A                  

 
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    Ask

    The quoted offer at which someone can buy; also called the offer price

B

 
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    Base currency

    The base currency is the first currency in a currency pair, and the currency that remains constant when determining a currency pair's price. The United States Dollar (USD) and the European Union Euro(EUR) are the dominant base currencies in terms of daily traded volume in the foreign exchange market. The British Pound (GBP), also called sterling, is the third ranking base currency. The USD based pairs are USD/JPY, USD/CHF and USD/CAD; the Euro based pairs are EUR/USD, EUR/JPY, EUR/GBP, and EUR/CHF. The GBP is the base for GBP/USD and GBP/JPY. The Australian Dollar (AUD) is its own base against the USD (AUD/USD).
  • Basis

    The difference between the spot price and the futures price.
  • Basis point

    One hundredth of a percentage point.
  • Bid /Ask Spread

    The difference between the bid and offer (ask) prices; also known as a two-way price.

C

 
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    Central bank

    The principal monetary authority of a nation, controlled by the national government. It is responsible for issuing currency, setting monetary policy, interest rates, exchange rate policy, and the regulation and supervision of the private banking sector. The Federal Reserve is the central bank of the United States. Others include the European Central Bank, Bank of England, and the Bank of Japan.
  • Conversion

    The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.
  • Cross Rates

    An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example,in the U.S., a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded.
  • Currency

    A country's unit of exchange issued by their government or central bank whose value is the basis for trade.
  • Currency (exchange rate) risk

    The risk of incurring losses resulting from an adverse change in exchange rates.

D

 
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    Devaluation

    Lowering of the value of a country's currency relative to the currencies of other nations. When a nation devalues its currency, the goods it imports become more expensive, while its exports become less expensive abroad and thus more competitive.
  • Drawdown

    The magnitude of a decline in account value, either in percentage or dollar terms, as measured from peak to subsequent trough. For example, if a trader's account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5,000 (incurred when the account declined from $20,000 to $15,000) even though that trader's account was never in a loss position from inception.

E

 
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    Entry Orders

    An order used to enter a trade once a currency pair hits a pre-determined price level.
  • Entry Limit Orders

    An order initiating an open position to sell as the market rises, or buy as the market falls. The client believes the market will reverse direction at the level of the order. 

    a. Buy Entry Limit: An order to buy at a price Below the current market
    b. Sell Entry Limit: An order to sell at a price Above the current market.
  • Entry Stop Orders

    An order initiating an open position to sell as the market falls, or buy as the market rises. The client believes that prices will continue to move in the same direction as the previous momentum after hitting the order level. 

    a. Buy Entry Stop: An order to buy at a price Above the current market. 
    b. Sell Entry Stop: An order to sell at a price Below the current market.
  • Euro

    The currency of the European Monetary Union (EMU), which replaced the European Currency Unit (ECU). The countries currently participating in the EMU are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, and Spain.
  • Exchange rate

    The price of one currency stated in terms of another currency. Example: $1 Canadian Dollar (CDN) = $0.7700 US Dollar (USD)

F

 
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    Fixed exchange rate

    A country's decision to tie the value of its currency to another country's currency, gold (or another commodity), or a basket of currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.
  • Foreign exchange (Forex)

    The simultaneous buying of one currency and selling of another in an over-the-counter market.

G

 
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    G-7

    The seven leading industrial countries, being the United States, Germany, Japan, France, Britain, Canada, and Italy.
  • G-10

    G7 plus Belgium, Netherlands and Sweden, a group associated with the IMF discussions. Switzerland is sometimes involved.
  • G-20

    A group composed of the finance ministers and central bankers of the following 20 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States, and the European Union. The IMF and the World Bank also participate. The G-20 was set up to respond to the financial turmoil of 1997-99 through the development of policies that “promote international financial stability”.

H

 
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    Hedge fund

    A private, unregulated investment fund for wealthy investors (minimum investments typically begin at US$1 million) specializing in high risk, short-term speculation on bonds, currencies, stock options and derivatives.
  • Hedging

    A strategy designed to reduce investment risk. Its purpose is to reduce the volatility of a portfolio by investing in alternative instruments that offset the risk in the primary portfolio.

L

 
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    London Inter-Bank Offer Rate or LIBOR

    The standard for the interest rate that banks charge each other for loans (usually in Eurodollars ). This rate is applicable to the short-term international interbank deposit market, and applies to very large loans borrowed from one day to five years. This market allows banks with liquidity requirements to borrow quickly from other banks with surpluses, enabling banks to avoid holding excessively large amounts of their asset base as liquid assets. The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.
  • Leverage

    The degree to which an investor or business is utilizing borrowed money. For investors, leverage means buying on margin to enhance return on value without increasing investment. The amount, expressed as a multiple, by which the notional amount traded exceeds the margin required to trade. For example, if the notional amount traded is $100,000 dollars and the required margin is $2,000, the trader can trade with 50 times leverage ($100,000/$2,000). Leveraged investing can be extremely risky because you can lose all the money you invested.
  • Limit Orders

    A limit order is an order tied to a specific position for the purpose of locking in the gains from that position, while a limit order placed on a buy position is an order to sell. A limit order placed on a sell position is an order to buy. All limit orders remain in effect until the position is liquidated or cancelled by the client.
  • Liquidity

    The ability of a market to accept large transactions. A function of volume and activity in a market, it is the efficiency and cost effectiveness with which positions can be traded and orders executed. A more liquid market will provide more frequent price quotes at a tighter bid/ask spread.
  • Long

    A position purchasing a particular currency against another currency, anticipating that the value of the purchased currency will appreciate against the second currency.

M

 
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    Margin

    Funds that customers must deposit as collateral to cover any potential losses from adverse movements in prices.
  • Margin Call

    A requirement for additional funds or other collateral, from a broker or dealer, to increase margin to a necessary level to guarantee performance on a position that has moved against the customer.
  • Market Maker

    A dealer that supplies prices, and is prepared to buy and sell at those bid and ask prices. Some CFTC registered FDMs are market makers.
  • Market Order

    An order to buy or sell which is to be filled immediately at the prevailing currency price.

O

 
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    OCO (One Cancels the Other)

    A stop-loss order and a limit order linked to a specific position. One order, the stop, is to prevent additional loss on the position, and one order, the limit, is to take profit on the position. When either order is executed, closing the position, the other is automatically cancelled.

P

 
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    Pip (tick)

    The term used in currency markets to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point. For example, 0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY.
  • Position

    A view expressed by a trader through the buying or selling of currencies, and can also refer to the amount of currency either owned or owed by an investor.
  • Premium (cost of carry)

    The cost or benefit associated with carrying an open position from one day to the next calculated by using the differential in short-term interest rates between the two currencies in the pair.

R

 
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    Revaluation

    An increase in the foreign exchange value of a currency that is pegged to other currencies or gold.
  • Revaluation rates

    The rate for any period or currency, which is used to revalue a position or book. The revaluation rates are the market rates used when a trader runs an end-of-day to establish profit and loss for the day.
  • Rollover

    The settlement of a deal is rolled forward to another value date with the cost of this process based on the interest rate differential of the two currencies. An overnight swap, specifically the next business day against the following business day.

S

 
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    Short

    To sell a currency without actually owning it, and to hold a short position with expectations that the price will decrease so that it can be bought back at a later time at a profit.
  • Spread

    The difference between the bid and offer (ask) price of a currency, used to measure market liquidity. Narrower spreads usually signify high liquidity.
  • Spot Price

    Current market price. Settlement of spot transactions normally occurs within two business days.
  • Stop-Loss Orders

    An order linked to a specific position to close that position and prevent additional losses. A stop-loss order will be executed when the displayed price on GTS touches the order price. The executed price will be the order price or in the case of a fast market the order will be executed at the next displayed price. When a stop-loss order is placed on a buy position it is an order to sell that position. While a stop-loss order on a sell position is an order to buy that position. All stop-loss orders remain in effect until the position is liquidated or cancelled by the client.
  • Swaps

    A foreign exchange swap is a trade that combines both a spot and a forward transaction into one deal, or two forward trades with different maturity dates.

T

 
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    Trailing Stop

    Logic allows clients to designate a stop order, on either an already open trade or on an entry order, as "Trailing".

    If this option is chosen then the stop order(s) attached to an open trade (including executed entry orders) will trail the market price by client-selected, pre-determined minimum increments. Trailing will only occur when the market price moves in favor of the trade to which the order is attached. Clients can chose to have the stop trail the market by a minimum of ten pips up to a maximum of nine hundred and ninety-nine, either by selecting from the default drop-down menu or enter their own chosen value. 

    For example:
    If ten pips is selected as the "Market Price Move" amount then every time that the market price moves in favor of the open trade, by ten pips or more, the attached stop(s) will be moved by the equivalent value in the same direction. This will occur automatically and will continue to lock in profits or reduce losses without client intervention or monitoring. Should the market suddenly reverse direction, then the last established stop(s) will hold and will not trail the market when the market price is moving against the client's order. 
    Client Risk Tolerance 
    Example: A client places a trade and attaches a stop 20 pips away. That client is therefore prepared to risk a loss of 20 pips on the trade should the market move against them. If a client selects "Trailing Stop" then the original risk parameter will be reflected each time the stop is trailed. This means that each time a stop rate is adjusted it will always be set 20 pips away from the market rate at the time it is adjusted or trailed. 

    Basic Example using a selected "Market Price Move" of ten pips. 
    Step one: Client places market order to sell EUR/USD at 1.2050. 
    (Market price 1.2050/1.2053) 

    Step two: Client attaches a stop on this order to buy EUR/USD at 1.2080 
    (30 pips loss parameter from original trade rate). 

    Step three: Client designates this stop as "Trailing" and chooses a 10-pip 
    minimum trail-by amount. 

    Step four: Client submits stop order. 
    (Market price at time of submission 1.2048/1.2051) 

    Step five: Reference rate for Trailing Stop will be the ask price, 1.2051. 
    (1.2051-10 pips) 

    Once the market price moves in the client's favor by ten pips, or more, 
    1.2051 to 1.2041, then the attached stop will be adjusted by ten pips,
    1.2080 to 1.2070. 

    What happens if market prices change by MORE than client-selected "Market Price Move" amount? 
    Should the market move by MORE than the selected “Market Price Move” (in this case
    ten pips) then the trailing stop would be adjusted accordingly. To use the previous
    example, once the market moves ten pips from the reference rate then the stop will
    be trailed, therefore at 1.2041, or better, the stop will be moved. 

    Market Reference Rate for Trailing Stop is 1.2051, first stop price move will occur at
    1.2041 if a 10 pip "trail-by" amount is chosen. 

    Market moves 1.2051 to 1.2047 – Stop does not change. 

    Market moves 1.2047 to 1.2042 – Stop does not change. 

    Market moves 1.2042 to 1.2039 (2 pips beyond target rate of 1.2041) – Stop will be
    reset to 1.2068 (1.2080 – 12 pip "market price move" in favor of trade = 1.2068) 

    New Reference Rate for next stop adjustment will be 1.2029 (10 pips from current
    market price of 1.2039) 

    Important New Feature 

    For the benefit of our clients we have added a column in pending orders with the
    heading, "TS Move @ In Pips". This displays, in real-time, the next price at which the
    trailing stop will be reset / trailed and also shows exactly how many pips that "Move
    Price" is from the current market price. Please be aware that this "Move price" will
    reflect the market bid or ask price depending on whether the trailing stop is a sell
    stop or a buy stop. Once the market price reaches, or moves through, this "Move
    Price", the trailing stop will be adjusted and the new rate will be displayed in pending
    orders. 

U

 
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    Uptick

    A new price quote that is higher than the preceding quote for the same currency.