There are many definitions and technical terms that are used by the brokers and investors in routine work. This can make it difficult for beginners to understand the conversation. With a forex glossary, one can browse through such jargons and enhance knowledge. With time, this section will help develop the learner’s understanding of the technical terms that are used in this field. Make the forex trading a memorable experience through this free forex education guide.
Describes the strengthening if a currency in response to market demand rather than by official action.
The policy under which all futures positions owned or controlled by one Trader or a group of traders are combined to determine reportable positions and speculative limits.
The simultaneous purchase and sale of similar commodities in different Markets to take advantage of a price discrepancy.
- Arbitrage Channel
The range of prices within which there will be no possibility to arbitrage between the cash and the future market.
The process of resolving disputes between parties by a person or persons (arbitrators) chosen or agreed to by them.
The price at which a currency or instruments is offered.
In the context of foreign exchange, the right to receive from a counterparty an amount of currency either in respect of a balance sheet asset, such as a loan or at a specified future date in respect of an unmatched forward or spot deal.
- Asset Allocation
Dividing Instruments funs among markets to achieve diversification or maximum return.
- Associated Person (AP)
An individual who solicits orders, customers or customer funds on behalf of a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Advisor or a Commodity Pool Operator and who is registered with the specific Broker.
- At-the-Money Option
An option whose strike price is equal—or approximately equal-to the current market price of the underlying futures contract.
The amount by which the spot price exceeds the forward price.
- Balance of Payments
A systematic record of economic transactions during a given period for a country. (1) The term is often used to mean either balance of payments on “current account” or the current account plus certain long term capital movements. The combination of the trade balance, current balance, capital movements. The combination of the trade balance, current balance, capital account, and invisible balance, which together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital transfers and/or decline in currency values.
The difference between the current cash price of a commodity and the futures price of the same commodity.
- Bear Market (Bear/Bearish)
A market in which prices are declining. A market participant who Believes prices will move lower is called a “bear.” A news item isConsidered bearish if it is expected to result in lower prices.
An expression of willingness to buy a commodity at a given price; the opposite of Offer.
- Basis Point
For most currencies, denotes the fourth decimal place in the exchange rate and represents 1/100 of 1 % (0.01%). For such currencies as the Japanese yen, a basis point is the second decimal place when quoted in currency terms or the sixth and seventh decimal places, respectively, when quoted in reciprocal terms.
- Bank Rate
A The rate at which a central bank is prepared to lent money to its domestic banking
- Base Currency
US Dollars: The currency to which each transaction will be converted at the close of each position.
- Basis trading
Taking opposite positions in the cash and the futures markets with the intention of profiting from favourable movements in the basis.
A group of currencies normally used to manage the exchange rate of a currency.
An investor who believes that prices are going to fall.
A down trending market or a period in which prices are devaluing.
The summary of currency positions held by a dealer, a desk, or a room; a sum total of assets and liabilities.
A company or individual that executes futures and options orders on behalf of financial and commercial institutions and/or the general public.
- Bull Market (Bull/Bullish)
A market in which prices are rising. A market participant who believes prices will move higher is called a “bull.”A news item is considered bullish if it is expected to result in higher prices.
- Carrying Broker
A member of a futures exchange, usually a clearinghouse member, through which another firm, broker or customer chooses to clear all or some trades.
- Candlestick charts
Charting method that involves a graphics presentation of the relationship between the open the high, the low, and the close.Colour schemes are used to illustrate the real bodies of the candles, which is the difference between a lower close than the open (black or dark) and a higher close than the open (white).
- Cash Commodity
The actual physical commodity as distinguished from the futures contract based on the physical commodity. Also referred to as Actuals.
- Cash Market
A place where people buy and sell the actual commodities (i.e., grain elevator, bank, etc.).
- Cash Settlement
A method of settling certain futures or options contracts whereby the market participants settle in cash (payment of money rather than delivery of the commodity).
- Central Bank
A country Head regulatory bank, which is responsible for the development and implementation of monetary policy.
- Closed Position
A transaction that leaves the trade with a zero net commitment to the market with respect to a particular currency.
The fee that a broker may charge clients for dealing on their behalf.
A financial Instruments or a product that is used in commerce and is mainly trded on a regulated commodity exchange. The types of products are agricultural (such as meats and grains), metals, petroleum, foreign currencies, stock index futures, single stock futures, and financial instruments (such as interest rate vehicles like notes and bonds)
- Commodity trading advisor (CTA)
A registered individual or entity that advises others for compensation or profit in buying or selling futures contract or commodity options; also includes one who exercise trading authority over a customers account or who provides research & analysis through newsletter or other media.
The use of graphs and charts in the technical analysis of futures markets to plot price movements, volume, open interest or other statistical indicators of price movement.
Excessive trading that results in the broker deriving a profit from commissions while disregarding the best interests of the customers.
The other organization or party with whom an exchange deal is being transacted.
- Country Risk
The Risk attached to a borrower by virtue of its location in a particular country, involves examination of economic, political, and geographical factors. Various organizations generate country risk tables.
The interest rate on a debt instrument expressed in terms of a percent on an annualized basis that the issuer guarantees to pay to the holder until maturity
To close out a short position by buying currency or securities that have been sold short.
- Covered arbitrage
Arbitrage between financial instruments denominated in different currencies, using forward cover to eliminate exchange risk
- Credit risk
Risk of loss that may arise on outstanding contracts should a counterparty default On its obligations
- Cross rates
Rates between two currencies, neither of which is the U.S dollar
- Current account
The net balance of county’s international payments arising from exports and imports together with unilateral transfer, such as aid and migrant remittance; excludes capital flows
- Counter Party Circuit Breaker
A system of trading halts and price limits on equities and derivatives markets designed to provide a cooling-off period during large, intraday market declines or rises.
The process by which a clearinghouse maintains records of all trades and settles margin flow on a daily mark-to-market basis for its clearing Members.
A corporation or separate division of a futures exchange that is responsible for settling trading accounts, collecting and maintaining margin money, regulating delivery and reporting trade data. The clearinghouse becomes the buyer to each seller (and the seller to each buyer) and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.
- Clearing Member
A member of an exchange clearinghouse responsible for the financial commitments of its customers. All trades of a non-clearing member must be registered and eventually settled through a clearing member.
- Closing Range
A range of prices at which futures transactions took place during the close of the market.
A fee charged by a broker to a customer for executing a transaction.
- Commodity Exchange Act (CEA)
The federal act that provides for federal regulation of futures trading.
- Commodity Futures Trading Commission (CFTC) The federal regulatory agency established in 1974 that administers the Commodity Exchange Act. The CFTC monitors the futures and options on futures markets in the United States.
- Commodity Pool An enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures or options contracts. The concept is similar to a mutual fund in the securities industry. Also referred to as a Pool.
- Commodity Pool Operator (CPO)
An individual or organization which operates and solicits funds for a commodity pool. A CPO may be required to be registered with the CFTC.
- Commodity Trading Advisor (CTA)
A person who, for compensation or profit, directly or indirectly advises others as to the advisability of buying or selling futures or commodity options. Providing advice includes exercising trading authority over a customer’s account. A CTA may be required to be registered with the CFTC.
- Confirmation Statement
A statement sent by a Futures Commission Merchant to a customer when a futures or options position has been initiated. The statement shows the price and the number of contracts bought or sold. Sometimes combined with a Purchase and Sale Statement.
- Contract Market
A board of trade designated by the CFTC to trade futures or options contracts on a particular commodity. Commonly used to mean any exchange on which futures are traded. Also referred to as an Exchange.
- Contract Month
The month in which delivery is to be made in accordance with the terms of the futures contract. Also referred to as Delivery Month.
The tendency for prices of physical commodities and futures to approach one another, usually during the delivery month.
- Covered Option
A short call or put option position which is covered by the sale or purchase of the underlying futures contract or physical commodity.
Hedging a cash commodity using a different but related futures contract when there is no futures contract for the cash commodity being hedged and the cash and futures market follow similar price trends (e.g., using soybean meal futures to hedge fish meal).
- Day Order
An order that if not executed expires automatically at the end of the trading session on the day it was entered.
- Day Trader
A speculator who will normally initiate and offset a position within a single trading session.
- Dead cross
A term used when a sell signal is generated when one more shorter-term Moving averages cross below a longer-term moving average.
- Deal date
The date on which a transaction is agreed on.
A person who act as principal in all transactions, buying and selling for his or her own accounts; opposites of broker
- Deal ticket
The primary method of recording the basic information relating to transaction
- Deferred month
The more decant month in which futures trading is taking place, As established from the active nearly of front contract delivery month.
The more difference between real and nominal gross national product (GNP), which is equivalent to the overall inflation rate.
- Delivery date
The date of maturity of a contract, when the exchange of the currencies Is made; more commonly known as the valve date in the forex or money markets
- Delivery risk
A term to describe when a counterparty might not be able to complete one side of deal, although willing to do so.
A fall in the valve of a currency due to markets forces rather than to official action
- Discount rate
The interest rate charged on loans by the federal reserve to member banks
A candlestick term; used to describe a time when the open and the close are nearly exact. It is a strong sell signal, but cautionary warning at bottoms.
The failure to perform on a futures contract as required by exchange Rules, such as a failure to meet a margin call or to make or take delivery.
- Deferred Delivery Month
The distant delivery months in which futures trading is taking place, as distinguished from the nearby futures delivery month.
The transfer of the cash commodity from the seller of a futures contract to the buyer of a futures contract. Each futures exchange has specific procedures for delivery of a cash commodity. Some futures contracts such as stock index contracts, are cash settled.
A financial instrument, traded on or off an exchange, the price of which is directly dependent upon the value of one or more underlying securities, equity indices, debt instruments, commodities, other derivative instruments, or any agreed upon pricing index or arrangement. Derivatives involve the trading of rights or obligations based on the underlying product but do not directly transfer that product. They are generally used to hedge risk.
- Disclosure Document
The statement that some CPOs must provide to customers. It describes trading strategy, fees, performance, etc.
(1) The amount a price would be reduced to purchase a commodity of lesser grade; (2) sometimes used to refer to the price differences between futures of different delivery months, as in the phrase “July is trading at a discount to May,” indicating that the price of the July future is lower than that of May; (3) applied to cash grain prices that are below the futures price.
- Discretionary Account
An arrangement by which the owner of the account gives written power of attorney to someone else, usually the broker or a Commodity Trading Advisor, to buy and sell without prior approval of the account owner. Also referred to as a Managed Account.
- Electronic Order
An order placed electronically (without the use of a broker) either via the Internet or an electronic trading system.
- Electronic Trading Systems
Systems that allow participating exchanges to list their products for Trading electronically. These systems may replace, supplement or run alongside of the open outcry trading.
1) The value of a futures trading account if all open positions were offset at the current market price; 2) an ownership interest in a company, such as stock.
The action taken by the holder of a call option if he wishes to purchase the underlying futures contract or by the holder of a put option if he wishes to sell the underlying futures contract.
- Expiration Date
Generally the last date on which an option may be exercised. It is not uncommon for an option to expire on a specified date during the month prior to the delivery month for the underlying futures contracts.
A modest decline in price.
- Effective exchange rate
An attempt to summarize the effects on a county’s trade balance of its currency’s changes against other currencies.
- Elliott wave
Analysis theory developed by Ralph Elliott, based on the premise the prices move in two basic types of waves; impulse waves which move with the main trend, and corrective waves, which move against the main trends
- Exchange Traded Fund (ETF)
Index Based investment vehicle that is traded as a share of a single security based on an entire portfolio of stocks or a set contract size of a given commodity or investment product such as foreign currency.
- Floor Broker
An individual who executes orders on the trading floor of an exchange for any other person.
- Floor Trader
An individual who is a member of an exchange and trades for his own account on the floor of the exchange.
- Fibonacci numbers and ratios
An infinite series of numbers such that any number in the series is the sum of the preceding two numbers. The ratios are the math calculations, which are the sum of the relationships between the numbers derived either from dividing the series numbers or, in some cases, taking the square roots of the numbers. The common ratio numbers are 0.38%, 0.618%, 0.50%, and 1.00%.
- Forward outright
A commitment to buy to or to sell a currency for delivery on a specified future date or period. The price is quoted as the spot rate plus or minus the forward points for the chosen period.
- Forward rate
Quoted in terms of forward points, which represent the difference between the forward rate and the spot rate. To obtain the forward rate from the actual exchange rate, the forward points are either added to or subtracted from the exchange rate. The decision to add or to subtract points is determined by the differential between the deposit rates for both currencies concerned in the transaction. The base currency with the higher interest rate is said to be at a discount to the lower interest rate quoted currency in the forward market. Therefore, the forward points are subtracted from the spot rate. Similarly, the lower interest rate base currency is said to be at a premium, and the forward points are added to the spot rate to obtain the forward rate.
- Full carrying charge market
A futures market where the price difference between delivery months reflects the total costs of interest, insurance, and storage.
- Fundamental analysis
A method of anticipating future price movement using supply and demand information; also a method to study the macroeconomic factors (including inflation, growth, trade balance, government deficit, and interest rates) that influence currency and financial markets.
- Forward (Cash) Contract
A contract which requires a seller to agree to deliver a specified cash commodity to a buyer sometime in the future, where the parties expect delivery to occur. All terms of the contract may be customized, in contrast to futures contracts whose terms are standardized.
- Fully Disclosed
An account carried by a Futures Commission Merchant in the name of an individual customer; the opposite of an Omnibus Account.
- Futures Commission Merchant (FCM)
An individual or organization which solicits or accepts orders to buy or sell futures contracts or commodity options and accepts money or other assets from customers in connection with such orders. An FCM must be registered with the CFTC.
- Futures Contract
A legally binding agreement to buy or sell a commodity or financial instrument at a later date. Futures contracts are normally standardized according to the quality, quantity, delivery time and location for each commodity, with price as the only variable.
- Gann, William D
An early pioneer in technical analysis who is credited with a mathematical system based on Fibonacci numbers and with the Gann Square and Cycles studies.
A mismatch between maturities and cash flows in a bank or an individual dealer’s position book. Gap exposure is effectively interest rate exposure.
A global after-hours electronic trading system used on the
Chicago Mercantile Exchange (CME)
- Golden Cross
A bullish term used when one or more shorter term moving average cross above a longer term moving average; generally generates a buy signal
- Gross Domestic Product (GDP)
Total Value of a country’s output, income, or expenditure, produced within the country’s physical borders.
- Gross National Product (GNP)
Gross domestic product plus “factor income from abroad,” i.e income from investment or work abroad
- Guaranteed Introducing Broker
A Guaranteed Introducing Broker is an IB that has a written agreement with a Futures Commission Merchant that obligates the FCM to assume financial and disciplinary responsibility for the performance of the Guaranteed Introducing Broker in connection with futures and options customers. A Guaranteed Introducing Broker is not subject to minimum financial requirements.
A candlestick pattern that forms at bottoms. At market tops, the same construction is called a “Hanging man” The shadow is generally twice the length of the real body.
A two-candle candlestick pattern that can been seen to mark tops and bottoms. The second candle of this formation is contained within real body of the prior session’s candle.
- Hard Currency
Any one of the major world currencies that is well traded and easily converted into other currencies.
- Head and Shoulders
A pattern in price trends that, according to chartists, indicates a price trend reversal. The price has risen for some time, at the peak of the left shoulder: profit taking has caused the price to drop or to level. The price then rises steeply again to the head before more profit taking causes the price to drop or to level. The price then rises steeply again t the head before more profit taking causes the price to drop tp 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 that a further fall is imminent. The breach of the neckline is the indication to sell.
The practice of offsetting the price risk inherent in any cash market position by taking an opposite position in the futures market. A long hedge involves buying futures contracts to protect against possible increasing prices of commodities. A short hedge involves selling futures contracts to protect against possible declining prices of commodities.
The highest price of the day for a particular futures or options on futures contract.
- High Wave
A candle that has a wide range with a small real body that develops in the middle of that range. It has significance as a reversal formation, especially if several of this form in succession.
- Horizontal Rates
The purchase of either a call or a put option and the simultaneously sale of the same type of option with typically the same strike price but with a different expiration month; also referred to as a calendar spread.
- Implied rates
The interest rate determined by calculating the difference between spot and forward rates.
- Implied Votality
A measurement of the markets expected price range of the underlying currency future based on the traded option premiums.
- Interbank Rates
The Bid and offer rates at which international banks place deposits with each other: the basis of the interbank market.
- Inter delivery SpreadThe purchase of one delivery month of a given futures contract and the simultaneous sale of another delivery month of the same commodity on the same exchange; also referred to as an “intermarket spread” or “Calendar spread”
- Interest Arbitrage
Switching into another currency by buying spot and selling forward, and investing proceeds in order to obtain a higher interest yield. Interest arbitrage can be inward (from foreign currency into the local one). Or outward (from the local currency to the foreign one. Sometimes better results can be obtained by not selling the forward interest amount. In that case, Some treat it as no longer being a complete arbitrage because if the exchange rate moved against the arbitrageur, the profit on the transaction may create a loss.
- In-the-Money Option
An option that has intrinsic value. A call option is in-the-money if its strike price is below the current price of the underlying futures contract. A put option is in-the-money if its strike price is above the current price of the underlying futures contract.
- Independent Introducing Broker
An Independent Introducing Broker is an IB subject to minimum capital requirements.
- Initial Margin
The amount a futures market participant must deposit into a margin account at the time an order is placed to buy or sell a futures contract.
- Intrinsic Value
The amount by which an option is in-the-money.
- Introducing Broker (IB)
A firm or individual that solicits and accepts commodity futures orders from customers but does not accept money, securities or property from the customer.
- J Trader
An independent electronic trading order entry platform provider by pats Systems that route orders to such exchange trading systems as the Chicago Board of Trade’s E- CBOT System and the Chicago Mercantile Exchange’s GLOBEX System.
- Kelly Ratio
Money management tool used to determine how much money to place on each consecutive based trade on a mathematical formula using a past win probability and win lost ratio to help a trader determine what to risk to maximise total returns.
- Last Trading Day
The last day on which trading may occur in a given futures or option.
The ability to control large dollar amounts of a commodity with a Comparatively small amount of capital.
To sell a previously purchased futures or options contract or to buy back a previously sold futures or options position. Also referred to as Offset.
- Liquidity (Liquid Market)
A characteristic of a security or commodity market with enough units outstanding and enough buyers and sellers to allow large transactions without a substantial change in price.
A member of an exchange who trades for his own account.
One who has bought futures contracts or options on futures contracts or owns a cash commodity.
The lowest price of the day for a particular futures or options on futures contract.
- Maintenance Margin
A set minimum amount (per outstanding futures contract) that a customer must maintain in his margin account to retain the futures position.
- Make a market
The action of a dealer quoting bid and offer prices at which he or she stands ready to buy and shell
- Managed float
The regular intervention of the monetary authorities in the market to stabilize the rates or aim the exchange rate in required direction
- Managed futures
Represents an industry comprised of professional money managers known as commodity trading advisers who manage clients assets on discretionary Basis, using global futures markets as a investments medium.
An amount of money deposited by both buyers and sellers of futures contracts and by sellers of options contracts to ensure performance of the terms of the contract (the making or taking delivery of the commodity or the cancellation of the position by a subsequent offsetting trade). Margin in commodities is not a down payment, as in securities, but rather a performance bond.
- Margin Call
A call from a clearinghouse to a clearing member, or from a broker or firm to a customer, to bring margin deposits up to a required minimum level.
To debit or credit on a daily basis a margin account based on the close of that day’s trading session. In this way, buyers and sellers are protected against the possibility of contract default.
- Market Order
An order to buy or sell a futures or options contract at whatever price is obtainable when the order reaches the trading floor.
The study economics activity as it apices to individual firms or well-defined small groups of individual or economics sectors.
- Mid price or middle rate
The price halfway between two price, or the average of both buying and selling prices offered by the market makers.
The measure of the rate of change in prices.
- Moving doji star
A bullish three-candle formation in which the middle candle is formed by a doji.
- Moving average
A way of smoothing a set data; widely used time series.
- Nearby Delivery Month
The futures contract month closest to expiration. Also referred to as the Spot Month.
- Net Asset Value
The value of each unit of participation in a commodity pool. Basically a calculation of assets minus liabilities plus or minus the value of open positions when marked to the market, divided by the total number of outstanding units
- Net Performance
An increase or decrease in net asset value exclusive of additions, withdrawals and redemptions.
- National Future Association (NFA)
The Self-Regulatory agency for Forex and for futures and options markets. The Primary responsibilities of the NFA are to enforce ethical standards and customer protection rules, to screen futures professionals for membership, to audit and monitor professionals for financial and general compliance rules, and to provide for arbitration of futures related disputes.
An indication of willingness to sell a futures contract at a given price; the opposite of Bid.
- Omnibus Account
An account carried by one Futures Commission Merchant (FCM) with another FCM in which the transactions of two or more persons are combined and carried in the name of the originating FCM rather than of the individual customers; the opposite of Fully Disclosed.
The period at the beginning of the trading session officially designated by the exchange during which all transactions are considered made “at the open.”
- Open Interest
The total number of futures or options contracts of a given commodity that have not yet been offset by an opposite futures or option transaction nor fulfilled by delivery of the commodity or option exercise. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted.
- Open Outcry
A method of public auction for making bids and offers in the trading pits of futures exchanges.
A Contract that conveys the right, but not the obligation, to buy or to sell a particular item at a certain price for limited time
The Condition of a specific move when the market price has fallen and is in a position for corrective rally or a period of consolidation: the opposite of overbought.
- Open Trade Equity
The unrealized gain or loss on open positions.
- Opening Range
The range of prices at which buy and sell transactions took place during the opening of the market.
- Option Buyer
The purchaser of either a call or put option. Option buyers receive the right, but not the obligation, to assume a futures position. Also referred to as a Holder.
- Option Contract
A contract which gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or a futures contract at a Specific price within a specified period of time. The seller of the option
- Over-the-Counter Market (OTC)
A market where products such as stocks, foreign currencies and other cash items are bought and sold by telephone, Internet and other electronic means of communication rather than on a designated futures exchange.
- Pip (Percentage in points)
One unit of price change in the bid/ask price of a currency. For most currencies, it denoted the fourth decimal place In an exchange rate and represents 1/100 of 1 percent(0.01%).
- Pivot Points
The mathematical calculation formula used to determine the support or resistance ranges in given time period. These formulas can be used to calculate intraday, daily, weekly, monthly, or quarterly range.
The area on the trading floor where trading in futures or options contracts is conducted by open outcry. Also referred to as a ring.
A commitment, either long or short, in the market.
The netted total commitments in a given currency; can be flat or square (no exposure), long (more currency bought than sold) or short (more currency sold then bought).
- Position Limit
The maximum number of speculative futures contracts one can hold as determined by the CFTC and/or the exchange where the contract is traded.
- Position Trader
A trader who either buys or sells contracts and holds them for an extended period of time, as distinguished from a day trader.
(1) The price paid by the buyer of an option;
(2) The price received by the seller of an option;
(3) Cash prices that are above the futures price;
(4) The amount a price would be increased to purchase a better quality commodity; or
(5) A futures delivery month selling at a higher price than another. The dollar value amount placed on an option.
- Product Price Index
An index that shows the cost of goods and services to producers and wholesalers.
- Prime rate
Interest rate charged by major banks to their most creditworthy customers.
- Price Discovery
The determination of the price of a commodity by the market process.
- Price Limit
The maximum advance or decline, from the previous day’s settlement price, permitted for a futures contract in one trading session. Also referred to as Maximum Price Fluctuation.
- Put Option
An option which gives the buyer the right, but not the obligation, to sell the underlying futures contract at a particular price (strike or exercise price) on or before a particular date.
The actual price or the bid or ask price of either cash commodities or futures or options contracts at a particular time.
The difference between the high and low price of a commodity during a given trading session,week, month, year, etc.
There is no such specific Regulatory body who monitors the FX Department while The regulations adopted and enforced by the CFTC in order to administer the Commodity Exchange Act.
The term is used in conjunction with the CFTC’s custome claims procedure to recover civil damages.
- Reportable Positions
The date on which foreign exchanges contracts settle.
- Reciprocal Currency
A currency that is normally quoted as dollars per unit of currency rather than as normal quote of units of currency per dollar.
- Relative Strength Index
A technical indicator used to determine a market in an overbought or oversold condition: was developed by Welles Wilder Jr. to help determine market Reversals.
- Risk Management
The identification and acceptance or offsetting of the risks threatening the profitability or existence of an organisation: with respect to foreign exchange, involves consideration of market, sovereign, country, transfer, delivery, credit, and counterparty risk, among other things.
- Risk position
An asset or liability that is exposed to fluctuations in value through changes in exchange rates or interest rates.
An overnight swap; specifically, the next business day against the following business day; also called “tomorrow next” (Tom – next).
- Round Turn
A completed futures transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.
A trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.
- Segregated Account
A special account used to hold and separate customers’ assets for trading on futures exchanges from those of the broker or firm. Also referred to as Customer Segregated Funds.
- Selling rate
Rate at which a bank is willing to sell foreign currency.
- Settlement date
The date on which foreign exchanges contracts settle.
- Settlement price
The last price paid for a commodity on any trading day. The exchange clearinghouse determines a firm’s net gains or losses, margin requirements, and the next day’s price limits, based on each futures and options contract settlement price; also referred to as “daily settlement price” or “daily closing price.”
- Sharpe ratio
Calculation used to determine trading system’s or method’s stability to individuals trading in order to determine the risk – reward profiles of a system.
- Shooting star
The candle that forms at tops of markets where the shadow is at least twice the length of the real body and the real body forms near the low for the session with little or no shadow at the bottom. This candle resembles an inverted hammer.
The position in a futures market where a trader sells a contract with the intention of buying it back at a lower price for a profit or if at a higher price for a loss. Option traders would be considered “short the option” if they were writers of that option.
- Short sale
The sale of a specified amount of currency not owned by the
seller at the time of the trade; usually made in expectation of a decline in the price.
Refers to the negative (or depreciating) price value between where a stop-loss order becomes a market order and where that market order may be filled.
An investors who is looking to profit from buying or selling derivative products with the anticipation of profiting from price moves by trading in and out of his or her positions.
A technical indicator created by George C. lane that gives an indication of when a market is overbought or oversold.
- Stock index
An indicator used to measure and report value changes in a selected group of stocks. .
- Strike price
The price at which the futures contract underlying a call or put option can be purchased or sold.
A price level that attracts buyers.
The simultaneous purchase and sale of the same amount of a given currency for two different dates against the sale and the purchase of another. A swap can be a swap against the sale and the 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.
- Self-Regulatory Organization (SRO)
Self-regulatory organizations (i.e., the futures exchanges and National Futures Association) enforce minimum financial and sales practice requirements for their members.
- Settlement Price
The last price paid for a futures contract on any trading day. Settlement prices are used to determine open trade equity, margin calls and invoice prices for deliveries. Also referred to as Closing Price.
- Short One who has sold futures contracts or plans to purchase a cash commodity.
A market participant who tries to profit from buying and selling futures and options contracts by anticipating future price movements. Speculators assume market price risk and add liquidity and capital to the futures markets.
Usually refers to a cash market for a physical commodity where the parties generally expect immediate delivery of the actual commodity.
The buying and selling of two different delivery months or related commodities in the expectation that a profit will be made when the position is offset.
- Stop Order
An order that becomes a market order when the futures contract reaches a particular price level. A sell stop is placed below the market, a buy stop is placed above the market.
- Strike Price
The price at which the buyer of a call (put) option may choose to Exercise his right to purchase (sell) the underlying futures contract. Also called Exercise Price.
- Technical Analysis
An approach to analysis of futures markets which examines patterns of price change, rates of change, and changes in volume of trading, open interest and other statistical indicators.
- Thin market
A market in which trading volume is low and in which bid and ask quotes are wide and the liquidity of the instrument traded is low.
- Three crows
A candlestick pattern consisting of three dark candles that close on or at their lows. After an extended advance, this formation can be a strong reversal pattern.
- Three white soldiers
A candlestick pattern consisting of three candles that close at their highs and can indicate a continued advance. This pattern is a reliable indication that prices are moving higher, especially if they develop after a longer period of consolidation at a bottom; opposite of three crow’s formation.
- Tomorrow next (Tom – next)
Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa.
The buying or selling of currencies resulting from the execution of an order.
The smallest increment of price movement for a futures contract. Also referred to as Minimum Price Fluctuation.
- Time Value
The amount of money options buyers are willing to pay for an option in anticipation that over time a change in the underlying futures price will cause the option to increase in value. In general, an option premium is the sum of time value and intrinsic value. Any amount by which an option premium exceeds the option’s intrinsic value can be considered time value. Also referred to as Extrinsic Value.
The condition of an exchange rate when it is below its purchasing power parity.
A transaction executed at a price greater than that of the previous transaction.
- Underlying Futures Contract
The specific futures contract that the option conveys the right to buy (in case of a call) or sell (in the case of a put).
- Variable Limit
A price system that allows for larger than normal allowable price movements under certain conditions. In periods of extreme volatility, some exchanges permit trading at price levels that exceed regular daily price limits.
- Variation Margin
Additional margin required to be deposited by a clearing member firm to the clearinghouse during periods of great market volatility or in the case of high-risk accounts.
A measurement of the change in price over a given time period.
The number of purchases and sales of futures contracts made during a specified period of time, often the total transactions for one trading day.
- Wash trade
A matched deal that produces neither a gain nor a loss.
A Japanese candlestick term referred to as the Western gap.
- Working day
A day on which the banks in a currency’s principal financial centre are open for business. For forex transactions, a working day occurs only if the banks in both financial centers are open for business (all relevant currency centers in the case of a cross are open.)
A person who sells an option and assumes the potential obligation to sell (in the case of a call) or buy (in the case of a put) the underlying futures contract at the exercise price. Also referred to as an Option Grantor.
A measure of the annual return on an investments