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Currency pair. The two currencies that make up a foreign exchange rateList of World Currencies and Symbols Table C.1 is a list of global currencies and the three-character currency codes that we have found are generally used to represent them. Often, but not always, this code is the same as the ISO 4217 standard. (The ISO, or International Organization for Standardization, is a worldwide federation of national standards.) In most cases, the currency code is composed of the countrys two-character Internet country code plus an extra character to denote the currency unit. For example, the code for Canadian dollars is simply Canadas two-character Internet code (CA) plus a one-character currency designator (D). I have endeavored to list the codes that, in my experience, are actually in general industry use to represent the currencies. Currency names are given in the plural form. This list does not contain obsolete Euro-zone currencies. Major Currency Cross Rates Euro Currency Unit On January 1, 1999, eleven of the countries in the European Economic and Monetary Union (EMU) decided to give up their own currencies and adopt the new Euro (EUR) currency: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain. Greece followed suit on January 1, 2001. The Vatican City also participated in the changeover. This changeover is now complete. It is worth noting that any place that previously used one or more of the currencies listed below has now also adopted the Euro. This applies to the Principality of Andorra, the Principality of Monaco, and the Republic of San Marino. This of course applies automatically to any territories, departments, possessions, or collectivities of Euro-zone countries, such as the Azores, Balearic Islands, the Canary Islands, Europa Island, French Guiana, Guadeloupe, Juan de Nova, the Madeira Islands, Martinique, Mayotte, Runion, Saint-Martin, Saint Pierre, and Miquelon, to name just a few. Euro bank notes and coins began circulating in the above countries on January 1, 2002. At that time, all transactions in those countries were valued in Euro, and the old notes and coins of these countries were gradually withdrawn from circulation. The precise dates that each old currency ceased being legal tender. For convenience, and because their values are now irrevocably set against the Euro as listed in Table E.1, the XE.com Universal Currency Converter will continue to support these units even after their withdrawal from circulation. In addition, most outgoing Euro currencies will still be physically convertible at special locations for a period of several years. For details, refer to the official Euro site, www.europa.eu.int/euro. Also note that the Euro is not just the same thing as the former European Currency Unit (or ECU), which used to be listed as XEU. The ECU was a theoretical basket of currencies rather than a currency itself, and no ECU bank notes or coins ever existed. At any rate, the ECU has been replaced by the Euro, which is a bona fide currency. A note about spelling and capitalization: the official spelling of the EUR currency unit in the English language is euro, with a lower case e. However, the overwhelmingly prevailing industry practice is to spell it Euro, with a capital E. Since other currency names are capitalized in general use, doing so helps differentiate the noun Euro, meaning EUR currency, from the more general adjective euro, meaning anything even remotely having to do with Europe. Time Zones and Global Banking Hours The following table emphasizes the importance of the effect of time of day on FOREX market activity and volatility based on hours of operation around the globe. The top row is Greenwich Mean Time expressed in 24-hour military format. Banking hours are arbitrarily assumed to be 9:00 am to 4:00 pm around the globe. Examples of chart usage are: Locate Denver (row 6, or GMT less 7 hours). The first darkened cell in this row indicates when Denver banks open relative to other world banks. Move upward to top row to see that the concurrent time in London is 17:00 or 5:00 P.M., where British banks are now closed. A FOREX trader in New York must trade between 3:00 A.M. and 11:00 A.M. Eastern Standard Time in order to follow the heightened activity in central European markets (GMT+1: Zurich, Frankfurt, Vienna, Copenhagen). San Francisco banks are closing while Sidney banks are opening, and so on. The darkened areas accentuate the major banking centers. FOREX is a 24-hour market. You can trade 24 hours a day. TOD (Time of Day) can strongly influence trading volume, liquidity, and volatility. Glossary algorithmic trading Trading by means of an automated computer program. Sometimes called Program Trading. API (Application Program Interface) Computer code or routines for integrating trading programs to a broker-dealers trading platform, most commonly used to allow a proprietary trading program to read and process a broker-dealers data feed. appreciation A currency is said to appreciate when it strengthens in price in response to market demand. arbitrage The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets. ask price The price at which the market is prepared to sell a specific currency in a foreign exchange contract or cross-currency contract. At this price, the trader can buy the base currency. It is shown on the right side of the quotation. For example, in the quote USD/CHF 1.4527/32, the ask price is 1.4532; meaning you can buy one US dollar for 1.4532 Swiss francs. at best An instruction given to a dealer to buy or sell at the best rate that can be obtained. at or better An order to deal at a specific rate or better. balance of trade The value of a countrys exports minus its imports. ballooning The practice by market makers of increasing pip spreads during fast or illiquid markets. bar chart A type of chart that consists of four significant points: the high and the low prices, which form the vertical bar; the opening price, which is marked with a little horizontal line to the left of the bar; and the closing price, which is marked with a little horizontal line of the right of the bar. base currency The first currency in a currency pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.6215 then one USD is worth CHF 1.6215 In the foreign exchange markets, the US Dollar is normally considered the base currency for quotes, meaning that quotes are expressed as a unit of one USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro, and the Australian Dollar. bear market A market distinguished by declining prices. bid price The bid is the price at which the market is prepared to buy a specific currency in a foreign exchange contract or cross-currency contract. At this price, the trader can sell the base currency. It is shown on the left side of the quotation. For example, in the quote USD/CHF 1.4527/32, the bid price is 1.4527; meaning you can sell one US dollar for 1.4527 Swiss francs. bid/ask spread The difference between the bid and offer price. big figure quote Dealer expression referring to the first few digits of an exchange rate. These digits are often omitted in dealer quotes. For example, a USD/JPY rate might be 117.30/117.35, but would be quoted verbally without the first three digits, that is 30/35. BLS Bureau of Labor Statistics. book In a professional trading environment, a book is the summary of a traders or desks total positions. Woods Agreement of 1944 An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies. broker An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a dealer commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. bull market A market distinguished by rising prices. Bundesbank Germanys central bank. cable Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid1800s. call An option to purchase a currency. cambist An expert trader who rapidly buys and sells currency throughout the day. candlestick chart A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded. cash market The market in the actual financial instrument on which a futures or options contract is based. central bank A government or quasi-governmental organization that manages a countrys monetary policy. For example, the U.S. central bank is the Federal Reserve, and the German central bank is the Bundesbank. centralized market Any market where all orders are routed to one central exchange. FOREX is not a centralized market. CFTC Commodity Futures Trading Commission. chartist An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as a technical trader. cleared funds Funds that are freely available, sent in to settle a trade. closed position Exposures in foreign currencies that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will square the position. clearing The process of settling a trade. CME Chicago Mercantile Exchange. collateral Something given to secure a loan or as a guarantee of performance. commission A transaction fee charged by a broker. confirmation A document exchanged by counterparts to a transaction that states the terms of said transaction. Consumer Price Index (CPI) A weighted average of prices of a basket of consumer goods and services, such as food, medical, and transportation. The CPI is calculated by taking price changes for each item in a specified basket of goods and averaging them according to their estimated importance. contagion The tendency of an economic crisis to spread from one market to another. In 1997, political instability in Indonesia caused high volatility in their domestic currency, the Rupiah. From there, the contagion spread to other Asian emerging currencies, and then to Latin America, and is now referred to as the Asian Contagion. contract The standard unit of trading in futures and options. counter-currency The second listed currency in a currency pair. See also quote currency. counterparty One of the participants in a financial transaction. country risk Risk associated with a cross-border transaction, including but not limited to legal and political conditions. cross-currency pair A foreign exchange transaction in which one foreign currency is traded against a second foreign currency. For example, EUR/GBP. cross rate Same as cross-currency pair. currency Any form of money issued by a government or central bank and used as legal tender and a basis for trade. currency pair The two currencies that make up a foreign exchange rate. For example, EUR/USD. currency risk The probability of an adverse change in exchange rates. day trader A speculator who takes positions in currencies that are then liquidated prior to the close of the same trading session or day. dealer An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. deficit A negative balance of trade or payments. delivery A FOREX trade where both sides make and take actual delivery of the currencies traded. depreciation A fall in the value of a currency due to market forces. derivative A contract that changes in value in relation to the price movements of a related or underlying security, future, or other physical instrument. An Option is the most common derivative instrument. devaluation The deliberate downward adjustment of a currencys price, normally by official announcement. directional movement In technical analysis the net price change from one specified time unit to another specified time unit. downtick A new price quote at a price lower than the preceding quote. econometric analysis Using mathematical formulas or models to make trading decisions with fundamental information and data. economic indicator A government-issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, and so forth. ECN (Electronic Communications Network) A system in which orders to buy and sell are matched through a network of banks and/or dealers. See market maker, the other widely used method of order execution and NDD, a hybrid. ECU European Currency Unit; see EMU. end of day order (EOD) An order to buy or sell at a specified price. This order remains open until the end of the trading day which is typically 5 P.M. EST. European Monetary Union (EMU) The principal goal of the EMU is to establish a single European currency called the Euro, which officially replaced the national currencies of most member EU countries in 2002. On Janaury 1, 1999, the transitional phase to introduce the Euro began. The Euro now exists as a banking currency, and paper financial transactions and foreign exchange are made in Euros. This transition period lasted for three years, at which time Euro notes and coins entered circulation. On July 1, 2002, only Euros became legal tender for EMU participants; the national currencies of the member countries ceased to exist. The original members of the EMU were Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain, and Portugal. As of February 2008, 27 countries belonged to the EMU. Euro The currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU). European Central Bank (ECB) The central bank for the new European Monetary Union. exotics A currency pair with the USD and a lesser traded currency such as the Thai Baht or the Chilean Peso. Considered riskier to trade than the majors or minors. fast market A market is fast when it is hit with a large volume of orders over a short period of time. Markets are often fast after an unexpected news announcement. Federal Deposit Insurance Corporation (FDIC) The regulatory agency responsible for administering bank depository insurance in the United States. Federal Reserve (Fed) The central bank for the United States. first in first out (FIFO) Open positions are closed according to the FIFO accounting rule. All positions opened within a particular currency pair are liquidated in the order in which they were originally opened. flat/square A trader on the sidelines with no position. floating stop An automated Trailing Stop. foreign exchange (FOREX, FX) The simultaneous buying of one currency and selling of another. FOREX futures FOREX traded as a futures contract. forward The prespecified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved. forward points The pips added to or subtracted from the current exchange rate to calculate a forward price. fundamental analysis Analysis of economic and political information with the objective of determining future movements in a financial market. futures contract An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a future and a forward is that futures are typically traded over an exchange (exchange-traded contractsETC), versus forwards, which are considered over the counter (OTC) contracts. An OTC is any contract not traded on an exchange. FX Foreign Exchange. going long The purchase of a stock, commodity, or currency for investment or speculation. going short The selling of a currency or instrument not owned by the seller. gold standard A monetary system whereby a country allows its monetary unit to be freely converted into fixed amounts of gold and vice versa. Gross Domestic Product (GDP) Total value of a countrys output, income, or expenditure produced within the countrys physical borders. Gross National Product (GNP) Gross domestic product plus income earned from investment or work abroad. good till cancelled order (GTC) An order to buy or sell at a specified price. This order remains open until filled or until the client cancels. guerilla trader Similar to a scalper but trades in bursts of several trades then recedes to the sidelines. Sometimes called a sniper. hedge A position or combination of positions that reduces the risk of a primary position. high-frequency trading Trading very frequently; scalping. A high-frequency trader uses tick data. See ultra-high-frequency trading. hit the bid Acceptance of purchasing at the offer or selling at the bid. IMM International Monetary Market. inflation An economic condition in which prices for consumer goods rise, eroding purchasing power. initial margin The initial deposit of collateral required to enter into a position as a guarantee on future performance. Interbank rates The foreign exchange rates at which large international banks quote other large international banks. intervention Action by a central bank to affect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates. |
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