The A to Z of the Trading Glossary
When a company decides to take over another company, it is an acquisition. The acquiring company will purchase either the majority or entirety of the ownership stake of the company being taken over.
Abenomics refers to the policy introduced by the Japanese Prime Minister, Shinzo Abe. Abenomics includes quantitative easing, stimulus and inflation targets. Abenomics is an attempt to boost the Japanese economy after several decades of anaemic economic growth.
An interest rate swap is when a counter-party pays a vanilla floating reference rate, usually six or three month LIBOR, and receives LIBOR plus a spread. The interest payments to this counter-party will only accrue on days when interest rates stay within a specific range.
Used to describe all private and public sector demand for goods and services produced by a country. In practice, it is interchangeable with the Gross Domestic Product (GDP).
Aggregate risk is the exposure of a person has to the potential movement of forward and spot rates.
Aggregate supply accounts for the total volume of services and goods produced by a country. An increase in aggregate demand should lead to a rise in aggregate supply in the economy. If there is a mismatch between total supply and aggregate demand, prices will change in order to return the economy to equilibrium.
Algorithmic Trading (ALGO)
A trading system or strategy that relies on advanced mathematical and statistical formulas, which executes trades on high-frequency trading platforms, using automated programmed trading instructions.
Alpha is a measurement of an investment portfolio’s performance against a benchmark – usually a stock market or bond index. It’s the degree to which a portfolio has managed to ‘beat’ the benchmark over a specified period. Alpha can be negative or positive, depending on its performance against the benchmark.
American Depository Receipt (ADR)
American Depositary Receipt or ADR is an investment vehicle in which US traders or investors can buy and sell stocks of non-US companies in U.S exchanges. The performance of an ADR affected both by the company earnings reports and by changes in foreign exchange rates.
An American option gives the option to exercise it at any time before the expiration of the options contract. It is the opposite of the European option.
Amortisation is the spreading of the repayment of a loan, or the cost of a financial asset, over a specific period. This is usually a number of months or years, depending on the conditions set by the banks. Amortisation will often incur interest payments, set at the discretion of the lender.
The purchase and sale of an asset in order to make a profit from a difference in the assets price on a different exchange. It is a trade that makes profits by exploiting price differences of identical or similar financial instruments, on different markets.
A motion to sell (offer), indicating readiness to sell an asset at a given price. The ask price refers to the price at which you can buy an asset or security immediately.
An asset is an economic resource which can be purchased or controlled to return a profit, or a future gain. In trading, the term asset refers to what is being exchanged on markets, such as fx pairs, stocks, bonds, or commodities.
At the money (ATM)
At the money (ATM) is an options contract with a strike price that is identical to the exercise price. At the money options see a lot of volumes, because they are close to becoming profitable.
An auction is a competition between buyers and sellers. In an auction market, buyers indicate the maximum price that they are willing to pay for an asset, while sellers express the lowest price that they would be comfortable to sell the asset.
Auto – Correlation
The correlation of changes in a single variable over different time periods. If a price is negatively auto-correlated, a negative move down in one period would suggest a positive move up in the next, and vice versa. If it were positively auto-correlated, a negative move would suggest a negative move in the upcoming period, and vice versa.
Average Rate Option
A tool for hedging where a series of spot rate fixings during the life of an option is used to estimate an average rate. That average rate is then used as the options strike price. That option is also known as an Asian Option.
It is the slang term for the Australian dollar (AUD).
It is a futures contract that expires anytime past the current contract month (also referred to as a “far month contract”).
In trading the base currency has two main definitions: the first currency quoted in a forex pair, or the accounting currency used by banks and other businesses.
Basis (bp) is the difference between the current cash price and the futures price of the same asset – commodity. A basis point is equal to one-hundredth of one per cent, or 0.01%. The basis is affected by the costs of holding the asset versus contracting to buy it for later delivery (the futures contract). The basis is also affected by other influences as well, such as unusual situations in demand or supply. Usually, the price of the nearby futures contract month is generally used to calculate the basis.
The balance sheet is a financial statement showing a company’s liabilities, assets, and shareholders’ equity on a specified date.
Balance of Payment
A financial statement of the transactions during a specified period for a country’s economy. Can refer to either capital account or current account (which takes trade into account), or a combination. Balance of payment deficits might lead to currency weakness.
Balance of Trade
Balance of Trade calculated by subtracting the imports of the country from the exports. When imports exceed exports we have a negative balance of trade and is called a “deficit,” while a positive balance of trade is known as a “surplus.”
Bank of Canada (BOC)
The Central Bank for Canada, is responsible for the monetary policy of the country and the printing of the Canadian Dollar (CAD).
Bank of England (BOE)
The Central Bank for the UK, which is responsible for the monetary policy of the country. The central bank actions directly affect the value of the Pound Sterling (GBP).
Bank of Japan (BOJ)
The Central Bank of Japan, which is responsible for the monetary policy of the country. The Bank Of Japan actions directly weigh to the value of the Japanese currency, the Yen (JPY).
A bear market is a time period of falling asset prices.
Bears are investors or traders who believe that a market, asset or financial instrument is heading in a downward trend. Bears hold the opposite view of the bulls, who think that a market is going upwards.
In trading, the bid is the amount a counterparty is willing to pay in order to buy an asset. Opposite of Ask/Offer price
An independent individual or firm that arranges and executes transactions between a seller and a buyer, and gets commissions when the deal is completed.
A trader who expects prices to increase.
A market in which prices are rising.
Bonds are financial instruments that involve lending money to an institution for a determined period of time. They usually come in two varieties: government bonds and corporate bonds, depending on the type of institution you are lending to.
A technical analysis indicator used to measure the highness or lowness of the asset price relative to previous trades. Bollinger Bands consisting of three bands: the middle band (a simple moving average), the upper band (a specific number of standard deviations above the middle band), and the lower band (provided the number of the standard deviations below the middle band)
An agreement between 44 countries that used gold in 1944 to fix the fx exchange rates for the major currency pairs. Bretton Woods replaced in 1971 by the floating exchange rate system that remains in place until today.
Brent crude oil
Brent crude oil is one of three major oil benchmarks used by traders in oil contracts, derivatives and futures. The other two oil categories are West Texas Intermediate (WTI) and Dubai/Oman, though there are many smaller oil varieties traded around the globe as well.
Bonds issued in the United Kingdom by foreign institutions, denominated in British Pounds (GBP).
The Central bank of Germany is one of the most influential members of the European System of Central Banks (ESCB) and is responsible for the monetary policy in Germany.
Refers to the buyer of an option contract, who has the right but not the obligation, to purchase the underlying security.
Carrying Charge or Cost of Carry
In physical commodities such as metals and grains, the cost of transportation the storage space, the insurance, and some finance charges incurred by holding the physical commodity. In interest rate futures, is the differential between the yield on a cash instrument and the cost necessary to buy the instrument.
The price of the physical commodity that a futures contract is based upon.
A physical product that can be used for trading. Products traded on an authorized commodity exchange. The types of commodities include grain, pork bellies, petroleum, agricultural products, metals, foreign currencies, and financial instruments and indexes, to name a few.
A contract is a unit of trading for a financial or a commodity future. It is also a bilateral agreement between two parties (the buyer and seller) of a futures or options on futures transaction as defined in a futures exchange. A standard lot in the fx market is $100,000. A mini lot is $10,000
Refers to the GBPUSD or Sterling to US Dollar exchange rate.
A call option is a contract in which the buyer has the right but not the obligation to buy the underlying instrument at a given strike price, on (European call) or before (American call options) the expiration date.
Type of graph used in technical analysis that uses bars to indicate the trading range the high and low price of the instrument as well as the closing and opening prices for a trading period.
Capital gains are the profits made from the buying and selling of assets. They are created when investors sell assets – like stocks, commodities and forex – for more than they originally paid for them.
An investing strategy involving the sale of low-yielding currency (funding currency) in favour of a high-yielding (the carry currency) alternative, with the goal of earning a profit on the spread. The spread is referred to as the “carry”.
A governmental or quasi-governmental bank organization that is responsible for monetary policy and the exchange rate for a given country. Most central banks are also responsible for printing money.
Central Bank Intervention
When a central bank is selling or buying its own currency on the spot or futures market in order to achieve the desired exchange rate. The central bank attempts to influence the value of its currency.
The closing price of a financial instrument is the last price at which the instrument was traded on any given day. The closing price is often determined by an auction
USA largest futures exchange, which includes the Chicago Mercantile Exchange (CME), and the New York Mercantile Exchange (NYMEX).
Contract for Difference (CFD)
CFD is the agreement between the buyer and a seller to exchange the difference between the closing and the opening value of the contract.
Consumer Price Index (CPI)
CPI is the abbreviation of the consumer price index, an average of consumer goods and services that are used to give an indication of the inflation rate.
A currency basket is a group of currencies purchased together, usually by an institution or a Central Bank for the purpose of fixing a foreign exchange rate.
Is an arrangement between two parties (buyer and seller) to exchange the principal and the fixed-rate interest payments on a loan in one currency for the principal and fixed rate interest payments on an equal loan in another currency.
Stocks or financial instruments that move with the cycles of the economy, gaining if the economy booms and losing if the economy is in recession.
Failure of an issuer to make payments of principal and interest when due.
The deficit is the excess of liabilities over assets, of losses over profits, or of expenditure over income.
A drop in the price level of services and goods, whereby the inflation rate falls below zero per cent. Deflation results in an increase in the real value of money.
Daily Trading Limit
The higher price range set by an organized exchange each day for an asset or contract. A daily trading limit does not stop trading, but limits how far the price can move daily.
The more distant month(s) (Back Months) in which a futures contract is trading, as distinguished from the first (delivery) month.
The standard grades of commodities listed in the rules of the exchanges that must be met when delivering the cash commodities against the futures contracts. Grades (Contract Grades) are accompanied by a schedule of premiums and discounts allowable for delivery of commodities of lesser or higher quality than the standard called for by the exchange.
The transfer of the commodity from the seller of the futures contract to the buyer of the futures contract. The futures exchanges have specific procedures for delivery of a cash commodity. Many futures contracts, such as stock index and interest rates contracts, are cash-settled.
The month in which delivery may take place under the terms of a futures contract. Also referred to as contract month or the Front month.
The facilities and locations designated by the futures exchange where stocks of a commodity may be delivered in fulfilment of a futures contract, under the procedures established by the exchange.
A derivative’s delta measures the price movement in relation to the change in the price of the underlying asset. Delta also called as a hedge ratio, and is most often used when dealing in options.
A decline in the value of a stock, currency, or security. It is the opposite of appreciation.
Financial instrument (options, forwards, futures, swaps) whose value is derived from the underlying asset.
When a technical indicator and corresponding price chart don’t yield the same peaks/bottoms. It is usually a sign of trend “exhaustion.”
An order to sell or buy an asset that is placed for execution during only one trading day. If the order failed to execute during that day, it automatically expires at the close of the trading session.
The purchase and sale of a stock, forex pair, futures or options contract in the same day, thus ending the day without a position in the market or being flat.
Traders who buy or sell financial instruments and close their positions before the close of the trading session.
Earnings per share
Earnings per share (EPS) is calculated by dividing the total amount of profit generated in a period (quarter), by the number of shares that the company has listed on the stock exchange.
Is the use of monetary policy to expand the money supply, either by lowering interest rates or through open market operations.
EBITDA is a measure of a company’s performance without factoring in financial decisions or the tax environment. The meaning of EBITDA is ‘earnings before interest, taxes, depreciation and amortisation’.
A figure that seeks to proxy current economic growth and stability. Economic indicators fall into three categories: lagging, coincident, and leading.
Elliot Wave Theory
A theory that collective investor psychology (or crowd psychology) moves from pessimism to optimism and back again. These swings create technical patterns, as evidenced in the price movements of an instrument at every phase of the trend, over durations that range from minutes to decades.
It is a price level that represents an equilibrium between supply and demand for a foreign exchange rate.
Euro Interbank Offered Rate – EURIBOR
It is the rate at which euro interbank deposits in the eurozone are offered by one prime bank to another.
Bond in USD or other currency that is sold to investors who don’t reside in the country whose currency is used.
Type of Eurobond that pays both principal and interest in euros, whose most salient feature is that they are not regulated by the U.S. SEC.
European Central Bank (ECB)
The Central Bank for the European Monetary Union.
An exchange is an organised marketplace for commodities, stocks, securities, derivatives and other financial instruments. The terms’ exchange and market are often used interchangeably, as they both describe an environment in which listed products can be traded.
Currencies pairs that are not actively traded; used in contradiction to “major currencies.”
Exponential Moving Average (EMA)
Compared to the simple moving average (SMA), which distributes weight equally across a data series, exponential moving averages assigns a higher weight to recent prices/data.
Value of a bond to be paid at maturity. Face value also referred to as Par Value.
Federal Deposit Insurance Corporation (FDIC)
The US agency that is responsible for regulating the U.S. banks. The FDIC offers insurance up to $100,000 per banking account.
Federal Funds Rate (FFR)
The interest rate used by banks to lend balances (federal funds) at the Federal Reserve and to other depository institutions, usually overnight. The FFR is controlled by the Federal Open Market Committee (FOMC).
Federal Open Market Committee (FOMC)
A Federal Committee made up of Federal Reserve members, which meets eight times a year to discuss and implement the U.S. monetary policy.
Federal Reserve Board
The members of the Federal Reserve Board, each of whom is appointed by the President of the U.S. The chairman of the Federal Reserve Board serves a 4-year term, while the other members serve 14-year terms.
The Federal Reserve bank, or the ‘Fed’, is the central bank of the USA in charge of monetary and financial stability. It is part of the Federal Reserve System, with 12 regional central banks.
A Fibonacci retracement is a critical technical analysis tool that uses percentages and horizontal lines, drawn in price charts, to identify possible areas of support and resistance. Identifying these areas is useful to investors since it can help them decide when to buy or sell an instrument, or when to apply stops and limits to their trades.
First Notice Day
According to Chicago Board of Trade (CBOT) rules, the first day on which a notice of intent to deliver a commodity or a physical asset in fulfilment of a futures contract by the clearinghouse to a buyer. The clearinghouse also informs the seller of the futures contract who they have been matched up with.
The Money declared by a government to be legal tender, and not backed by any other commodity, such as gold.
Financial Services Authority (FSA)
The UK Agency designated by the UK Treasury to regulate the UK financial industry.
Refers to government spending, tax policy, and other government policies directed at optimizing economic performance.
Fixed Exchange Rate
The exchange rate is pegged by a Central Bank so that it cannot fluctuate against other foreign currencies. Currencies can be pegged to gold or other currencies.
Floating Exchange Rate
A floating exchange rate refers to a currency where the price is determined by supply and demand factors relative to other currencies. A floating exchange rate is different from a fixed exchange rate, which is entirely determined by the government of the currency in question.
A derivative agreement between two parties to buy or sell an asset at a specific future time for a specific price agreed now. This is different from a spot contract, which is an agreement to buy or sell a financial instrument today.
An abbreviation for foreign exchange futures, also known as currency futures or FX. Forex futures are exchange-traded contracts to sell or buy a specified amount of a currency on a future date, and at a specific price.
Forward (Cash) Contract
A forward contract in which the seller agrees to deliver a cash commodity to the buyer sometime in the near future. The forward contracts, in contrast to futures contracts, are negotiated between the buyer and the seller and are not traded in an organized exchange.
The analysis of economic indicators and current events that could affect the future direction of financial markets.
A standardized contract (traded in an exchange) between two parties to buy or sell an asset of standardized quality at a specific date in the future, at a market-determined price (the futures price). The futures contracts differ from forward contracts in that they are traded on an organized futures exchange.
Futures Commission Merchant
A firm or individual handling buy and sell orders of futures contracts, subject to rules of an organized futures exchange. The Futures Commission Merchant must be licensed by the CFTC.
A central exchange with established rules and regulations where buyers and sellers meet to trade futures and options on futures contracts.
An international forum, for governments of eight nations of the northern hemisphere: US, Japan, Germany, Canada, France, UK, Russia and Italy.
Gamma is a derivative of the delta: the relationship between a derivative’s price and the price of its underlying asset. Gamma is the change of delta in regard to the price change of the underlying asset.
GDP is the abbreviation for gross domestic product, or the total value of the services and goods produced by a country over a period. GDP is used as an indicator of the health and size of a country’s economy.
Good till Canceled (GTC)
An order active by a broker until it can be filled or until cancelled.
The exchange rate method which fixes a currency to the price of gold. Prior to 1973, the value of the USD was pegged to the gold price, and all other currencies were fixed to the U.S. Dollar.
A “major” currency that investors have confidence in, e.g. USD.
The investment process of reducing the portfolio risk via investments is called ‘hedging’. The sale or purchase of an instrument as a temporary substitute for a cash market position to be made at a future date. Usually it involves opposite positions in the spot market and futures market at the same time. A hedging strategy implemented with the goal of reducing the risk of an investment position.
A person or a company owning or planning to hold a cash commodity wheat, corn, soybeans, U.S. Treasury bills, bonds, notes, etc. and concerned that the cost of the commodity may change before buying or selling it in the cash market. A hedger seeks protection against changing cash prices by entering a futures position of the same or similar commodity and later closing that position by selling the futures contracts of the same quantity and type as the initial transaction. Hedgers trade in futures markets to protect their portfolio from adverse price changes.
High-frequency trading is a high number of trades very quickly during the day using trading robots.
Volatility in a financial asset, rate or return over a time period in the past. It is used to calculate whether the implied volatility of an option contract is expensive by historical standards.
A high level of inflation that is difficult to control, as the prices increase fast and the currency loses its real value.
The Ichimoku Cloud is an indicator in technical analysis that defines resistance and support levels, gauges momentum and provides trading signals. In Japanese, it is called the ‘Ichimoku Kinko Hyo’ which roughly means ‘one look equilibrium chart’ – because with just one quick look, investors can receive a range of information.
An asset or currency that is not traded in high volumes.
The volatility derived from options prices.
A group of financial assets that are used to give a performance indicator of a particular sector or exchange (Dow Jones, Nikkei, etc.)
A mutual fund which mirrors the returns of a market or sector index by investing directly in the financial instruments that participate in the index.
An increase in the price level of services and goods, which leads to a decrease in the purchasing power of real money.
The minimum amount of cash in a trading account to establish new options or futures position. The initial margin account levels depend on the contract. Decreases or Increases in Initial Margin levels reflect anticipated changes in market volatility.
A Market where only large financial institutions can participate.
The Cost of borrowing money, the amount charged by a lender for the use of assets expressed as a rate (%) per a specific period of time.
International Organisation for Standardization (ISO)
An international organization that promotes worldwide proprietary, industrial, and commercial standards.
International Monetary Fund (IMF)
An international organization in Washington consisting of 189 member countries working to ensure international financial cooperation, and global financial stability.
Initial public offering or IPO is the procedure when a company goes public on a stock exchange.
Is a trader that aims to achieve small and consistent, short-term (intra-day) profits.
A bond with an assigned credit rating of “BB” by S&P or “Ba” by Moody’s or lower is a junk bond or high yield bond. Junk bonds offer investors and traders higher yields than bonds of financially sound companies. Two agencies, Standard & Poors and Moody’s Investor Services, provide the rating systems for the companies’ credit.
The ratio of the price change in the price of an option to a one per cent change in the expected price volatility.
The act of pegging one currency to another, usually undertaken by a small country towards that of a significant trading partner.
Slang term for the dollar of New Zealand Dollar (NZD).
Last Trading Day
The final day when trading can occur in a futures or options contract. Futures contracts outstanding at previous trading day must be settled by delivery of the underlying commodity or securities or by agreement for a cash settlement.
The ability to borrow money to enter a trading position with large dollar amounts of an asset with a comparatively small amount of own capital.
A claim on a company’s assets. In forex trading, the obligation to deliver to a counter-party an amount of currency at a specified future date, in connection to a forward or cash transaction.
When there are plenty of contracts or units of a particular forex pair being bought and sold every day. Institutional investors usually look for liquid investments so that their trading activity will not influence the market trend.
The transaction that closes out a short or long options or futures position.
When a trader has bought a futures contract to establish a market position; (2) a market position that obligates the holder to take delivery; (3) one who owns an inventory of commodities.
The purchase of a futures contract in contrast to an open position in the cash market. Used by producers or exporters as hedging against an advance in the cash market price.
London Interbank Offered Rate (LIBOR)
Daily reference interest rate based on the interest rates at which the banks borrow unsecured funds from other banks in the London interbank market.
Slang term for the Canadian Dollar (CAD).
Standardized quantity in fx, composed of 100,000 units of a particular forex pair.
M2 is an accounting measure of the money supply, referring to a particular portion of the money contained in a specific economy.
An investment strategy taking consideration of the macroeconomic situation.
The minimum margin amount of cash that a trader must keep in the account in order to continue to hold an open position. The Maintenance Margin is usually less than the Initial Margin, and also differs by contract. If an account drops below the Maintenance Margin requirement, we have a margin call.
Is an asset class comprised of professional portfolio managers known as commodity trading advisors (CTA’s) who manage client assets on a discretionary basis, using the futures markets as an investment vehicle.
Oral or written notification from a clearinghouse to a clearing member, or from a brokerage firm to a client, to bring the margin amount up to a minimum level required to support the open positions. This can be done by depositing more cash or offsetting some or all of the derivatives positions held.
A market maker is an institution or individual that sells and buys a financial instrument in order to provide liquidity. Refers to any trader-dealer who provides a two-way quote with a bid and ask price in which they stand ready to buy or sell.
A daily accounting entry in the regulated futures bookkeeping. It’s the adjustment made after the settlements to trading accounts to account for profits and losses on open positions. Gains are credited and immediately available to the account and losses are debited and directly owed. This brings integrity to the futures marketplace because participants are not allowed to trade unless funds are available to cover the positions.
Market Order (MKT)
An order to sell or buy an asset, including quantity and delivery month at the offer or the bid price, immediately.
The kind of price order that becomes a market order if the price is reached.
Market on Close (MOC)
A kind of order to sell or buy at the end of the trading session at a price within the closing range of prices.
Date (or the number of years) on which the payment of a financial obligation is due.
Theory and technical phenomenon whereby prices eventually move close to their long-term average
Refers to a central bank monetary policy moving to increase the money supply, usually by lowering interest rates or buying bonds and other assets on the open market.
The tools and decisions by a central bank, that can be used to influence the money supply, and affect the economic growth and inflation of a country.
Monetary Policy Committee (MPC)
A Bank of England subcommittee that meets every month and decides the official interest rate in the UK.
The amount of money in an economy at a specific point in time. There are different types of money and are classified as M’s. The M1 consists of all cash in circulation, plus all of the money held in checking accounts, as well as all the money in travellers’ checks. The M2 consists of M1 plus all of the money held in money market funds, savings accounts, and small-time deposits. The M3 equals M2 plus the large time deposits, the institutional money-market funds, short-term repurchase agreements, along with other liquid assets.
Moving Average (MA)
A statistical method commonly used with time-series data to smooth out short-term fluctuations and highlight longer-term trends or cycles.
Moving Average Convergence/Divergence (MACD)
A technical analysis indicator that shows the difference between a fast and slow exponential moving average of the closing prices of an asset.
Net Asset Value (NAV)
In a trading account, equal to the balance of deposits, realized and unrealized profit or loss, and interest, minus withdrawals.
New York Stock Exchange (NYSE)
New York Stock Exchange, the well known as the Exchange or the Big Board. Over 2,500 common and preferred stocks are traded in NYSE. The exchange is the older in the USA, founded in 1792, and the largest. It is located on Wall Street in New York City
The index of the 225 largest stocks by capitalization traded on the Tokyo Stock Exchange.
Non-Farm Payrolls (NFP)
An economic indicator that measures the change in the number of employed people during the last month of all non-farming businesses.
Offer or ask indicates a willingness to sell a financial instrument at a given price.
Taking the opposite futures or options position to the initial position. This means buying, if one has sold or selling if one has purchased, a futures or option on a futures contract.
An order to buy or sell in an exchange that is active until it is cancelled or executed.
Method of a public auction for making verbal bids and offers in the trading pits or rings of futures exchanges.
OPEC is the Organisation of the Petroleum Exporting Countries. It was founded in 1960 by Saudi Arabia, Venezuela, Iraq, Iran and Kuwait. The other countries that have joined OPEC since are Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea and the Republic of the Congo – bringing OPEC’s membership to 14, as of January 2019.
Or Better Order (OB)
A type of order in which the price is at or better than the price specified. The term is used to help clarify that the order was not mistakenly given as a Limit when it looks like it should be a Stop Order.
Refers to financing activities or capital funding activities that do not appear on a company’s balance sheet. That investment can be in derivatives contracts and investments in certain types of partnerships.
Official Settlement Account
It is the US balance of payments section that sums the movement of US dollars in oversees holdings and US reserves.
Open Market Operations
The tools of implementing monetary policy by which a central bank controls its money supply by buying and selling Treasury’s, bonds, or other financial instruments.
An option is a financial derivative instrument that offers the right, but not the obligation, to buy or sell an asset when its price moves beyond a specific price with a set time period.
Options contracts, usually classified into calls and puts for a given underlying asset.
A technical analysis tool that varies over time within a band (above and below an average line, or between set levels), used to define short-term overbought or oversold conditions.
OTC stands for over-the-counter, and refers to a trade that is not made on an organized exchange. Also referred to as off-exchange trading.
The situation whereby an option’s value in the market is the same as its intrinsic value.
P/E ratio definition
The price-to-earnings ratio, or P/E ratio, is a method of measuring a company’s value. Price to earnings ratio (P/E) is calculated by dividing the company’s market value per share by the earnings per share (EPS) in a specific period.
Performance Bond (Margin)
Funds that must be deposited in a trading account as a performance bond by a client with the broker, by a broker with a clearing member, or by a clearing member, with the Clearing House. The performance bond (Margin) helps to ensure the financial integrity of brokers, clearing members and the Exchange.
A pip is a minimum movement in forex trading, defined as the smallest move that a forex pair can make.
A unique arena on the trading floor of exchanges where trading in futures contracts and commodities is conducted. In some cases the term “ring” designates the trading area for a commodity in an exchange floor.
A market commitment. A seller of a futures contract is said to have a short position. The trader who buys a futures contract is said to have a long position.
The analysis of data and information about “future” cash market prices through the futures markets. Many analysts believe that futures markets are often the place of “original price discovery” because that’s where the sellers and buyers are brought together to determine the price. The last price in an auction is considered to reflect the sum total of opinions about what price an item should be valued.
Price Limit Order
An order that specifies the highest price a buyer will pay for a contract, or the lowest price a seller will sell a futures contract. This order is used to “limit” how much the investor is willing to “give in” on the price to get the order filled.
Type of exchange rate regime where the value of a currency is fixed to another currency or basket of currencies.
People’s Bank Of China (PBOC)
The central bank of China, whose actions directly influences the value of the Chinese Renminbi (CNY) and is responsible for the interest rates in China.
Purchasing Power Parity
A Model of exchange rate determination based on the law of one price, which states that the price of a service or good in one country should equal the price of the same service or good in another country.
The development and application of statistic and mathematical models towards trading and investing.
Describes a monetary policy used to boost the economy where interest rates are either at, or close to, zero. A central bank purchases financial assets from financial institutions using money it has created out of nothing. It saw an increase in use after the 2008 financial crash.
Indicator of financial strength (or weakness) of a company. Calculated by taking current assets minus inventories, divided by current liabilities. This ratio provides information regarding the firm’s liquidity and ability to meet its obligations. Also called the Acid Test Ratio.
The currency listed second in a currency pairing.
Refers to a rise in asset prices. A rally is a period in which the price of an asset, market or index sees sustained upward momentum. Typically, the rally will arrive after a period in which prices have been flat or in decline.
The difference between the two countries’ interest rates, often used as a basis for forecasting exchange rates.
Rate of Return
The percentage of gains or losses on an investment relative to the amount of money invested.
A slowdown in economic activity over a specific period of time, or a business cycle contraction. Usually defined as two consecutive quarters of falling GDP.
Any market or exchange monitored by a government agency with the goal of protecting investors.
Relative Strength Index (RSI)
A technical analysis momentum oscillator measuring the velocity and magnitude of directional price movement by comparing upward and downward close-to-close change.
Reserve Bank Of Australia (RBA)
Central Bank for Australia, responsible for the interest rates and the Australian Dollar (AUD).
Reserve Bank Of New Zealand (RBNZ)
The central bank for New Zealand, responsible for the monetary policy, whose activities directly affect the value of the New Zealand dollar (NZD)
A currency that is perceived as reliable, such that Central Banks are willing to hold it in mass quantities. The US Dollar (USD) is currently the world’s foremost reserve currency.
Resistance level definition
A resistance level is a point on a price chart at which an upward price trajectory is impeded by an overwhelming inclination to sell the asset. If the market price is nearing a resistance level, a trader may opt to close their position and take the profit, rather than risk the price falling back.
Retail Prices Index (RPI)
An index that measures inflation based upon the price of a selection of common family goods.
Daily calculation of unrealized profit & loss based on the difference between the last closing price and the current opening price. Also it might refer to a change in a country’s exchange rate as a result of central bank intervention or other official intervention.
Refers to the use of financial assets and instruments to manage a portfolio’s exposure to risk, particularly market risk and credit risk.
The closing of an open position for today’s value date and the opening of the same position for the next day’s value date at a price reflecting the interest rate differential between the two currencies.
RSI stands for the relative strength index. It is an indicator used in technical analysis, assessing the momentum of assets to gauge whether they are in overbought or oversold territory.
Running a Position
Slang term for Open Position.
The strategy to trade for small intraday gains. Scalping involves establishing and liquidating a position quickly, usually intra-day, an hour or even just a few minutes.
The last price paid or the closing price for a commodity on any trading day. The clearing house determines a firm’s net gains or losses, the margin requirements, and the next day’s price limits, based on the options and futures contract settlement price. Also referred to as Closing Price. Thin liquidity traded options contracts may be exchanged at the theoretical value.
The sell-side of an open futures contract; a trader whose net position in the futures market shows an excess of open sales over open purchases.
One who speculates on price changes, through buying and selling futures contracts, in order to make profits. The speculator does not use the futures market in connection with the production, hedging, processing, or handling of a product.
The market for immediate delivery of and payment for the product.
The simultaneous selling and buying of two related markets in the expectation that a profit will be made when the position is closed.
Stop Order, can be used to initiate a new position as well as close an existing position. It’s an order to sell or buy when the market reaches a specified price. A stop order to purchase becomes a market order when the asset trades at the stop price or above the stop price. The stop order to sell becomes a market order (MO) when the asset trades at or below the stop price.
The US Securities and Exchange Commission. It is a Fed agency set up to regulate markets and protect investors in the United States, as well as overseeing any mergers and acquisitions.
Ask or offer rate.
The act of selling a forex pair such that one is short the base currency and long the quote currency, with the target of profiting from depreciation.
An open position in forex that aims to capture gains from currency depreciation.
Simple Moving Average (SMA)
Technical analysis indicator commonly used with time-series data to smooth out the short-term fluctuations and indicates longer-term trends or cycles, that gives equal weight to all price data points.
When the fill price is different from the expected fill price, as a result of a fast-moving market or broker error.
Society for World-Wide Interbank (SWIFT)
The Global electronic network for forex settlement, known for a code uniquely identifies financial institutions for the purpose of transfers and settlements.
The risk that a country will either default on its obligations or will impose regulations restricting the ability of issuers in that country to meet its obligations, such as foreign currency restrictions.
Financial action that does not promise the safety of the initial investment along with the return on the principal sum.
The act of selling or buying an asset-based on current (spot) prices, with settlement taking place two days later.
It is the difference between the bid and ask price for a given forex currency pair. Also known as the Bid-Ask Spread.
The period of economic recession combined with high price inflation.
The official term for the British Pound (GBP).
Technical analysis indicator designed to compare the settlement price of a currency to its price range over a given time period.
The price which a stop order is executed. When buying, the stop price acts as a minimum price you will pay if an investment is made. For selling, the stop price serves as the maximum price you will receive if a holding is sold.
Type of a derivative instrument in which two parties agree to exchange one stream of cash flows against another.
Swiss National Bank (SNB)
The Central Bank of Switzerland, whose action directly affecting the exchange rate of the Swiss Franc (CHF).
Slang term for the Swiss Franc (CHF).
Also known as undiversifiable risk is the risk that is caused by factors beyond the control of an individual or specific company and affects the economy.
The smallest price movement possible in trading of a forex pair.
Take Profit Order (T/P)
An order that closes your trade once it reaches a certain level of profit.
A broad approach to forecasting the future direction of prices in financial markets through the study of past price and volume market data. Technical Analysis employs forecasting models and trading rules based on price and volume moves.
The highest grade that a bank can achieve for its financial strength, according to The Bank of International Settlements (BIS).
TOKYO INTER-BANK OFFERED RATE (TIBOR)
The reference rate based on the interest rates at which banks offer to lend funds to other banks in the Japan interbank market.
Are the debt obligations of the USA. These are the bills (short-term), notes (medium-term), and bonds (long-term). Treasuries used as the risk-free benchmark for the pricing of US dollar-dominated securities.
When a market or an asset is making a sustained move downwards or upwards, it is referred to as trend. Identifying the end and beginning of a trend pattern is a crucial part of price analysis. Trends can apply to individual assets, sectors, or even interest rates and bond yields.
The asset or currency on which a covered warrant, futures contract or option is based and derives its value.
When a currency is trading below the purchasing power parity or below its fair value.
A crucial economic indicator calculated as the percentage of those in the labour force who are unemployed.
US Dollar Index (USDX)
The measure of the value of the USD, weighted according to the currencies of its six major trading partners. The currencies are: Euro, Swiss Franc, Japanese Yen, Swedish Krona, British pound, and Canadian dollar.
US Prime Rate
The interest rate at which the U.S. banks will loan money to the most creditworthy borrowers.
Department within the United States administration that is responsible for printing the money and issuing government obligations.
The process of estimating the real value of an asset or currency.
Value at Risk (VaR)
A market’s volatility is its likelihood of making significant, unforeseen short-term price movements at any given time.
Vanilla refers to a relatively simple financial instrument (option or other derivatives), with standard features and no unique or unusual characteristics. The opposite is the most complex Exotic Option.
The money required to bring the margin ratio back to the minimum necessary level, calculated daily.
It is the Chicago Board Options Exchange Volatility Index, a measure of the implied volatility of S&P 500 index options. A high value suggests a more volatile market and therefore more expensive options.
A statistical measure of the amount of movement in the price of an asset or currency. Often used as a proxy for risk. Higher volatility, implies a riskier the asset.
An option contract that a company offers, with its own shares as the underlying asset. The crucial implication is that the exercise of the option changes the number of claims against the corporation’s assets.
WTI stands for West Texas Intermediate (Texas Light Sweet), a crude oil benchmark that is central to commodities trading. It is one of the three major oil benchmarks used in trading, the others being Brent crude and Dubai/Oman crude.
Yield is the gains earned from an investment, in the form of interest or dividend payments. Yield is one of the two ways in which investments can make investors money, with the other being the eventual closing of a position for profit.
A bond that pays no coupon, just par at maturity.
The market value of an option contract, less its model value, using the ATM implied volatility for the same expiration.