FOREX GLOSSARY

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• Appreciation - A currency is said to appreciate when its price rises.

• Arbitrage - The purchase or sale of an instrument and simultaneous taking of an equal
and opposite position in a related market, in order to take advantage of small price
differentials between markets.
• Ask (Offer) - Sometimes called the Offer Price, this is the market price for traders to buy
currencies. Ask prices are shown on the right side of a quote, e.g. EUR/USD 1.1745 / 50
denotes that one EUR can be bought for 1.1750 USD.
• Asset Allocation - An investment practice that divides capital among different types of
asset classes in order to achieve a return that is proportionate to the investor’s risk
appetite.
• Aussie (AUD) - The Australian Dollar.
• Balance of Trade - Refers to the difference between a country’s value of exports and
imports. If Exports exceed Imports then a country is said to have a Trade Surplus. If a
country’s value of imports is greater than its exports, then the country is said to have a
Trade Deficit.
• Barrier/Option Barrier - Any type of option which has a specified level which must not
be broken in order for the option to be paid. This leads to the barrier being defended so
the option barrier is not broken at a particular price level.

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• Base Currency - The currency in which the operating results of the bank or institution
are reported.
• Basel III - The latest of the three Basel accords which regulate the global banking
system, with particular focus of the base capital requirements banks have to hold.
• Basket - A group of currencies (as opposed to one single currency) normally used to
measure the exchange rate of another currency. For example, the USD-index is the a
measure of the USD against a basket of 16 other currencies.
• Basis Point - 1 basis point is equivalent to 0.01% and is used to describe interest rate
changes. For example, if the ECB increased interest rates to 1.50% from 1.25% this
would be an increase of 25 basis points.
• Bear/Bearish - An investor who believes that a particular instrument or the overall
market will fall in price. The opposite of Bull/Bullish.
• Bid - The opposite of the Ask. It is the market price for traders to sell currencies. The Bid
Price is shown on the left side of a quote, e.g. EUR/USD 1.1745 / 50 denotes that one
EUR can be sold for 1.1745 USD.
• Bid to Cover Ratio - A measure of demand for government debt that has been
auctioned.
• BIS - The Bank for International Settlements. The role of the body is to serve central
banks in their pursuit of monetary and financial stability and foster international
cooperation, acting as a bank for Central Banks globally.
• BoC - The Bank of Canada.
• BoE - The Bank of England. Also referred to as the Old Lady of Threadneedle Street.
• BoJ - The Bank of Japan.
• BRICS - An acronym that refers to the countries of Brazil, Russia, India, China and
South Africa which are considered to be at a similar stage of newly advanced economic
development.
• BRL - The Brazilian Real.
• Broker - 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.
• Buba - Shortened form of Bundesbank, the German central bank.

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• Bull/Bullish - An investor who believes that a particular instrument or the overall market
will rise in price. The opposite of Bear/Bearish.
• Bund - The benchmark German 10-year government bond. The term usually refers to the
futures contract based on the underlying 10-year government bond.
• Cable - The common name for the GBP/USD currency pair, originating from the old
underwater communication cable linking the UK and USA.
• CAC/CAC40 - The primary French stock exchange.
• CAD - The Canadian Dollar.
• Call - A term related specifically to options, wherein Call refers to the right but not the
obligation to buy an underlying asset.
• Cash Market - Market place where financial instruments are traded and delivered for
immediately delivery.
• CBOT - The Chicago Board of Trade is the world’s oldest futures and options exchange
which later merged with the CME and now acts as a market maker.
• Confederation of British Industry (CBI) - An influential lobbying organization for UK
business on national and international issues.
• Consumer Confidence - The degree of optimism that consumers feel about the overall
state of the economy.
• Central Bank - The generic name given to a country's primary monetary authority. For
example, the Bank of England.
• Clearer - Market term for a large bank, the term originates from those banks that clear
cheques.
• CME - The Chicago Mercantile Exchange, one of the largest futures and options
exchanges in the world.
• Commodity - The trading of physical substances such as Gold and Oil, whether in the
spot or derivative markets.
• Corporate - A multinational corporation. Large corporations use the FX markets to
hedge themselves against currency risk. For example, a company may have high
revenues in USD’s but high costs in EUR’s.
• Consumer Price Index (CPI) - A measure of the general change in price of a fixed
basket of goods and services. This is one of the most important gauges of inflation.
• Contagion - When a negative shock to a financial sector/system is transmitted to other
healthier more sustainable sectors in an economy or country.

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• Coupon - The interest rate payable to the holder of a bond by the issuer.
• Crawling Peg - A type of currency peg which is adjusted periodically.
• Cross Rate - 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.
• Currency Risk - The possibility that currency depreciation will negatively affect the
value of assets currently held, especially those denominated in a foreign currency.
• Custodial Buyers - A Global Custodian processes cross-border securities trades, keeps
financial assets safe and services the associated portfolios.
• DAX - The primary German stock index.
• Deflation - The rate at which prices for goods and services fall.
• Depreciation - A currency is said to depreciate when its price falls.
• Derivative - A financial product whose value is derived from an underlying asset,
for example Futures or Options.
• DKK - Shorthand for the Danish Krona, the national currency of Denmark.
• Double-No-Touch (DNT) - A type of option which pre-defines a range for a specified
time. For example, the owner of a 1.3000-1.3500 DNT would be paid if prices do not
trade outside this range until expiry.
• Dove/Dovish - Dovish refers to an economic outlook which generally supports lower
interest rates. Doves take the position that lower interest rates are preferable with specific
regard to inflation.
• Dow Jones Industrial Average - A US stock index which includes the 30 largest blue-
chip companies.
• Downtick - A decrease in prices.
• EUREX - A major global derivatives exchange.
• Euribor - The interest rate for inter-bank lending in EUR between the primary banks in
the Eurozone.
• Euro (EUR) - The European single currency.
• European Central Bank (ECB) - The central bank created to manage monetary policy
for the Eurozone. It represents the EUR-member countries.
• Eurogroup - The group of finance ministers that represent the EUR-member countries.

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• European Financial Stability Fund (EFSF) - The temporary instrument setup and
funded by the European Union member countries to provide financial assistance to
member countries that require it. To be replaced by the permanent European Stability
Mechanism (ESM) in June 2013.
• European/American Style Option - A European option can only be exercised on the
expiry date. Compared to an American style option which can be exercised at any time
prior to expiry.
• European Union (EU) - The economic association of over a dozen European countries
which seek to create a unified, barrier-free market for products and services throughout
the continent, as well as a common currency with a unified authority over that currency.
• EUROSTOXX 50 - A stock index containing the fifty largest European companies by
weighted market capitalization.
• Eurozone - The group of countries that use the EUR.
• Exotic - A less broadly traded currency.
• Expiry Date - The last day on which the holder of an option can exercise his right to buy
or sell the underlying security.
• Fade/Fading - A trading method whereby a trader places a trade after an initial spike in
prices, usually after a data release, and tries to profit from the retracement of the initial
move.
• Fast Money - A market term for short term traders/scalpers who only hold a position for
a very short period of time.
• Federal Deposit Insurance Corporation (FDIC) - An organization that preserves and
promotes public confidence in the U.S. financial system by insuring deposits in banks
and by limiting the effect on the financial system when a bank fails.
• Federal Reserve (Fed) - The central bank of the United States of America.
• Fibonacci retracements - A form of technical analysis which uses the Fibonacci
sequence as a basis for calculating support/resistance levels.
• Fiscal Policy - Government budgetary policy, especially within taxation and borrowing.
• Flat/Square - Where a client has not traded in that currency or where an earlier deal is
reversed, thereby creating a neutral (flat) position.
• Float - A currency can have its price fully determined by market forces, known as 'free-
floating' or its price can be controlled by a government/central bank, know as a 'managed
float'.

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• FOMC - The 12-member committee from the Federal Reserve that sets US monetary
policy. It holds regular meetings at which the US interest rate is reviewed, with minutes
of the meeting released to explain the views of the committee.
• Forward - An over-the-counter (between private parties/off the exchange) contract
obligating one party to buy and another other party to sell a financial instrument, equity,
commodity or currency at a specific future date.
• FTSE/FTSE 100 - The primary UK stock exchange.
• Fundamental Analysis - Fundamental analysis focuses on key underlying economic and
political factors to determine the direction of an instrument’s value.
• G7 - A group comprised of Canada, France, Germany, Italy, Japan, UK, and USA whose
leaders meet since 1986 one or more times every year to coordinate economic and
monetary policies.
• G20 - A group comprised of the finance ministers and central bank governors of
systemically important industrialized and developing economies to discuss key issues in
the global economy.
• GBP - The Great British Pound.
• Gilt - Market term for government bonds issued by the UK government.
• Government Bond - A debt instrument issued by a government, through the Treasury or
Debt Management Office, for a period of time with the purpose of raising capital by
borrowing. a bond is a promise to repay the principal along with interest (coupons) on a
specified date.
• Gross Domestic Product (GDP) - Measures the value of goods and services produced
within a country. GDP is the most comprehensive overall measure of economic output
and provides key insight as to the driving forces of the economy.
• Haircut - In lending the haircut refers to the difference between the value of a loan and
the value of the collateral used to secure it.
• Handle - A market term for the larger denominations when quoting a financial
instruments price. For example if EUR/USD moves in price from 1.4498 to 1.4502, it has
traded with a '1.44 handle' then a '1.45 handle'.
• Hard Currency - A currency that investors have confidence in.
• Hedge - Taking an opposite position or trade to one that is already initiated in order to
reduce risk.
• Hedge Fund - A specific type of investment vehicle that explicitly pursues absolute
returns on underlying investments through various trading strategies.

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• Hawk/Hawkish - Hawkish refers to an economic outlook which generally supports

higher interest rates. Hawks take the position that higher interest rates are preferable
with specific regard to inflation.
• IFO (Information and Forschung) - An important German economic research institute
and think tank which produces economic indicators of the German economy.
• Illiquid Market - A market or currency pair which has a low volume of buy/sell orders
and prices can therefore move a disproportionally large amount.
• Inflation - The rate at which prices for goods and services rise.
• Initial Public Offering (IPO) - The first sale of stock by a formerly private company.
Following which they become publicly listed on a stock exchange.
• INR - The Indian Rupee.
• Institute of International Finance (IIF) - The global association of financial
institutions. It supports the financial industry in managing risks, developing best
practices & standards; and in advocating regulatory, financial, and economic policies.
• Interbank Market - The market in which banks/financial institutions trade with each
other. The term refers to short-term money or foreign exchange markets that are only
accessible to banks or financial institutions.
• International Monetary Fund (IMF) - An organization of 187 countries, working to
foster global monetary cooperation, secure financial stability, promote high employment
and sustainable economic growth. Has moved increasingly towards providing
monetary/fiscal policy advice and loans to countries undergoing crisis.
• Intervention - A policy tool in which a national central bank takes an active
participatory role in influencing the country’s currency exchange rate.
• ISM (Institute for Supply Management) - An American organization comprised of
supply management professionals mainly from the manufacturing sector which produces
several American economic indicators.
• JGB’s - Japanese government bonds.
• JPY - The Japanese Yen.
• Kampo - The investment arm of the Japanese postal savings organization which focuses
on overseas investments and is active in the forex markets.
• Kiwi (NZD) - The New Zealand Dollar.
• LIBOR - Short for the London Inter-Bank Offered Rate. This rate is fixed daily by the
British Bankers’ Association and is the interest rate for inter-bank lending.

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• LIFFE (London International Financial Futures Exchange) - An association

composed of the three largest future exchanges in the UK.
• Limit Order - An order to transact at a specified price or better.
• Long - The position which is in a buy direction. In forex, the primary currency when
bought is long and the other is short.
• Loonie - Market term for the CAD.
• LSE - The London Stock Exchange.
• Margin - The required initial deposit of collateral to enter into a position or foreign
exchange trade. This is held as a deposit on any running contract.
• Margin Call - A demand for additional funds to cover positions.
• Market Marker - A firm that stands ready to buy and sell a particular asset class on a
regular and continuous basis at a publicly quoted price in order to enhance liquidity, used
particularly in stocks of companies.
• Market Order - An order for immediate execution at the best available price.
• Maturity - Associated with fixed income markets, referring to the date at which
principal or redemption payments have to be repaid to the counterparty.
• Model’s - Automated trading systems which use quantitative algorithms to
buy/sell. Generally used by top end Hedge funds or large institutions.
• Monetary Policy - The actions of a central bank, currency board or other regulatory
committee that determines the size and rate of growth of the money supply, which in turn
affects interest rates.
• Month End - Fixings related to the adjustments that international portfolio managers
need to make to their currency hedges based upon the performance other asset classes
they hold positions in. These portfolio managers usually reweigh their portfolios at the
end of each month if moves were larger than anticipated.
• Moving Average - A basic form of technical analysis which displays the average price
of a security for a set period of time.
• MPC (Monetary Policy Committee) - The 9-member committee from the Bank of
England sets UK monetary policy. It holds regular meetings at which the UK interest
rate is reviewed, with minutes of the meeting released to explain the views of the
committee.
• NASDAQ - An American stock index which traditionally lists technology companies.
• Nikkei 225 - The primary Japanese index.

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• NOK - Shorthand for the Norwegian Krone, the national currency of Norway.
• Nonfarm Payrolls - An economic indicator that measures the change in the number of
employed people during the last month of all non-farming businesses. One the primary
economic indicators used for the US economy.
• NYSE - The New York Stock Exchange.
• Parity - When a currency pair trades at 1.0000 or in other words when two currencies are
worth the same.
• Peg - An exchange rate for a currency where the government has decided to link the
value to another currency or to some valuable commodity like gold.
• People’s Bank of China (PBOC) - The Chinese central bank.
• Pip/Pips - The smallest unit of price for a currency pair. For example if EUR/USD
increases in price from 1.4000 to 1.4005 it is said to have moved 5 pips.
• Profit Taking - The unwinding of a position to realise profits.
• PMI (Purchasing Manager’s Index) - An indicator of the economic health of the
manufacturing/services sector within a country.
• Put - A term related specifically to options, wherein Put refers to the right but not the
obligation to sell an underlying asset.
• Open Order - Buy or sell order that does not expire until cancelled.
• Operation Twist - A method of lowering interest rates originally used by the US Federal
Reserve in the 1960’s. In practice the Fed sells short term duration securities and buys
long term maturities in order to lower the interest rate on the 10-year note in particular
which is the benchmark for other rates such as mortgages.
• Option - A contract that grants the holder the right, but not the obligation, to buy or sell
currency at a specified exchange rate during a specified period of time.
• Quantitative Easing (QE) - A method of stimulating the economy by a central bank,
whereby it buy assets, typically government bonds, to inject extra liquidity into the
economy.
• Range - The difference between the highest and lowest price of a traded asset class
recorded during a specified period.
• Rating Agency - Independent agencies such as Moody’s, Standard & Poor’s and Fitch
which assess the credit quality and likelihood of default of an issuer of debt and produce
a rating to reflect this.
• RBA - The Reserve Bank of Australia.

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• Real Money - A market term for institutional investors, typically large asset managers
such as pension funds or money market funds.
• Recession - A general slowdown in economic activity over a sustained period of time.
Technically defined as two consecutive quarters of falling GDP.
• Repo - Shorthand for 'Repurchase Operation' which is a contract in which a seller of
securities agrees to buy them back at a specified time.
• Reserve Currency - A currency held by a central bank on a permanent basis as a store of
international liquidity; these are normally the USD, EUR and GBP.
• Resistance - Resistance is a term used in technical analysis to describe a price level
where selling momentum for the asset exceeds the buying momentum, forming a ceiling
that blocks price movements in the upward direction.
• RUB - The Russian Ruble.
• S&P 500 - A leading American stock index which lists the top 500 companies from the
NYSE and NASDAQ.
• Scalping/Scalper - A trading style of holding a position for very short period of time,
usually measured in seconds, and exiting after a small change in profitable price
direction.
• SEK - Shorthand for the Swedish Krona, the national currency of Sweden.
• Semi-Official name - Large institutional investors which sometimes invest in forex
markets at the behest of a government.
• Short - The opposite of 'Long', the position which is in a sell direction. In forex, the
primary currency when sold is short and the other is long.
• Short Covering/Short Squeeze - The purchase of an instrument to close out a short
position. To close a position, an investor purchases the same number of assets that were
sold short.
• SNB - The Swiss National Bank.
• Sovereign Rating - A measure of a country’s creditworthiness with particular focus on
the ratings given by the big three rating’s agencies, Standard & Poor’s, Moody’s and
Fitch.
• Sovereign Wealth Fund - A fund created by a country which has large foreign exchange
reserves in order to manage those reserves. For example, the China Investment
Corporation.
• Spot - The market for immediate delivery and settlement of currencies, or the current
trading price for a currency pair.

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• Spread - The difference between the bid and ask price of a currency.
• Stagflation - A negative phenomenon when a country/economy experiences low growth
levels and rising prices i.e. inflation during the same period.
• STIRS - Short-Term Interest Rate futures which are based on the various inter-bank
lending rates such as Euribor.
• Stop’s/Stop-loss - An order which closes an open position at a pre-determined level after
the market has moved against that trade. For example, if a trader was only prepared to
lose 15 pips after buying EUR/USD at 1.4530, his stop loss would be at 1.4515.
• Stop Order - An order to buy or to sell a currency when the currency's price reaches or
passes a specified level.
• Straddle - Options strategy that allows the holder to profit based on how much the price
of the underlying security moves, regardless of the direction of price movement.
• Strike Price - In options trading this is the fixed price at which the holder of the option is
entitled to buy or sell.
• Support - The opposite of resistance. A term used in technical analysis to describe a
price level where buying momentum for the asset exceeds the selling momentum,
forming a floor that blocks future price movements in the downward direction.
• 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. A swap can be a swap
against a forward. Swapping is similar to borrowing one currency and lending another for
the same period.
• Strike Price - In options trading this is the fixed price at which the holder of the option is
entitled to buy or sell.
• Support - The opposite of resistance. A term used in technical analysis to describe a
price level where buying momentum for the asset exceeds the selling momentum,
forming a floor that blocks future price movements in the downward direction.
• 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. A swap can be a swap
against a forward. Swapping is similar to borrowing one currency and lending another for
the same period.
• Swissy (CHF) The Swiss Franc.
• Systematically Important Financial Institution (SIFI) - A financial institution whose
failure may pose systemic risks to the world economy.

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• T-Bill - Shorter term government debt issued at a discount from par value instead of
having a coupon.
• Tightening - When a central bank raises interest rates or otherwise conducts monetary
policy in an attempt to reduce demand and curb inflation.
• Toshin - Japanese investment funds which focus on investing in non-domestic assets and
are active in the Forex markets.
• TSLF (Term Securities Lending Facility) - A 28-day lending facility managed by the
Federal Reserve to enhance liquidity and foster proper functioning of the financial
markets. In practice larger financial institutions can receive state guaranteed Treasury
collateral from offered collateral such as credit card debt.
• TARP (Troubled Asset Relief Program) - A program started in October 2008 whereby
the US Treasury bought illiquid assets from banks and other financial institutions, thus
allowing them to stabilize their balance sheets.
• TALF (Term Asset-Backed Securities Loan Facility) - A program created by the US
Fed to spur consumer credit lending. The program was announced on November 25th
2008, under the TALF the Fed lent USD 1trl.
• Technical Analysis - A method of evaluating securities by analyzing statistics generated
by historical market activity. Charts and other tools are used to identify patterns that can
suggest future activity.
• Trading Pit/Floor - The area of an exchange where trade is conducted in the old open
outcry manner as opposed to electronically.
• Troika - An investigative body created and comprised of officials from the EU, ECB &
IMF which periodically evaluate Euro-zone countries involved in bailouts.
• TRL - The Turkish Lira.
• Unconvertible Currency - A currency that cannot be exchanged for another because of
foreign exchange regulations.
• Uptick - Opposite of down-tick, an increase in prices.
• USD - The United States Dollar, sometimes known as the 'Greenback'.
• Vanilla - Typically used to describe the simplest type of option. Opposite of exotic.
• Volatility - A measure of the amount by which an asset price is expected to fluctuate
over a given period. Can also be implied from futures pricing, which is referred to as
implied volatility.
• Volatility Index (VIX) - An index measuring the implied volatility in the S&P 500
index, it is viewed as a leading forecasting tool for market behavior.

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• Yard - A common term for milliard, which denotes one thousand million.
• Yield - The annual rate of return on an investment expressed as a percentage. It is
calculated by dividing the coupon rate by the current price.
• Yield Curve - A graph plotting the interest rate of a given security (most commonly
government debt) for a range of different maturities.
• Yuan (CNY) - The Chinese Yuan.
• Whipsaw - Market term for a condition of a highly volatile market where a sharp price
movement is quickly followed by a sharp reversal.
• Whisper Number - Analysts’ predictions for earnings or economic indicators, which
often become known to the public despite not being formally released.
• ZEW (Centre for European Economic Research) - An important economic research
institute and think tank which produces economic indicators particularly on the German
economy but also for other European nations.

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