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Aggregate (Risk)Total exposure a bank has with a customer for both spot and forward contracts.
Aggregate DemandTotal demand for goods and services in the economy. Aggregate demand includes private and public sector demand for goods and services within the country, and the demand of consumers and firms in other countries for goods and services.
Aggregate SupplyTotal supply of goods and services in the economy (including imports) available to meet aggregate demand.
AgioDifference in the value between currencies. Also used to describe percentage charges for conversion from paper money into cash, or from a weak into a strong currency.
American OptionAn option which may be exercised on any valid business date throughout the life of the option. A European option can only be exercised on a specific date.
AppreciationDescribes a currency strengthening in response to market demand as opposed to increasing in value as a result of official action.
ArbitrageA risk-free type of trading where the same instrument is bought and sold simultaneously in two different markets in order to cash in on the difference between the markets.
AroundUsed in quoting forward premium/discount.
Ask PriceThe price at which the currency or instrument is offered. Ask is the lowest price acceptable to the buyer.
AssetThe right to receive from a counterparty an amount of currency either in regards to a balance sheet asset (e.g. a loan), or at a specified future date in regards to an unmatched Forward or spot deal.
Association Cambiste InternationalThe international society of foreign exchange dealers consisting of national “Forex clubs” affiliated on a worldwide basis.
At BestAn instruction given to a dealer to buy or sell at the best rate that is currently available in the market.
At or BetterAn order to deal at a specific rate or better.
At Par Forward SpreadWhen the forward price is equivalent to the spot price.
At the Price Stop-Loss OrderA stop-loss order that must be executed at the requested level regardless of market conditions.
At-the-MoneyAn option whose strike/exercise price is equal to or near the current market price of the underlying instrument.
Auction Sale of an item to the highest bidder. (1) A method commonly used in exchange control regimes for the allocation of foreign exchange. (2) A method for allocating government paper, such as US Treasury Bills. Small investors are given preferential access to the bills. The average issuing price is then computed on the basis of the competitive bids accepted. In some circumstances, such as government auctions, it is the yield rather than the price which is bid.
Average Rate OptionA 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.


Back OfficeSettlement and related processes.
Back to Back(1) Transaction where all the obligations and liabilities in one transaction are mirrored in a second transaction. (2) Transaction where a loan is made in one currency in one country against a loan in another country in another currency.
Balance of PaymentsA systematic record of the economic transactions during a given period for a country. (1) The term is often used to mean either: (i) balance of payments on current account; or (ii) the current account plus certain long term capital movements. (2) The combination of the trade balance, current balance, capital account and invisible balance, which together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital transfers, and or decline in currency values.
Balance of TradeThe value of exports less imports. Invisibles are normally excluded, which is why balance of trade is also referred to as mercantile or physical trade. Figures can be quoted as FoB/FaS , customs cleared, or FoB export.
BandThe range in which a currency is permitted to move. A system used in the ERM.
Bank LineLine of credit granted by a bank to a customer, also known as a “line”.
Bank NotesBank notes are paper issued by the central or issuing bank. They are legal tender, but are not usually considered to be part of the FX market. However bank notes can be converted, in some counties, into FX. Bank notes are normally priced at a premium to the current spot rate for a currency.
Bank RateThe rate at which a central bank is prepared to lend money to its domestic banking system.
Banking DaySee trading day and value date.
Barrier OptionA family of path dependent options whose pay-off pattern and survival to the expiration date depend not only on the final price of the underlying currency, but also on whether or not the underlying currency breaks a predetermined price level at any time during the life of the option. See Down and Out call/put, Down and in call/put, Up and out call/put, Up and in call/put.
Base CurrencyThe currency in which the operating results of the bank or institution are reported.
Base RateA term used in the UK for the rate used by banks to calculate the interest rate to borrowers. Top quality borrowers will pay a small amount over base.
BasisThe difference between the cash price and futures price.
Basis ConvergenceThe process whereby the basis tends towards zero as the contract expiry approaches.
Basis PointOne per cent of one per cent.
Basis PriceThe price expressed in terns of yield maturity or annual rate of return.
Basis TradingTaking opposite positions in the cash and futures market with the intention of profiting from favorable movements in the basis.
BasketA group of currencies normally used to manage the exchange rate of another currency, sometimes referred to as a unit of account.
BearA person (investor) who believes that prices will decline.
Bear MarketA market in which prices decline sharply against a background of widespread pessimism (opposite of Bull Market).
Bear Put SpreadA spread designed to exploit falling exchange rates by purchasing a put option with a high exercise price and selling one with a low exercise price.
Bid PriceThe price at which a buyer has offered to purchase the currency or instrument. Bid is the highest price that the buyer is offering for the particular currency at the moment; the difference between the ask price and the bid price is the spread. Together, the two prices constitute a quotation. The bid-ask spread is stated as a percentage cost of transacting in the foreign.
Big FigureRefers normally to the first three digits of an exchange rate that dealers treat as understood in quoting. For example, a quote of “30/40” on dollar mark could indicate a price of 1.5530/40BIS: Bank of International Settlement.
Bilateral ClearingA system used where foreign currency is limited. In such a system, payments are usually routed through the central banks, and sometimes require that the trade balance is equaled every year.
Binary OptionsA binary call (or step up) is like a standard European call option except that the pay off at expiry is fixed at one unit of the counter currency when the call expires in the money.
Black-Scholes ModelAn option pricing formula initially derived by Fisher Black and Myron Scholes for securities options and later refined by Black for options on futures. It is widely used in the currency markets.
BookedThe recording of a transaction outside the country where the transaction is itself negotiated.
BorisSlang for Russian trading.
Break Even PointThe price of a financial instrument at which the option buyer recovers the premium, meaning that either a loss or gain is made. In the case of a call option, the break even point is the exercise price plus the premium.
Break OutIn the options market, undoing a conversion or a reversal to restore the option buyer’s original position.
Bretton-WoodsThe site of the 1944 conference which led to the establishment of the post war foreign exchange system that remained intact until the early 1970s. The conference also resulted in the formation of the IMF. The fixed exchange rate system established at Bretton-Woods allowed 1% fluctuations of a given currency to gold or the dollar.
Broken Dates or PeriodDeals that are undertaken for value dates that are not standard periods e.g. 1 month. The standard periods are 1 week, 2 weeks, 1, 2, 3, 6 and 12 months. Terms also used are odd dates, or cock dates, broken dates or broken period.
BrokerAn agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market, brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries, affiliates and partners in many countries.
BrokerageCommission charged by a broker.
Broker-DealerSee Dealer.
BUBABundesbank, the central bank of Germany.
BullA person (investor) who believes that prices will rise.
Bull (call or put) SpreadAn option position composed of both long and short options of the same type, either calls or puts, designed to be profitable in a declining market. An option with a lower strike price is bought and one with a higher strike price is sold.
Bull MarketA market characterized by rising prices.
BulldogsSterling bonds issued in the UK by foreign institutions.
BullionA term for gold bars, not coin.
BundesbankCentral bank of Germany.
Butterfly Spread(1) A futures butterfly spread is a spread trade in which multiple futures months are traded simultaneously at a differential. The trade basically consists of two futures spread transactions with either three or four different futures months at one differential. (2) An options butterfly spread is a combination of a bear and bull spread trade in which multiple options months and strike prices are traded simultaneously at a differential. The trade basically consists of two options spread transactions with either three or four different options months and strikes at one differential.
Buyer/TakerThe purchaser of an option, whether a call or put option. The buyer may also be referred to as the option holder. Option buyers receive the right, but not the obligation, to enter a futures/securities market position.
Buying RateRate at which the market and a market maker in particular are willing to buy the currency. Sometimes called bid rate.
Buying The SpreadTo buy the nearby contract and simultaneously sell the deferred contract. Also referred to as a bull spread.


CableA term used in the foreign exchange market for the US Dollar/British Pound rate.
Cable TransferTelegraphic transfer of funds from one centre to another. Now synonymous with interbank electronic fund transfer.
Calendar SpreadAn option position comprising the purchase and sale of two option contracts of the same type with different expiration dates at the same exercise price.
CallAn option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period.
Call OptionA call option confers the right but not the obligation to buy stock, shares or futures at a specified price.
CambisteFrench term for foreign exchange dealer.
Capital AccountJuxtaposition of the long and short term capital imports and exports of a country.
CarryThe interest cost of financing securities or other financial instruments held.
Carry-Over ChargeA finance charge associated with the storing of commodities (or foreign exchange contracts) from one delivery date to another.
CashNormally refers to an exchange transaction contracted for settlement on the day the deal is struck. This term is mainly used in the North American markets and those countries that rely on these markets for foreign exchange services because of time zone preferences i.e. Latin America. In Europe and Asia, cash transactions are often referred to as value same day deals.
Cash and CarryThe buying of an asset today and selling of a future contract on the asset. A reverse cash and carry is possible by selling an asset and buying a future.
Cash DeliverySame day settlement.
Cash SettlementA procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.
CBOEChicago Board Options Exchange.
CBOT or CBTChicago Board of Trade.
CDCertificate of Deposit.
Central BankA central bank provides financial and banking services for a country’s government and commercial banks. It implements the government’s monetary policy as well by changing interest rates. It is normally the issuing bank and controls bank licensing, and any foreign exchange control regime.
Central RateExchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.
Certificate of Deposit (CD)A negotiable certificate in bearer form issued by a commercial bank as evidence of a deposit with that bank which states the maturity value, maturity rate and interest rate payable. CDs vary in size with maturities ranging from a few weeks to several years. CDs may normally be redeemed before maturity only by sale on the secondary market, but may also be redeemed back to issuing bank through payment of a penalty.
CFTCThe Commodity Futures Trading Commission, the US Federal regulatory agency for futures traded on commodity markets, including financial futures.
CHAPSClearing House Automated Payment System.
ChartistAn individual who studies graphs and charts of historic data to find trends and predict trend reversals. These include the observance of certain patterns and characteristics of the charts to derive resistance levels, head and shoulders patterns, and double bottom or double top patterns which are thought to indicate trend reversals.
CHIPSThe New York clearing house clearing system. (Clearing House Interbank Payment System). Most euro transactions are cleared and settled through this system.
CIBORCopenhagen Interbank Rate, the rate at which the banks lend the Danish Krone on an unsecured basis. The rate is calculated daily by the Denmarks Nationalbank (the Danish Central Bank), based on rules set out by the Danish Banker’s Association.
ClearingThe process of setting a number of items against one another and making fund transfers only on the net balance as part of the settlement process.
Closed PositionA transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.
Closing Purchase TransactionThe purchase of an option identical to one already sold to liquidate a position.
CMEChicago Mercantile Exchange Cock Dates (see broken dates).
Coincident IndicatorAn economic indicator that generally moves in line with the general business cycle such as industrial production.
ComexCommodity Exchange of New York.
CommissionThe fee that a broker may charge clients for dealing on their behalf.
Compound OptionAn option on an option, the dates and price of such option being fixed.
ComptantFrench term for spot settlement in foreign exchange.
ConfirmationA memorandum to the other party describing all the relevant details of the transaction.
Consumer Price IndexMonthly measure of the change in the prices of a defined basket of consumer goods including food, clothing, and transport. Countries vary in their approach to rents and mortgages. Rising CPI is normally associated with expectations of higher short term interest rates and may therefore be supportive for a currency in the short term. Nevertheless, a longer term inflation problem will eventually undermine confidence in the currency and weakness will follow.
ContractAn agreement to buy or sell a specified amount of a particular currency or option during a specified month in the future (See Futures contract).
Contract Expiration DateThe date on which a currency must be delivered to fulfill the terms of the contract. For options, the last day on which the option holder can exercise his right to buy or sell the underlying instrument or currency.
Contract MonthThe month in which a futures contract matures or becomes deliverable if not liquidated or traded out before the date specified.
Correspondent BankThe bank that regularly performs services on behalf of a foreign bank that has no branch in the relevant centre, e.g. to facilitate the transfer of funds. In the US, this often occurs domestically due to interstate banking restrictions.
Cost of CarryThe interest rate parity, where the forward price is determined by the cost of borrowing money in order to hold the position.
Cost of Living IndexBroadly equivalent to Retail Price Index or Consumer price.
Counter ValueWhere a person buys a currency against the dollar, it is the dollar value of the transaction.
CounterpartyThe other side to a deal (customer, or bank) with which a foreign exchange deal is executed.
Counterparty RisksForeign Currency Inter-bank Exchange (FOREX) instruments are Positions (Buy and/or Sell) between the Client and its Counterparty and, unlike exchange-traded foreign exchange instruments which are, in effect, guaranteed by a clearing organization affiliated with the exchange on which the instruments are traded, are not guaranteed by a clearing organization. Thus, when the Customer purchases an OTC foreign exchange instrument, it relies on the Counterparty from which it has purchased the instrument to fulfill the contract. Failure of a Counterparty to fulfill a Position could result in losses of any prior payment made pursuant to the Positions, as well as the loss of the expected benefit of the transaction.
Country RiskFactors that affect currency trading unique to the specific country including political, regulatory, legal and holiday risks.
Coupon(1) On bearer stocks, the detachable part of the hide behind nominee status. Certificate exchangeable for dividends. (2) Denotes the rate of interest on a fixed interest security.
Coupon ValueThe annual rate of interest of a bond.
Cours du Change(French) Exchange rate.
Cours Libre(French) Free exchange rate.
Cours Officiel(French) Official exchange rate.
CourtFrench for “short” as in une position courte.
Courtier(French) Broker.
Cover(1) To take out a forward foreign exchange contract. (2) To close out a short position by buying currency or securities which have been sold.
Covered CallA term used in the foreign exchange market for the US Dollar/British Pound rate.
Covered Call WriteA strategy of writing call options against a long position in the underlying asset. A covered put write being based on a short position in the asset.
Covered Interest Rate ArbitrageAn arbitrage approach which consists of borrowing currency A, exchanging it for currency B, investing currency B for the duration of the loan, and, after taking off the forward cover on maturity, showing a profit on the entire set of deals. It is based on the theorem of interest rate parity (one of the key theoretical economic relationships), which says that the return on a hedged foreign investment will just equal the domestic interest rate on investments of identical risk. When the covered interest rate differential between the two money markets is zero, there is no arbitrage incentive to move funds from one market to another.
Covered MarginThe interest rate margin between two instruments denominated in different currencies after taking into account of the cost of forward cover.
CPIConsumer Price Index. Monthly measure of the change in the prices of a defined basket of consumer goods including food, clothing, and transport. Countries vary in their approach to rents and mortgages.
CPSSCommittee on Payment and Settlement Systems.
Crawling Peg (Adjustable Peg)An exchange rate system where a country’s exchange rate is “pegged” (i.e. fixed) in relation to another currency. The official rate may be changed from time to time.
Credit LombardSee Lombard rate.
Credit RiskThe risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised for delivery.
Cross DealA foreign exchange deal entered into involving two currencies, neither of which is the base currency.
Cross HedgeA technique using financial futures to hedge different but related cash instruments based on the view that the price movements between the instruments move in concert.
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.
Crossed MarketThe situation which exists when a broker’s bid is higher than the lowest offer of another broker
Cross-TradeA cross-trade transaction is a transaction in which either the buy-broker and the sell-broker are the same, or the buy-broker and the sell-broker belong to the same firm.
CurrencyThe 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.
Currency BasketVarious weightings of other currencies grouped together in relation to a basket currency (e.g. ECU or SDR). Sometimes used by currencies to fix their rate, often on a trade weighted basket.
Currency SwapsSee swaps.
Current AccountThe net balance of a country’s international payments arising from exports and imports together with unilateral transfers such as aid and migrant remittances. It excludes capital flows.
Current BalanceThe value of all exports (goods plus services), less all imports of a country over a specific period of time, equal to the sum of trade and invisible balances plus net receipts of interest, profits and dividends from abroad.
CycleThe set of expiration dates applicable to different classes of options.


Day OrderAn order that if not executed on the specific day, is automatically cancelled.
Day TraderSpeculators who take positions that are liquidated prior to the close of the same trading day.
Day TradingA Day-Trading deal is a currency exchange deal which renews automatically every night at 22:00 (GMT time) starting the day the deal was made and until it ends. The deal ends in one of the following events: 1. Termination initiated by the trader. 2. The day trading rate has reached the Stop-Loss rate (or Take-Profit rate) you predefined. 3. The deal end date. As long as the deal is open, it is charged a renewal fee every night at 22:00 (GMT time).
Daylight Exposure LimitSee intra-day position.
Deal DateThe date on which a transaction is agreed upon.
Deal TicketThe primary method of recording the basic information relating to a transaction.
DealerAn individual or firm acting as a principal, rather than as an agent, in the purchase and/or sale of securities. Dealers trade for their own account and risk, in contrast to brokers, who do trade only on behalf of their clients.
Dealing BoardThe panel of communications equipment forming part of a dealer’s desk.
Declaration DateThe latest day or time by which the buyer of an option must intimate to the seller his willingness or unwillingness to exercise the option.
DeficitShortfall in the balance of trade, balance of payments, or government budgets.
DeflatorDifference between real and nominal Gross National Product, which is equivalent to the overall inflation rate.
DeliveryThe settlement of a transaction by receipt, or tender of a financial instrument or currency.
Delivery DateThe date of maturity of the contract, when the final settlement of transaction is made by exchanging the currencies. This date is more commonly known as the value date.
Delivery MonthThe calendar month in which a futures contract comes to maturity and becomes deliverable.
Delivery PointsThose locations designated by futures exchanges at which the currency represented by a futures contract may be delivered in fulfillment of the contract.
Delivery RiskA term to describe when counterparty is not able to complete his side of the deal. This risk is very high in the case of over the counter transactions where there is no exchange which can stand as a guarantee to the trade between the two parties to the contract.
DeltaThe change in the value of the option premium made fully paid by the capitalization of reserves, and given relative to the instantaneous change in the value of the underlying instrument, expressed as a coefficient.
Delta HedgingA method used by option writers to hedge the risk exposure of written options by purchase or sale of the underlying instrument in proportion to the delta.
Delta SpreadA ratio spread of options established as a neutral position by using the deltas of the options concerned to determine the hedge ratio.
Deport(French) Discount.
Deposit DealingsMoney Market operations.
DepreciationDescribes a currency weakening in response to market demand as opposed to increasing in value as a result of official action.
DerivativesA broad term relating to risk management instruments such as futures, options, swaps, etc.. The contract value moves in relation to the underlying instrument or currency. The issue of derivatives and their control following large losses by banks and corporations has been the subject of much debate.
DeskTerm referring to a group dealing with a specific currency or currencies.
DetailsAll the information required to finalize a foreign exchange transaction, i.e. name, rate, dates and point of delivery.
DevaluationDeliberate downward adjustment of a currency against its fixed parities or bands, which is normally accompanied by formal announcement.
Devisen, DevisesForeign exchange in German and French respectively.
DevisenkassamarktGerman for spot exchange market.
DevisenterminmarktGerman for forward exchange market.
Diagonal (bull or bear) SpreadThe purchase of a longer maturity option and the sale of a shorter maturity, lower exercise price option. The choice of calls or puts will determine its bear or bull character.
Direct QuotationQuoting in fixed units of foreign currency against variable amounts of the domestic currency.
Discount(1) See also forward rate. Less than the spot price. Example: forward discount. Forward rate is lower than spot rate. (2) An option that is trading for less than its intrinsic value.
Discount RateThe rate at which a bill is discounted. Specifically it refers to the rate at which a central bank is prepared to discount certain bills for financial institutions as a means of easing their liquidity, and is more accurately referred to as the official discount rate.
Disposable IncomeEarnings after tax.
Domestic RatesThe interest rates applicable to deposits domiciled in the country of origin. Values may vary from Eurodeposits due to taxation and varying market practices.
Durable Goods OrdersDurable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order.


EasingModest decline in price.
Economic ExposureReflects the impact of foreign exchange changes on the future competitive position of a company in the sense of the impact it can have on the future cash flows of the company.
Economic IndicatorA statistic which indicates current economic growth rates and trends such as retail sales and employment.
ECU – European Currency UnitA basket of the member currencies. As a composite unit, the ECU consists of all the European Community currencies, which are individually weighted. It was created by the European Monetary System with the eventual goal of replacing the individual European member currencies.
Effective Exchange RateAn attempt to summarize the effects on a country’s trade balance of its currency’s changes against other currencies.
EFTElectronic Funds Transfer.
Either Way MarketIn the Euro Interbank deposit market where both bid and offer rates for a particular period are the same.
EMSEuropean Monetary System.
EMUEuropean Monetary Union.
End/EndIndicates that both the spot and forward maturity, or two forward maturities in a swap transaction, fall due on the last business day of appropriate calendar months.
EOEEuropean Options Exchange.
EpsilonThe change in the price of an option associated with a 1% change in implied volatility (technically the first derivative of the option price with respect to volatility). Also referred to as eta, vega, omega and kappa.
ERMExchange Rate Mechanism.
Euro ClearA computerized settlement and depository system for safe custody, delivery of, and payment for Eurobonds.
EurobondsA long-term loan issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.
EurocurrencyA currency domiciled outside its country of origin normally held by non-residents.
EurodollarsUS dollars deposited in a bank (US or non US) located outside the USA.
EurofrancSwiss Franc (formerly also Belgian Francs) traded on the Eurocurrency market. Normally Swiss Francs are the more common currency.
EuromarkDeutschmarks traded on the Eurocurrency market.
European OptionAn option that can be exercised only on its expiration date rather than before that date.
European UnionThe group formerly known as the European Community.
Exchange ControlA system of controlling inflows and outflows of foreign exchange. Exchange Control devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges.
Exchange Rate RiskThe potential loss that could be incurred from an adverse movement in exchange rates.
Exercise LimitA limit on the number of options contracts a holder may exercise within a specific period.
Exercise NoticeThe formal notification that the holder of a call (or put) option wishes to buy (or sell) the underlying security at the exercise price.
Exercise PriceSee Strike price.
Exercise ValueFor a call option, this is the amount by which the strike price is below the underlying investment; for a put option, it is the amount by which the strike price is above the underlying investment.
ExoticA less broadly traded currency.
Expiration Date(1) Options – the last date after which the option can no longer be exercised. (2) Bonds – the date on which a bond matures.
Expiration MonthThe month in which an option expires.
Expiry DateThe last day on which the holder of an option can exercise his right to buy or sell the underlying security.
Expiry DateThe last date on which an option can be bought or sold.
ExposureThe 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.


Fast MarketRapid movement in a market caused by strong interest by buyers and/or sellers. In such circumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported.
FedThe United States Federal Reserve. Federal Deposit Insurance Corporation Membership is compulsory for Federal Reserve members. The corporation had deep involvement in the Savings and Loans crisis of the late 80s.
Fed Fund RateThe interest rate on Fed funds. This is a closely watched short term interest rate as it signals the Feds view as to the state of the money supply.
Fed FundsCash balances held by banks with their local Federal Reserve Bank. The normal transaction with these funds is an interbank sale of a Fed fund deposit for one business day. Straight deals are where the funds are traded overnight on an unsecured basis.
FEDAIForeign Exchange Dealers Association of India is an association of all dealers in foreign exchange which sets the ground rules for fixation of commissions and other charges and also determines the rules and regulations relating to day-to-day transactions in foreign exchange in India. The FEDAI has recognized 38 currencies for dealing.
Federal National Mortgage AssociationA privately owned, but US government sponsored, corporation that trades in residential mortgages. Its activities are funded by the sale of instruments commonly known as Fannie Maes.
Federal Open Market CommitteeSee FOMC.
Federal Reserve BoardThe board of the Federal Reserve System, appointed by the US President for 14 year terms. One member of the board is appointed chairman every four years.
Federal Reserve SystemThe central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board. Membership in the Fed is compulsory for banks chartered by the Comptroller of Currency, and optional for state chartered banks.
Financial FutureA futures contract based on a financial instrument.
Fine Rate(1) A quote with a narrow spread. (2) The most favorable rate charged to a high quality borrower.
Firm QuotationThe price given in response to a request for a rate at which the quoting party is willing to execute a deal for a reasonable amount, for spot settlement. Screen quotes are indicative. Quotes on matching systems are normally firm depending on the systems requirement to reconfirm rate prior to completing matching.
Fiscal PolicyUse of taxation as a tool in implementing monetary policy.
Fixed DatesThe monthly calendar dates similar to the spot. There are two exceptions. For detailed description see value dates.
Fixed Exchange RateOfficial rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower bands, leading to intervention by the central bank.
FixingA method of determining rates by normally finding a rate that balances buyers to sellers. Such a process occurs either once or twice daily at defined times. Used by some currencies, particularly for establishing tourist rates . The system is also used in the London Bullion market.
Flat/SquareWhere a client has not traded in that currency, or where an earlier deal is reversed thereby creating a neutral (flat) position. For example, you bought $500,000 then sold $500,000 = FLAT .
Flexible Exchange RateExchange rates with a fixed parity against one or more currencies with frequent revaluation. A form of managed float.
Float(1) See Floating exchange rate. (2) Cash in hand or in the course of being transferred between banks. (3) The Federal Reserve Float exists because checks sent to the Federal Reserve Banks are sometimes credited in advance of the depositing bank loosing the reserve.
Floating Exchange RateWhen the value of a currency is decided by the market forces dictating the supply and demand of that particular currency.
Floor(1) An agreement with a counterparty that sets a lower limit to interest rates for the floor buyer for a stated time. (2) A term for an exchanges trading area (cf. screen based trading), normally the trading area is referred to as a pit in the commodities and futures markets.
FOMCFederal Open Market Committee, the committee that sets money supply targets in the US, which tend to be implemented through Fed Fund interest rates etc.
Foreign ExchangeThe purchase or sale of a currency against the sale or purchase of another.
Foreign PositionA position in which one party agrees to purchase from or sell to the other party an agreed amount of foreign currency.
ForexAn abbreviation of foreign exchange.
Forex DealThe purchase or sale of a currency against the sale or purchase of another currency. The maximum time for a deal is defined when the deal opens. The deal can be closed at any moment until the expiry date and time. For technical reasons, a deal cannot be closed in its first 3 minutes.
Forward ContractSometimes used as synonym for forward deal or future. More specifically, it referes to arrangements with the same effect as a forward deal between a bank and a customer.
Forward Cover TakingForward contracts intended to protect against movements in the exchange rate.
Forward DealA deal with a value date greater than the spot value date.
Forward / ForwardA forward / forward deal is one where both legs of the deal have value dates greater than the current spot value date.
Forward MarginsDiscounts or premiums between spot rate and the forward rate for a currency. Normally quoted in points.
Forward MaturitiesTrading days on which day contracts can be transacted later than the spot date.
Forward OperationsForeign exchange transactions for which the fulfillment of the mutual delivery obligations is made on a date later than the second business day after the transaction was concluded.
Forward OutrightA commitment to buy or sell a currency for delivery on a specified future date or period. The price is quoted as the spot rate minus or plus the forward points for the chosen period.
Forward PointsThe interest rate differential between two currencies expressed in exchange rate points. The forward points are added to or subtracted from the spot rate to give the forward or outright rate, depending on whether the currency is at a forward premium or discount.
Forward RateThe rate at which a foreign exchange contract is struck today for settlement at a specified future date, which is decided at the time of entering into the contract. 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 base currency with the lower interest rate is said to be at a premium, and the forward points are added to the spot rate to obtain the forward rate.
Forward Rate AgreementsThe FRA is an agreement between two parties that determines the interest rate that will apply to a notional future loan or deposit of an agreement.
Free ReservesTotal reserves held by a bank less the reserves required by the authority.
Front OfficeThe activities carried out by the dealer, normal trading activities.
Fundamental AnalysisAnalysis based on economic and political factors.
FundamentalsThe macro economic factors that are accepted as forming the foundation for the relative value of a currency. These include inflation, growth, trade balance, government deficit, and interest rates.
FundsA term for USD/CAD/Fungibles Instruments that are equivalent, substitutable and interchangeable in law. May apply to certain exchange traded currency contracts offered on a number of exchanges.
Futures ContractA contract traded on a futures exchange that requires the delivery of a specified quality and quantity of a commodity, currency or financial instruments within a specified future month, if not liquidated before the contract matures.
Futures Exchange-Traded ContractsThey are firm agreements to deliver (or take delivery of) a standardized amount of something on a certain date at a predetermined price. Futures exist in currencies, money market deposits, bonds, shares and commodities. They are traded on an exchange with the clearing corporation guaranteeing the contract and moreover the trade is done on a mark to market basis.
FXForeign Exchange.


G10G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.
G5The Group of Five. The five leading industrial countries: US, Germany, Japan, France, UK.
G7The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.
GammaThe rate at which a delta changes over time, or for one unit change in the price of the underlying asset.
GapA mismatch between maturities and cash flows in a bank, or individual dealers position book. Gap exposure is effectively interest rate exposure.
GLOBEXA 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.
GNP DeflatorRemoves inflation from the GNP figure. Usually expressed as a percentage and based on an index figure.
GNP GapThe difference between the actual real GNP and the potential real GNP. If the gap is negative an economy is overheated.
Going LongThe purchase of a stock or commodity for investment or speculation.
Going ShortThe selling of a currency or instrument not owned by the seller.
Gold StandardThe original system for supporting the value of currency issued. Accordingly, the monetary system backs its currency with a reserve of gold, and allows currency holders to convert their currency into gold. This system was in vogue before 1973 when the fixed exchange rates were prevalent.
GrossBefore deduction of tax.
Gross Domestic ProductTotal value of a country’s output, income or expenditure produced within the country’s physical borders. GDP is the broadest measure of aggregate economic activity available. Reported quarterly, GDP growth is widely followed as the primary indicator of the strength of economic activity. GDP represents the total value of a countrys production during the period and consists of the purchases of domestically produced goods and services by individuals, businesses, foreigners and governments.
Gross National Product (GNP)Gross domestic product plus factor income from abroad – income earned from investment or work abroad.
GTCSee Good until cancelled.
GTC “Good Till Cancelled”An order left with a dealer to buy or sell at a fixed price. The order remains in place until it is cancelled by the client. Different than normal practice, the order does not expire at the end of the trading day, although normally terminates at the end of the trading month.


Hard CurrencyA currency whose value is expected to remain stable or increase in terms of other currencies.
Head and ShouldersA pattern in price trends which chartists consider indicative of a price trend reversal. In this pattern, the price has risen for some time, and at the peak of the left shoulder, profit taking has caused the price to drop or level. The price then rises steeply again to the head before more profit taking causes the price to drop to around the same level as the shoulder. A further modest rise or level will indicate that a further major fall is imminent. The breach of the neckline is the indication to sell.
HedgeThe purchase or sale of options or futures contracts as a temporary substitute for a transaction to be made at a later date. Usually it involves opposite positions in the cash, futures or options markets.
HedgingA hedging transaction is one whose main aim is to protect an asset or liability against a fluctuation in the foreign exchange rate, rather than profit from the exchange rate fluctuations.
HIBORHong Kong Inter-bank Offered Rate.
Historical VolatilityThe annualized standard deviation of percentage changes in futures prices over a specific period. It is an indication of past volatility in the marketplace.
Hit the BidAcceptance of purchasing at the offer, or selling at the bid.
HolderSame as buyer.
Housing StartsHousing starts are a measure of the number of residential units on which construction has begun each month.
HyperinflationVery high and self-sustaining inflation levels. One definition is the period from which inflation exceeds 50%, until it drops below that level for 12 months.


ICCHInternational Commodities Clearing House Limited, a clearing house based in London operating worldwide for many futures markets.
IFEMAInternational Foreign Exchange Master Agreement.
IMFInternational Monetary Fund, established in 1946 to provide international liquidity on a short and medium term, and to encourage liberalization of exchange rates. The IMF helps its members to tide over the balance of payments problems by supplying the necessary loans.
IMMInternational Monetary Market, part of the Chicago Mercantile Exchange that lists a number of currency and financial futures.
Implied RatesThe interest rate determined by calculating the difference between spot and forward rates.
Implied VolatilityA measurement of the market’s expected price range of the underlying currency futures based on the traded option premiums.
Implied Volatility SkewsThe implied volatility variances for different strikes of an option.
In the MoneyA call option is in the money when the strike price is less than the current price of the underlying instrument. A put is when the strike price is greater.
Inconvertible CurrencyCurrency which cannot be exchanged for other currencies either because it is forbidden by the foreign exchange regulations or the currency experiences extreme volatility that it is not perceived to be a safe haven for parking the funds.
Indicative QuoteA market-maker’s price which is not firm.
Indirect quoteSee reciprocal currency.
Industrial Production IndexA coincident indicator measuring physical output of manufacturing, mining and utilities.
InflationContinued 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.
Info QuoteRate given for information purposes only.
Initial MarginThe deposit required by the Broker before a client can trade/transact a particular deal in order to have some cushion in the event of default by the party.
Interbank RatesThe Forex rates large international banks quote to other large international banks. Normally the public and other businesses do not have access to these rates.
Interest Rate FloorAn agreement which provides the buyer of the floor with a minimum interest rate for future lending requirements.
Interest Rate OptionsAn agreement permitting a party to obtain a particular interest rate, issued both OTC and by exchanges.
Interest Rate RiskThe potential for losses arising from changes in interest rates.
Interest Rate SwapsAn agreement to exchange interest rate exposures from floating to fixed or vice versa. There is no swap of the principal. The principal amount is notional as at the end of the tenure only cash flows related with the interest payments (whether payment or receipt) are exchanged.
InterventionAction by a central bank to affect the value of its currency by entering the market. In India the intervention by Reserve Bank of India is confined to the events of extreme volatility.
In-the-MoneyA call option is in-the-money if the price of the underlying instrument is higher than the exercise/strike price. A put option is in-the-money if the price of the underlying instrument is below the exercise/strike price.
Intra Day LimitLimit set by bank management on the size of each dealer’s Intra Day Position.
Intra Day PositionOpen positions run by a dealer within the day. Usually squared by the close.
Intrinsic ValueThe amount by which an option is in-the-money. The intrinsic value is the difference between the exercise/strike price and the price of the underlying security.
IOMIndex and Options Market part of the Chicago Mercantile Exchange.
IPIIndustrial Production Index. A coincident indicator measuring physical output of manufacturing, mining and utilities.
ISDA (International Securities Dealers Association)Organization that foreign currency exchange banks have formed to regulate inter-bank markets and exchanges.


J CurveA term describing the expected effect of devaluation on a country’s trade balance. It is expected that import bills will rise before export orders and receipts increase.


Key CurrencySmall countries, which are highly dependent on exports, orient their currencies to their major trading partners, the constituents of a currency basket.
KiwiSlang for the New Zealand dollar.
Knock InA process where a barrier option (European) becomes active as the underlying spot price is in-the-money.
Knock OutHas a corresponding meaning to Knock In (see above), although the option may permanently cease to exist.


Last Trading DayThe day on which trading ceases for an expiring contract.
Lay Off To carry out a transaction in the market to offset a previous transaction and return to a square position.
LDCLess developed countries, often used with respect to a secondary debt market.
Leading IndicatorsStatistics that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders.
Leads and LagsThe effect on foreign trade payments of an anticipated move in the exchange rate, normally devaluation. The importers speed up the payment for the imports, and exporters delay receiving payment for the exports.
LeverageIn options terminology, this expresses the disproportionately large change in the premium in terms of the relative price movement of the underlying instrument.
LiabilityIn terms of foreign exchange: the obligation to deliver to counterparty an amount of currency, either in regards to a balance sheet holding at a specified future date, or in regards to an un-matured forward or spot transaction.
LIBIDThe London Interbank Bid Rate. The rate charged by one bank to another for a deposit.
LIBORThe London Interbank Offered Rate, the rate charged by one bank to another for lending money.
LIBOR (London Interbank Offer Rate)British Bankers’ Association average of interbank offered rates for dollar deposits in the London market based on quotations at 16 major banks. Effective rate for contracts entered into two days from date appearing.
LIFFELondon International Financial Futures Exchange.
Limit(1)The maximum price fluctuation permitted by an exchange from the previous session’s settlement price for a given contract. (2) In international banking the limit a bank is willing to lend in a country. (3) The amount that one bank is prepared to trade with another. (4) The amount that a dealer is permitted to trade in a given currency.
Limit DownThe maximum price decline from the previous trading day’s settlement price permitted in one trading session.
Limit OrderAn order to buy or sell a specified amount of a security at a specified price or better.
Limit Order Reserved
Day Trading Deal
An order to perform a Day-Trading deal at a rate pre-defined by the customer, when and if such rate comes up in real market time. The Limit rate is superior to the existing rate at the time of reservation. The reservation order lasts for a period defined by the customer, and is associated by the necessary collaterals to facilitate the potential Day Trading deal when, and if, activated under the pre-defined terms.
Limit UpThe maximum price advance from the previous trading day’s settlement price permitted in one trading session.
Limited ConvertibilityWhen residents of a country are prohibited from buying other currencies even though non-residents may be completely free to buy or sell the national currency, and foreign institutional investors have the liberty to buy and sell shares on the stock exchange of that country.
LinesAn arrangement by which a bank agrees to lend to the line holder during some specified period any amount up to the full amount of the line.
LiquidationAny transaction that offsets or closes out a previously established position.
LiquidityThe ability of a market to accept large transactions without having any major impact on interest rates.
Lombard RateOne of the key commercial interest rates, normally referring to Germany although such rates exist in France, Belgium, and Switzerland. An interest rate for a loan against the security of pledged paper.
LongA market position where the Client has bought a currency not previously owned. For example: long Dollars.
Long HedgeThe purchase of futures contracts for price protection purposes, as a defensive position against an increase in cash prices or falling interest rates.


M0Cash in circulation. Only used by the UK.
M1Cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities.
M2Includes demand deposits, time deposits and money market mutual funds excluding large CDs.
M3In the UK, it is M1 plus public and private sector time deposits and sight deposits held by the public sector.
M4In the US, it is M2 plus negotiable CDs.
Maintenance MarginThe minimum margin which an investor must keep on deposit in a margin account at all times in regards to each open contract.
Make a MarketA dealer is said to make a market when he quotes both the bid and offer prices at which he stands ready to buy and sell.
Managed FloatWhen the monetary authorities intervene regularly in the market to stabilize the rates or to push the exchange rate in a required direction. It is also called the dirty float, as in India.
MarginCollateral that the holder of a position in securities, options, Forex or futures contracts, has to deposit to cover the credit risk of his counterparty. Other definitions to MARGIN, used in other areas are: (1) Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward. (2) For options, the sum required as collateral from the writer of an option. (3) For futures, a deposit made to the clearing house on establishing a futures position account. (4) The percentage reserve required by the US Federal Reserve to make an initial credit transaction.
Margin CallA demand for additional funds to cover positions. A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse future price movements.
Marginal RiskThe possibility that a customer goes bankrupt after entering into a forward contract. In such an event, the issuer must close the commitment, running the risk of having to pay the marginal movement on the contract.
Mark-to-MarketThe profits and/or losses are tallied at the end of the session according to the closing prices of the security, and the account is “marked to the market” daily. The party will be called upon to make good the losses if there has been an adverse movement in the prices, and it can book the profits in the event there has been a favorable movement in the prices.
Mark UpPremium.
Market AmountThe minimum amount conventionally dealt for between banks.
Market MakerA market maker is a person or firm authorized to create and maintain a market in an instrument.
Market OrderAn order to buy or sell a financial instrument immediately at the best possible price.
Market ValueMarket value of a Forex position at any time is the amount of the domestic currency that could be purchased at the then market rate in exchange for the amount of foreign currency to be delivered under the Forex Contract.
MATIFMarche a Terme International de France.
MaturityDate for settlement of the transaction which is decided at the time of entering into the contract.
Maturity Date(1) The last trading day of a futures contract. (2) Date on which a bond matures, at which time the face value will be returned to the purchaser. Sometimes the maturity date is not one specified date, but a range of dates during which the bond may be repaid.
Micro EconomicsThe study of economic activity as it applies to individual firms or well defined small groups of individuals or economic sectors.
Mid OfficeThe control of the trading activity including position keeping.
Mid-Price or Middle RateThe price half-way between the two prices, or the average of both buying and selling prices offered by the market makers.
MilliardEuropean term for 1,000 million.
MineExpression used to indicate that the contacting party is willing to buy at the rate offered by the quoting bank.
Minimum Price FluctuationThe smallest increment of market price movement possible in a given futures contract.
Minimum ReserveReserves required to be deposited at central banks by commercial banks and other financial institutions, sometimes referred to as Registered Reserves.
MITIJapanese ministry of International Trade & Industry.
MMMoney Markets.
Money MarketA market consisting of financial institutions and dealers in money or in credit, who wish to either borrow or lend.
Money Market OperationsComprises the acceptance and re-lending of deposits on the money market.
Money SupplyThe amount of money in the economy, which can be measured in a number of ways. In India there are four measures of money supply i.e. M1, M2, M3, M4.
Moving AverageA way of smoothing a set of data, widely used in price time series.
Multiple Exchange RatesDifferent exchange rates for different types of transaction. The South African Rand is an example.
Mutual FundAn open-end investment company. Equivalent to unit trust.


Nearby MonthThe nearest actively traded delivery month, a.k.a. current delivery month, lead month.
Net PositionThe number of futures contracts bought or sold which have not yet been offset by opposite transactions.
NickelUS term for five basis points.
Nostro AccountA foreign currency current account maintained with another bank. The account is used to receive and pay currency assets and liabilities denominated in the currency of the country in which the bank is resident.
Not Held Basis OrderAn order whereby the price may trade through or better than the client’s desired level, but the principal is not held responsible if the order is not executed.
NoteA financial instrument consisting of a promise to pay rather than an order to pay, or a certificate of indebtedness.


OECDOrganization for Economic Cooperation and Development, an international organization helping governments tackle the economic, social and governance challenges of a globalized economy.
OfferThe rate at which a dealer is willing to sell the base currency.
Offered MarketTemporary situation where offers exceed bid.
Official Settlements AccountA US balance of payments measure based on movement of dollars in foreign official holdings and US reserves. Also referred to as reserve transaction account.
OffsetThe closing-out or liquidation of a futures position.
Off-ShoreThe operations of a financial institution which although physically located in a country, has little connection with that country’s financial systems. In certain countries a bank is not permitted to do business in the domestic market, but can do business with other foreign banks. This is known as an off-shore banking unit.
Old LadyOld lady of Threadneedle Street, a term for the Bank of England.
One Cancels Other OrderWhere the execution of one order automatically cancels a previous order – also referred to as OCO or One cancels the other.
Open InterestThe total number of outstanding option or futures contracts that have not been closed out by offset or fulfilled by delivery.
Open Market CommitteeSee Federal Open Market Committee.
Open Market OperationsCentral bank operations in the markets to influence exchange and interest rates.
Open PositionAny deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date. It can be termed as a high risk, high return proposition.
OptionA contract conferring the right but not the obligation to buy (call) or to sell (put) a specified amount of an instrument at a specified price within a predetermined time period.
Option ClassAll options of the same type – calls or puts -listed on the same underlying instrument.
Option SeriesAll options of the same class having the same exercise/strike price and expiration date.
Original MarginSee Initial Margin.
OTCSee Over the Counter.
Out-of-the-MoneyA put option is out-of-the-money if the exercise/strike price is below the price of the underlying instrument. A call option is out-of-the money if the exercise/strike price is higher than the price of the underlying instrument.
Outright DealA forward deal that is not part of a swap operation.
Outright ForwardA foreign exchange transaction involving either the purchase or the sale of a currency for settlement at a future date.
Outright RateThe forward rate of a foreign exchange deal based on spot price plus forward discount/premium.
Over Bought or Over SoldSee long and short.
Over The Counter (OTC)A market conducted directly between dealers and principals via a telephone and computer network rather than a regulated exchange trading floor. These markets have not been very popular because of the risks both the parties face in case the other party fails to honor the contract. They have never been part of the Stock Exchange since they were seen as “unofficial”.
Overheated (Economy)Is an economy on a high growth rate trajectory placing pressure on the production capacity, resulting in increased inflationary pressures and higher interest rates.
OvernightA deal from today until the next business day.
Overnight LimitNet long or short position in one or more currencies that a dealer can carry over into the next dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces the need for dealers to maintain these unmonitored exposures.


Package DealWhen a number of exchange and /or deposit orders have to be fulfilled simultaneously.
Par(1) The nominal value of a security or instrument. (2) The official value of a currency.
ParitiesThe value of one currency in terms of another.
Parity(1) Foreign exchange dealer’s slang for your price is the correct market price. (2) Official rates in terms of SDR or other pegging currency.
Payment DateThe date on which a dividend or bond interest payment is scheduled to be delivered.
Payroll EmploymentPayroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government. Monthly changes in payroll employment reflect the number of net new jobs created or lost during the month. Changes are widely followed as an important indicator of economic activity. Large increases in payroll employment are seen as signs of strong economic activity that could eventually lead to higher interest rates that are supportive of the currency at least in the short term.
Permitted CurrencyIt means a foreign currency which is freely convertible, i.e. a currency which is permitted by the rules and regulations of the country concerned to be converted into major reserve currencies, and for which a fairly active and liquid market exists for dealing against the major currencies.
PetrodollarsForeign exchange reserves of oil producing nations arising from oil sales.
PIBORParis Inter-bank Offered Rate.
PipSee point. (0.0001 of a unit).
Plaza AccordThe 1985 Plaza Hotel agreement by the G5 to lower the dollar.
Point(1) 100th part of a per cent, normally 10,000 of any spot rate. Movements of exchange rates are usually in terms of points. (2) One percent of an interest rate, e.g. from 8-9%. (3) Minimum fluctuation or smallest increment of price movement.
Political RiskThe potential for losses arising from a change in government policy or due to the risk of expropriation (nationalization by the government).
PositionThe netted total exposure in a given currency. A position can be either flat or square (no exposure), long, (more currency bought than sold), or short (more currency sold than bought).
Position LimitThe maximum position, either net long or net short, in one future or in all futures of one currency or instrument one person is permitted to hold or control.
PPIProducer Price Indices. See Wholesale Price Indices.
Premium(1) The amount by which a forward rate exceeds a spot rate. (2) The amount by which the market price of a bond exceeds its par value. (3) In regard to options, the price a put or call buyer must pay to a put or call seller for an option contract. (4) The margin paid above the normal price level.
Prime Rate(1) The rate from which lending rates by banks are calculated in the US. (2) The rate of discount of prime bank bills in the UK.
PrincipalA dealer who buys or sells stock for his/her own account.
Producer Price Index (PPI)PPI is a measure of the average level of prices of a fixed basket of goods received in primary markets by producers. A rising PPI is normally expected to lead to higher CPI, and thereby to potentially higher short term interest rates.
Profit TakingThe unwinding of a position to realize profits.
Purchasing Power ParityModel of exchange rate determination stating that the price of a good in one country should equal the price of the same good in another country after adjusting for the changes in the price due to the change in exchange rate. Also known as the law of one price.
Put Call ParityThe equilibrium relationship between premiums of call and put options of the same strike and expiry.
Put OptionA put option confers the right but not the obligation to sell currencies, instruments or futures at the option exercise price within a predetermined time period.


Quota(1) A limit on imports or exports. (2) A country’s subscription to the IMF.
QuoteAn indicative price. The price quoted for information purposes but not to deal.


RallyA recovery in price after a period of decline.
RangeThe difference between the highest and lowest price of a future recorded during a given trading session.
RateThe price of one currency in terms of another. It has the same meaning as the term parities.
Ratio Calendar SpreadSelling more near-term options than longer maturity options at the same strike price.
Ratio SpreadBuying a specific quantity of options and selling a larger quantity of out-of-the-money options.
ReactionA decline in prices following an advance.
RealA price, interest rate or statistic that has been adjusted to eliminate the effect of inflation.
RecessionA decline in business activity. Often defined as two consecutive quarters with a real fall in GNP.
Reinvestment RateThe rate at which interest earned on a loan can be reinvested. The rate may not attract the same level of interest as the principal amount.
Repo RateSee Repurchase Agreement.
ReportFrench term for premium.
Repurchase AgreementAgreements by a borrower where they sell securities with a commitment to repurchase them at the same rate with a specified interest rate.
Reserve CurrencyA currency held by a central bank on a permanent basis as a store of international liquidity. Reserve currencies are typically Dollar, Deutschemark, and sterling.
Reserve RequirementThe ratio of reserves to deposits, expressed as a fraction prescribed by national banking authorities, including US.
Reserve Tranche(French) The 25% of its quota to which a member of the IMF has unconditional access, and for which there is no obligation to repay.
ReservesFunds held against future contingencies, normally a combination of convertible foreign currency, gold, and SDRs. Official reserves are to ensure that a government can meet near term obligations. They are an asset in the balance of payments.
ResistanceA price level at which the selling is expected to take place.
Resistance Point or LevelA price recognized by technical analysts as a price which is likely to result in a rebound but if broken through is likely to result in a significant price movement.
Retail Price IndexMeasurement of the monthly change in the average level of prices at retail, normally of a defined group of goods.
Retail SalesRetail Sales are a measure of the total receipts of retail stores. Monthly percentage changes reflect the rate of change of such sales and are widely followed as an indicator of consumer spending. Rises in Retail Sales are often associated with a strong economy, and therefore an expectation of higher short term interest rates that are often supportive to a currency in at least the short term.
Reuter DealingA system for screen based trading that has been in operation since the early 1980s. Reuter Dealing now has a matching optional enhancement known as Dealing 2000-2.
RevaluationIncrease in the exchange rate of a currency as a result of official action.
Revaluation RateThe rate for any period or currency which is used to revalue a position or book.
ReversalProcess of changing a call into a put.
Risk managementThe identification and acceptance, or offsetting of the risks threatening the profitability or existence of an organization. With respect to foreign exchange, involves among others consideration of market, sovereign, country, transfer, delivery, credit, and counterparty risk.
Risk PositionAn asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates.
Risk PremiumAdditional sum payable, or return, to compensate a party for adopting a particular risk.
Risk ReversalA combination of purchasing put options with the sale of call options. The put limits downside, while the call limits the upside.
RisksThere are risks associated with any market. It means variance of the returns and the possibility that the actual return might not be in line with the expected returns. The risks associated with trading foreign currencies are: market, exchange, interest rate, yield curve, volatility, liquidity, forced sale, counter party, credit, and country risk.
Rolling overThe substituting of a far option for a near option of the same underlying stock at the same strike/exercise price.
Rollover(1) Where the settlement of a deal is carried forward to another value date, based on the interest rate differential of the two currencies example: next day. (2) An overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).
Running a PositionKeeping open positions in the hope of a speculative gain.


Same Day TransactionA transaction that matures on the day the transaction takes place.
Sandwich SpreadSame as a butterfly spread.
ScalpingA strategy of buying at the bid and selling at the offer as soon as possible.
SDRSpecial Drawing Right. A standard basket of five major currencies in fixed amounts as defined by the IMF.
Selling RateRate at which a bank is willing to sell foreign currency.
SeriesAll options of the same class which share a common strike price and expiration date.
SettlementActual physical exchange of one currency for another.
Settlement DateIt means the business day specified for delivery of the currencies bought and sold under a Forex contract.
Settlement PriceThe official closing price for a future set by the clearing house at the end of each trading day.
Settlement RiskRisk associated with the non-settlement of the transaction by the counterparty.
ShortA market position where the client has sold a currency he does not already own, usually expressed in base currency terms.
Short / Short PositionA shortage of assets in a particular currency. See Short Sale.
Short ContractsContracts with up to six months to deliver.
Short CoveringBuying to unwind a shortage of a particular currency or asset.
Short Forward Date/RateThe term short forward refers to a period of up to two months, although it is more commonly used with respect to maturities of less than one month.
Short SaleThe sale of a currency futures not owned by the seller at the time of the trade. Short sales are usually made in expectation of a decline in the price.
ShortsSee Short Forward Date/Rate.
Short-Term Interest RatesNormally the 90 day rate.
SITCStandard International Trade Classification. A system for reporting trade statistics in a common manner.
SOFFEXSwiss Options and Financial Futures Exchange, a fully automated and integrated trading and clearing system.
Soft MarketMore potential sellers than buyers, which creates an environment where rapid price falls are likely.
Split DateSee Broken Date.
Spot(1) The most common foreign exchange transaction. (2) Spot refers to the buying and selling of the currency where the settlement date is two business days forward.
Spot MonthThe contract month closest to delivery.
Spot NextThe overnight swap from the spot date to the next business day.
Spot Price/RateThe price at which the currency is currently trading in the spot market.
Spot WeekA standard period of one week swap measured from the current value date of the currency spot rate.
Spread(1) The difference between the bid and ask price of a currency. (2) The difference between the prices of two related futures contracts. (3) For options, transactions involving two or more option series on the same underlying currency.
SquarePurchases and sales are in balance and thus the dealer has no open position.
Squawk BoxA speaker connected to a phone, often used in broker trading desks.
SqueezeAction by a central bank to reduce supply in order to increase the price of money.
Stable MarketAn active market which can absorb large sales or purchases of currency without having any major impact on the interest rates.
StagflationRecession or low growth (stagnation) in conjunction with high inflation rates.
StandardA term referring to certain normal amounts and maturities for dealing.
Standard and Poors (S&P)A US firm engaged in assessing the financial health of borrowers. The firm also lends its name to the S&P 500 Stock Index.
SterilizationCentral Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the Forex market.
SterlingBritish pound, otherwise known as cable.
StockyMarket slang for Swedish Krona.
Stop Loss OrderOrder given to ensure that, should a currency weaken by a certain percentage, a short position will be covered even though this involves taking a loss. Realize profit orders are less common.
Stop Out PriceUS term for the lowest accepted price for Treasury Bills at auction.
StraddleThe simultaneous purchase/sale of both call and put options for the same share, exercise/strike price and expiry date.
StraightA bond with unquestioned right to repayment of principal and interest at the specified dates with no additional further rights or bonuses.
Straight DateSee fixed dates.
StrapA combination of two calls and one put.
Strike PriceAlso called exercise price. The price at which an option holder can buy or sell the underlying instrument.
StripA combination of two puts and one call.
Structural UnemploymentUnemployment levels inherent in an economic structure.
Support LevelsA price level at which the buying is expected to take place. When an exchange rate depreciates or appreciates to a level where (1) Technical analysis techniques suggest that the currency will rebound, or not go below; (2) The monetary authorities intervene to stop any further downward movement. See Resistance Point.
SwapThe 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. In essence, swapping is somewhat similar to borrowing one currency and lending another for the same period. However, any rate of return or cost of funds is expressed in the price differential between the two sides of the transaction.
Swap PriceA price as a differential between two dates of the swap.
Swap RateSee Forward Margin.
SwaptionAn option to enter into a swap contract.
SwiftSociety for Worldwide Interbank Financial Telecommunications is a Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions.
SwissyMarket slang for Swiss Franc.
SwitchSee Deposit Swap.
SyntheticsOptions or futures that create a position that is able to be achieved directly, but is generated by a combination of options and futures in the relevant market. In foreign exchange a SAFE combines two forward contracts into a single transaction where settlement only involves the difference in values.


TauExpresses the price change of an option for a percentage change in the implied volatility.
T-BillTreasury Bill.
Technical AnalysisThe study of the price that reflects the supply and demand factors of a currency. Common methods are flags, trend-lines spikes, bottoms, tops, pennants, patterns and gaps.
Technical CorrectionAn adjustment to price not based on market sentiment but technical factors such as volume and charting.
Tender(1) A formal offer to supply or purchase goods or services. (2) In the UK, the term for the weekly Treasury Bill issue.
Terme(French) Period.
Terms of TradeThe ratio between export and import price indices.
ThetaA measure of the sensitivity of the price of an option to a change in its time to expiry.
Thin MarketA market in which trading volume is low and in which consequently bid and ask quotes are wide and the liquidity of the instrument traded is low.
TIBORTokyo Inter-bank Offered Rate.
TickA minimum change in price, up or down.
TicketSee Deal Slip
TIFFETokyo International Financial Futures Exchange.
Time ValueThat part of an option premium which reflects the length of time remaining in the option prior to expiration. The longer the time remaining until expiration, the higher the time value.
Today/TomorrowSimultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa. Also referred to as overnight.
Tomorrow Next (Tom next)Simultaneous buying and selling of a currency for delivery the following day and selling for the next day or vice versa.
Tradable AmountSmallest transaction size acceptable.
Trade BalanceThe Trade Balance is a measure of the difference between imports and exports of tangible good and services. The level of the trade balance, and changes in exports and imports, are widely followed by foreign exchange markets.
Trade DateThe date on which a trade occurs.
Trade Deficit/SurplusThe difference between the value of imports and exports, often only reported in visible trade terms.
Trade TicketSee Deal Ticket.
Tranche(French) A portion of. Specifically used for borrowings from the IMF.
TransactionThe buying or selling of securities resulting from the execution of an order.
Transaction DateThe date on which a trade occurs.
Transaction ExposurePotential profit or loss generated by current foreign exchange transactions.
Translation Loss/ProfitWhen consolidating into the base currency, the calculation of loss or profit resulting from the valuation of foreign assets and liabilities for balance sheet purposes.
Treasury BillsShort-term obligations of a Government issued for periods of one year or less. Treasury bills do not carry a rate of interest, but are issued at a discount on the par value. Treasury bills are repaid at par on the due date. In the UK they are normally for 91 days, and are offered at weekly tenders. In the US they are auctioned.
Treasury BondsGovernment obligations with maturities of ten years or more.
Treasury NotesGovernment obligations with maturities more than one year, but less than ten years.
Treasury StockPreviously issued stock that has been repurchased by, donated to or otherwise acquired by the issuing firm. Treasury stocks pay no dividends and have no voting privileges.
Troc, Troquer(French) FX term for swap.
TurnoverThe total money value of currency contracts traded which is calculated by multiplying size by the number of contracts traded.
Two-Way QuotationWhen a dealer quotes both buying and selling rates for foreign exchange transactions.


UltimoContinental term for month or year end.
UncoveredAnother term for an open position.
Under Reference (Order)Before finalizing a transaction all the details should be submitted for approval to the order giver, who has the right to turn down the proposal.
Under-ValuationAn exchange rate is normally considered to be undervalued when it is below its purchasing power parity.
UndoA colloquial term for reversing a transaction. e.g. a spot sale by means of a forward purchase or, if done in error, a spot purchase.
Unit of AccountA device designed to provide a consistent value with varying currencies. e.g. ECU and SDR.
Up TickA transaction executed at a price greater than the previous transaction.


Valeur Compensee(French) Payments are said to be “valeur compensee” when payment by one party in one centre, and settlement by the other party in another centre, takes place on the same day.
Value DateFor exchange contracts, it is the day on which the two contracting parties exchange the currencies which are being bought or sold. For complete description see the chapter on trading. For a spot transaction, it is two business banking days forward in the country of the bank providing quotations which determines the spot value date. The only exception to this general rule is the spot day in the quoting centre coinciding with a banking holiday in the country(ies) of the foreign currency(ies). The value date then moves forward a day. The enquirer is the party who must make sure that the spot day coincides with the one applied by the respondent. The forward months maturity must fall on the corresponding date in the relevant calendar month. If the one month date falls on a non-banking day in one of the centers, then the operative date would be the next business day that is common. The adjustment of the maturity for a particular month does not affect the other maturities that will continue to fall on the original corresponding date if they meet the open day requirement. If the last spot date falls on the last business day of a month, the forward dates will match this date by also falling due on the last business day. Also referred to as maturity date.
Value SpotNormally settlement for two working days from the date the contract is entered into.
Value TodayTransaction executed for same day settlement; sometimes also referred to as “cash transaction”
VanillaA simple option whose terms and conditions do not include any provisions other than exercise style, expiry and strike. To compare with exotic options which have additional terms.
Variation MarginFunds required to be deposited by a client when a price movement has caused funds to fall below the stipulated percentage of the value of the contract.
VegaExpresses the price change of an option for a one per cent change in the implied volatility.
Velocity of MoneyThe speed with which money circulates, or turnover in the economy. It is calculated as the annual national income; average money stock in the period.
Vertical (Bear or Bull) SpreadThe sale of an option with a high exercise price and the purchase (in the case of a bull), or the sale (in the case of a bear), of an option with a lower exercise price. Both options will have the same expiration date.
VolatilityA measure of the amount by which an asset price is expected to fluctuate over a given period. Normally measured by the annual standard deviation of daily price changes (historic). Can be implied from futures pricing, implied volatility.
Vostro AccountA local currency account maintained with a bank by another bank. The term is normally applied to the counterparty’s account from which funds may be paid into or withdrawn as a result of a transaction.


Wholesale MoneyMoney borrowed in large amounts from banks and institutions rather than from small investors.
Wholesale Price IndexMeasures changes in prices in the manufacturing and distribution sector of the economy, and tends to lead the consumer price index by 60 to 90 days. The index is often quoted separately for food and industrial products.
Working BalanceDiscretionary element in the monetary reserves of a central bank.
Working dayA day on which the banks in a currency’s principal financial center are open for business. For FX transactions, a working day only occurs if the banks in both currencies financial centers are open (all relevant currency centers in the case of a cross).
World BankA bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available.
WriterThe seller of a position. Also known as the grantor of the trade. “Writing a Currency” is to sell it.



YardSlang for milliard, one thousand million (1 European milliard = 1 US billion = 1,000 million).
Yield CurveThe graph showing changes in yield on instruments depending on time to maturity. A system originally developed in the bond markets is now broadly applied to various financial futures. A positive sloping curve has lower interest rates at the shorter maturities, and higher at the longer maturities. A negative sloping curve has higher interest rates at the shorter maturities.


Z-CertificateCertificate issued by the Bank of England to “discount houses” in lieu of stock certificates to facilitate their dealing in the short dated gilt edge securities.
Zero Coupon BondA bond that pays no interest. The bond is initially offered at a discount to its redemption value.