Reflects the impact of foreign exchange changes on the future competitive position of a company.
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| Economic Indicator: | A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.
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| Elliot Wave Principle: | A system of empirically derived rules for interpreting action in the markets. It refers to a five-wave/three-wave pattern which forms one complete bull market /bear market cycle of eight waves.
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| End Of Day Order (EOD): | An order to buy or sell at a specified price. This order remains open until the end of the trading day which is typically 17.00 hrs ET.
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| Entitlements: | The functions that a trader is entitled or authorised to perform.
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| Equity Curve: | The value of a trading account graphed over a period of time. An equity curve gives a visual performance measure of a trading model (or models) and is used by many traders as a measure of the reserves above margin requirements needed to trade a certain strategy.
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| ERP (Enterprise Resource Planning): | A type of business management system used by many corporations that integrates all facets of the business, including finance, planning, manufacturing, sales, and marketing.
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European Central Bank (ECB):
| The Central Bank for the European Monetary Union.
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| European Joint Float: | A European currency agreement originating in 1972 that ran partly concurrently with the Smithsonian Agreement. The intention on the part of the European community was to move away from their dependency on the dollar. The scheme was established by West Germany, France, Italy, the Netherlands, Belgium and Luxemburg. Failed in 1973.
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| Exercise Notice: | A formal notification that the holder of an option wishes to exercise it by buying or selling the underlying stock at the exercise price.
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Exercise Price (Strike Price):
| The price at which an option may be exercised.
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| Exotic Currency: | A currency with little liquidity and limited dealing, which is neither a major or minor currency.
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| Expiry Date: | The last day on which the holder of an option can exercise his right to buy or sell the underlying security.
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| Exposure: | The total amount of money loaned to a borrower or country. Banks set rules to prevent overexposure to any single borrower. In trading operations, it is the potential for running a profit or loss from fluctuations in market prices.
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F | |
| Factory Orders: | An economic indicator which refers to the total orders of durable and nondurable goods. The nondurable goods orders consist of food, clothing, light industrial products and products designed for the maintenance of the durable goods.
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| FASB #8 (Financial Accounting Standards Board's Statement Number 8): | The original accounting rules regarding foreign exchange were standardised in 1975, which set the procedures for foreign currency translations into US dollars in the consolidated balance sheets of US multinational corporations.
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Federal Deposit Insurance Corporation (FDIC):
| The regulatory agency responsible for administering bank depository insurance in the US.
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| Federal Reserve (Fed): | The Central Bank for the United States.
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| Fedwire: | An automated communications and settlement system linking the Federal Reserve banks with other banks and with depository institutions.
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| Fill or Kill: | An order which if not filled is immediately cancelled.
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| First In First Out (FIFO): | Open positions are closed according to the FIFO accounting rule. All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.
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| Fixed rate regime: | Fixed rates are those that have direct convertibility towards another currency. In case of a separate currency, also known as a currency board arrangement, the domestic currency is backed one to one by foreign reserves. A pegged currency with very small bands (< 1%) and countries that have adopted another country's currency and abandoned its own also fall under this category.
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| Flat/square: | Dealer jargon used to describe a position that has been completely reversed, eg. the trader bought USD 500,000 then sold USD 500,000, thereby creating a neutral (flat) position.
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| Foreign Exchange Centres: | London is the largest centre of foreign exchange trading. New York, Tokyo, Singapore, Zurich and Hong Kong are also important.
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| Foreign Exchange Market: | Market where currencies are traded internationally. About a trillion (million million) dollars-worth of foreign exchange is traded globally every day, making forex larger than all bond markets put together. Currency markets exist in the form of spot, forward, futures and options markets.
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| Forward Forward: | A forward/forward deal is one where both legs of the deal have value dates greater than the current spot value date.
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| Forward Outright: | Foreign exchange deal which matures on any day past the spot delivery date.
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| Forward Points: | The pips added to or subtracted from the current exchange rate to calculate a forward price.
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| 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. 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 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 lower interest rate base currency is said to be at a premium, and the forward points are added to the spot rate to obtain the forward rate.
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| Forward Spread (forward points or forward pips): | Forward price used to adjust a spot price to calculate a forward price. It is based on the current spot exchange rate, interest rate differential and the number of days to delivery.
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| Forward: | The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.
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| Fundamental Analysis: | Analysis of economic and political information with the objective of determining future movements in a financial market.
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| Futures Contract: | An obligation to exchange a good or instrument at a set price on a future date. Typically an exchange traded, rather than OTC instrument.
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| FX: | Foreign exchange.
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G | |
| G7: | The seven leading industrial countries: US, Germany, Japan, France, UK, Canada, Italy.
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| Gap: | The price Gap between consecutive trading ranges (ie. the low of the current range is higher than the high of the previous range).
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| Give-up: | A type of financial trade where execution is performed by one brokerage firm and given-up (cleared) through another brokerage at a later time.
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| Globex: | A system for global after hours electronic trading in futures and options developed by Reuters for CME and CBOT for use in conjunction with various exchanges around the world.
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| Going Long: | The purchase of a stock, commodity, or currency for investment or speculation.
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| Going Short: | The selling of a currency or instrument not owned by the seller.
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| Gold Standard: | The original system for supporting the value of currency issued. The way that where the price of gold is fixed against the currency it means that the increased supply of gold does not lower the price of gold but causes prices to increase.
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| Gold Tranche: | Part of the country quota for IMF members that had to be paid in gold. This was normally 25% of the quota, the remainder being in domestic currency. The Gold Tranche was automatically available to members without condition.
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| Golden Cross: | An intersection of two consecutive moving averages which move in the same direction and suggest that the currency will move in the same direction.
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| Good Until Cancelled: | An instruction to a broker that unlike normal practice the order does not expire at the end of the trading day, although normally terminates at the end of the trading month.
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| Gross Domestic Product: | Total value of a country's output, income or expenditure produced within the country's physical borders.
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| Gross National Product: | Gross domestic product plus 'factor income from abroad' - income earned from investment or work abroad.
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| Gross Settlement: | A process where full payment of each transaction is made rather than clearing a group of transactions as currently occurs in the FX market. A method designed to eliminate capital risk.
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H | |
| Hard Currency: | A currency whose value is expected to remain stable or increase in terms of other currencies.
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| Hedge Ratio: | The number of futures or options required to hedge a given exposure in the cash market.
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| Hedge: | A position or combination of positions that reduces the risk of your primary position.
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| Hedging: | A strategy used to offset market risk, whereby one position protects another.
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| Herstatt Risk: | (Another term for settlement risk.) The risk to Counterparty A in the settlement of a foreign currency transaction with Counterparty B, that A would deliver its payment to B, but B might not pay, as agreed. If A and B deliver their payments in different time zones, then Herstatt risk occurs regularly. Named after Bankhaus Herstatt, which defaulted on a number of currency transactions when it failed in 1974.
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| Hit the bid: | Situation in which a dealer agrees to sell at the highest price offered ('bid') by another dealer.
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| Hot money: | Money that is moved by its owner quickly from one form of investment to another, as to take advantage of changing international exchange rates or gain high short-term returns on investments.
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| ICCH: | International Commodities Clearing House Limited, a clearing house based in London operating world wide for many futures markets.
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| IFEMA: | International Foreign Exchange Master Agreement.
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| IMF International Monetary Fund): | 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.
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| IMM: | International Monetary Market (part of the Chicago Mercantile Exchange) that lists a number of currency and financial futures.
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| Immediate or Cancel: | Trading practice whereby order is executed immediately in whole or part and the remainder is cancelled.
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| Implied Rates: | The interest rate determined by calculating the difference between spot and forward rates.
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| Implied Volatility Skews: | The implied volatility varies for different strikes of an option.
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| Implied Volatility: | A measurement of the market's expected price range of the underlying currency futures based on the traded option premiums.
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| Inconvertible Currency: | Currency which cannot be exchanged for other currencies, because this is forbidden by the foreign exchange regulations.
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| Index Linking: | The process of linking wages, social benefits payments, prices, interest rates or loan values to an economic index, usually of prices.
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| Indicative Quote: | A market-maker's price which is not firm.
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| Indicator: | Shows the total amount (size) of all Dealable and local bids available at the Best Bid Price. If this amount is regular the Best Bid amount Indicator is blank.
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| Industrial Production Index: | A coincident indicator measuring physical output of manufacturing, mining and utilities.
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| 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.
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| Initial Margin: | The margin paid initially to trade currency futures or margined OTC forex. A trader's loss may not exceed this margin per contract/lot.
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| In-Market bid: | Any Bid whose price is within the X pips value of the Best Bid Price.
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| Inside: | Quote higher than the current Bid, but lower the current Offer.
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| Instruction: | The specification of the banks at which funds shall be paid upon settlement.
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| Interbank Rates: | The bid and offer rates at which international banks place deposits with each other. The basis of the interbank market.
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| Inter-dealer Broker: | A specialist broker who acts as an intermediary between market-makers who wish to buy or sell securities to improve their book positions, without revealing their identities to other market-makers.
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| 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, ie. 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.
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| Interest Parity: | One currency is in interest parity with another when the difference in the interest rates is equalised by the forward exchange margins. For instance, if the operative interest rate in Japan is 3% and in the UK 6%, a forward premium of 3% for the Japanese Yen against sterling would bring about interest parity.
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| Interest Rate Cap: | An agreement that provides the buyer of a cap with a maximum interest rate for future borrowing requirements.
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| Interest Rate Collar: | A combination of a cap and a floor to provide maximum and minimum interest rates for borrowing or lending.
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| Interest Rate Differential: | The difference in yield between two comparable instruments denominated in different currencies.
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| Interest Rate Floor: | An agreement which provides the buyer of the floor with a minimum interest rate for future lending |