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Market maker - A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided marketIntroducing Broker Generally a small broker who relies on a larger broker-dealer to execute his trades and hold fiduciary responsibility for client funds. King Kong syndrome The emotional high that overtakes a trader when he or she does exceptionally well for a period of time, such as making a dozen consecutive winning trades. Usually followed by a large losing trade and a reality check. Kiwi Slang for the New Zealand dollar. leading indicators Statistics that are considered to predict future economic activity. leverage Also called margin. The ratio of the amount used in a transaction to the required security deposit. LIBOR The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank. limit order An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 117.00/05, then a limit order to buy USD would be at a price below 102 (that is, 116.50). liquidation The closing of an existing position through the execution of an offsetting transaction. liquidity The ability of a market to accept large transactions with minimal to no impact on price stability; also the ability to enter and exit a market quickly. long position A position that appreciates in value if market prices increase. When the base currency in the pair is bought, the position is said to be long. Loonie Slang for the Canadian Dollar. lot A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots. major currency Any of the following: Euro, Pound Sterling, Australian Dollar, New Zealand Dollar, U.S. Dollar, Canadian Dollar, Swiss Franc, Japanese Yen. See also minor currency. managed account Having a third party such as a professional money manager make trading decisions for you. Also called a discretionary account. margin The required equity that an investor must deposit to collateralize a position. margin call A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer. market maker A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument. Most retail FOREX dealers are market makers. A market maker is said to have a dealing desk. market risk Exposure to changes in market prices. market-to-market Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements. maturity The date for settlement or expiry of a financial instrument. mercury chart A modified bar chart used in commodity futures. Each bar shows the price range for a time unit and changes in open interest and volume from the previous time unit. minor currency Any of the currencies between a major currency and an exotic. The Italian Lira and Swedish Krona are minor currencies. money management The techniques a trader utilizes to manage his money both in the aggregate and for specific trades. money supply The aggregate quantity of coins, bills, loans, credit, and any other liquid monetary instruments or equivalents within a given countrys economy. Mundo A synthetic global currency calculated as the average of multiple ISO currency pairs. See Michael Archer and James Bickford, Forex Chartist Companion (John Wiley & Sons, 2006). The Mundo is useful for creating indices for currency-to-currency or pair-to-pair analysis. NDD A no dealing desk broker. Provides a platform where liquidity providers such as banks can offer prices to the NDD platform. Incoming orders are routed to the best available bid or offer. See also market maker and ECN. net position The amount of currency bought or sold that have not yet been offset by opposite transactions. NFA National Futures Association. offer The rate at which a dealer is willing to sell a currency. See Ask Price. offsetting transaction A trade that serves to cancel or offset some or all of the market risk of an open position. one cancels the other order (OCO) A designation for two orders whereby when one part of the two orders is executed the other is automatically cancelled. open order An order that will be executed when a market moves to its designated price. Normally associated with good till cancelled orders. open position An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal. option A FOREX option is the right to purchase or sell a currency at a specified price for a specified time period. over the counter (OTC) Used to describe any transaction that is not conducted over an exchange. overnight position A trade that remains open until the next business day. order An instruction to execute a trade at a specified rate. P & L Profit and Loss; often used in reference to an account statement. pips The smallest unit of price for any foreign currency. Digits added to or subtracted from the fourth decimal place, that is, 0.001, for example. point and figure charts Similar to swing charts but use Xs to denote upward moving prices and Os to denote downward moving prices. political risk Exposure to changes in governmental policy that will have an adverse effect on an investors position. position The netted total holdings of a given currency. position trader A trader who holds positions over multiple trading sessions. premium In the currency markets, describes the amount by which the forward or futures price exceed the spot price. pretzel chart A price chart connecting the open, high, low, and close in such a fashion that it resembles a pretzel with two closed three-sided spaces connected through a center point. price transparency Describes quotes to which every market participant has equal access. profit/loss or p/l or gain/loss The actual realized gain or loss resulting from trading activities on closed positions, plus the theoretical unrealized gain or loss on open positions that have been market-to-market. programmed trading See algorithmic trading. put An option to sell a currency. pyramiding Adding to a position as the market moves up or down. Pyramiding a winning position is risky; pyramiding a losing position is suicide. quote An indicative market price, normally used for information purposes only. quote currency The second currency quoted in a FOREX currency pair. In a direct quote, the quote currency is the foreign currency itself. In an indirect quote, the quote currency is the domestic currency. See also base currency and counter-currency. rally A recovery in price after a period of decline. range The difference between the highest and lowest price of a future recorded during a given trading session. rate The price of one currency in terms of another, typically used for dealing purposes. requoting The practice of a broker-dealer filling an order at a price not seen on their public price feed. Like ballooning and running stops most typical of market makers and frowned upon by traders. resistance levels A term used in technical analysis indicating a specific price level at which analysis concludes that people will sell. revaluation An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of devaluation. risk Exposure to uncertain change, most often used with a negative connotation of adverse change. risk management The employment of financial analysis and trading techniques to reduce and control exposure to various types of risk. rollover Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies. round trip Buying and selling of a specified amount of currency. running stops The practice of market makers entering orders for the purpose of hitting customer stop-loss orders. Also called harvesting stops. Like ballooning, considered a negative practice by traders. scalper Someone who trades very often. Trades are typically measured in minutes but sometimes seconds. SEC Securities Exchange Commission. settlement The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another. short position An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short. slippage The difference in pips between the order price approved by the client and the price at which the order is actually executed. spot price The current market price. Settlement of spot transactions usually occurs within two business days. spread The difference between the bid and offer prices. Sterling Slang for British Pound. stop-loss order Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investors position. As an example, if an investor is long USD at 156.27, he might wish to put in a stop-loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49. support levels A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance. swap A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate. swing chart A form of charting connecting prices filtered by a minimum increment. Similar to point and figure charts. Pugh swing charts use vertical lines connected by short horizontal lines. Line swing charts use angular lines connecting price to price. Swing charts are said to be price-functional; the time frame is not a parameter. Swissy Market slang for Swiss Franc. technical analysis An effort to forecast prices by analyzing market data, that is, historical price trends and averages, volumes, open interest, and so forth. tick A minimum change in time required for the price to change, up or down. trading session Most commonly means one of the three 8-hour sessions for trading FOREX over a 24-hour period: Asian, European, and North American. Technically there are five sessions between Sunday evening and Friday evening: The New York exchange trades from 7:30 A.M. to 5 P.M. EST. The Sydney, Auckland, and Wellington exchanges trade from 3 P.M. to 11 P.M. EST. The Tokyo Exchange trades from 6 P.M. to 11 P.M., stopping for an hour-long lunch break then trading again until 4 A.M. EST. The Hong Kong and Singapore exchanges trade from 7 P.M. to 3 A.M. EST. The last exchanges trading are the Munich, Zurich, Paris, Frankfurt, Brussels, Amsterdam, and London exchanges. These all trade from 2:30 P.M. to 11:30 A.M. EST. trailing stop The practice of moving a stop-loss in the direction of the markets movement. Used primarily to protect profits. See also floating stop. transaction cost The cost of buying or selling a financial instrument. transaction date The date on which a trade occurs. turnover The total money value of all executed transactions in a given time period; volume. two-way price When both a bid and offer rate is quoted for a FOREX transaction. ultra-high-frequency trading Trading extremely frequently; limited only by how fast you can click the mouse. Called churning the customers account in the old days. unrealized gain/loss The theoretical gain or loss on open positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized gains losses become profits/losses when the position is closed. uptick A new price quote at a price higher than the preceding quote. uptick rule In the United States, a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed. U.S. prime rate The interest rate at which U.S. banks will lend to their prime corporate customers. value date The date on which counterparts to a financial transaction agree to settle their respective obligations, that is, exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date. variation margin Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements. volatility A statistical measure of a markets price movements over time characterized by deviations from a predetermined central value (usually the arithmetic mean). Also, the gross price movement over a specified period of time given a minimum value unit. See also directional movement for net price movement. whipsaw Slang for a condition where any securities market begins moving laterally exhibiting very little volatility. yard Slang for a billion. |
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