Total amount of exposure a bank has with a customer for both spot and forward contracts.
The simultaneous buying and selling of foreign exchange for the sake of realizing profits from discrepancies between exchange rates prevailing in the market at the same time in different markets.
The price at which a buyer is willing to buy. The best ASK is the lowest such price available (Also see buying rate)
Software that takes decisions on which products to trade and when also known as algorithmic trading.
The Australian dollar – also found as AUD or AU$.
An instruction given to a dealer to buy or sell at the best rate that is currently available in the market.
Paper issued by the central bank, redeemable as money and considered to be full legal tender.
A charting method which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line to the right of the bar.
The interest rate as defined by each country’s Central Bank, used as a benchmark against all other interest rates.
Trader going short or advocating this action in the expectation of a depreciation of a currency. (The opposite of “bullish”)
A market where prices are falling.
The price at which the currency or instrument is offered.
The difference between the buy (bid) and sell (offer) price of a currency or financial instrument.
The second figure after the decimal point.
If AUD/USD is 0.9255, the big figure is 2.
If GBP/USD is 1.9685, the big figure is 6.
The Bank for International Settlements (BIS), Switzerland, also known as the "central bank for central banks." Its mission is to foster cooperation with central banks and promote monetary and financial stability.
Bank of Canada
Bank of England
Bank of Japan
A quantitative method which combines a moving average with the instrument's volatility. The bands were designed to gauge whether the prices are high or low on relative basis. They are plotted two standard deviations above and below a simple moving average. The bands look like an expanding and contracting envelope model.
Deals 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 period or broken period.
Trader going long or advocating this action in the expectation that the currency will appreciate. (the opposite of “bearish”)
A market where prices are rising.
A day when banks are open for business.
Rate at which a bank is prepared to buy foreign exchange. Also known as the Bid Rate.
Buying Selling FX
Buying and selling in the foreign exchange market always happens in the currency which is quoted first. "Buy Dollar/Yen" means buy the dollar/sell the Yen. Traders buy when they expect a currency's value to rise and sell when they expect a currency to fall.
Refers to the GBP/USD currency pair – originating from the transatlantic cable used to transmit the prices.
A type of chart which consist of four major prices: high, low, open, close. The body (jittai) of the candlestick bar is formed by the opening and closing prices. To indicate that the opening was lower than the closing, the body of the bar is left blank. If the currency closes below its opening, the body is filled. The rest of the range is marked by two "shadows": the upper shadow (uwakage) and lower shadow (shitakage).
Exchange rate quoted by the trading banks each day for small foreign exchange transactions.
A 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.
Contract for difference. An agreement, between a broker and an investor, concerning the difference in price of a trading instrument at the time of purchase and at the time of sale.
An individual who studies graphs and charts of historic data to find trends and predict trend reversals which 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.
A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.
Funds that is immediately available to you for settlement of a transaction.
The written document or email confirming the foreign exchange deal between two parties.
The agreed exchange rate at which the currency pair may be exchanged on the settlement date.
Also known as the 'quoted currency,' this is the currency used as the reference or second currency in a currency pair.
The exchange rate between two currencies, e.g., AUD/NZD, where USD is not included.
The unrefined petroleum product, traded on spot and futures’ markets. The Wes Texas Intermediate (WTI) future on crude oil serves as benchmark for oil futures and is traded on the New York Mercantile Exchange (NYMEX).
The 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.
The two currencies that are involved in the exchange transaction.
The DAX is the major German stock market index, tracking the performance of 30 blue-chip German companies, which are traded on the Frankfurt Stock Exchange. The prices used to calculate the DAX are taken from electronic trading system Xetra, which is operated by Deutsche Borse.
An 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.
The buying and selling of foreign currencies in the foreign exchange markets in the world.
On-line computers which link the contributing banks around the world on a one-on-one basis.
The date of maturity of the contract, when the exchange of the currencies is made. This date is more commonly known as the value date in the FX or Money markets.
A decline in the value of a currency in terms of a foreign currency due to market demand rather than official action such as a devaluation.
A downward change in the official parity of the exchange rate from that at which it was previously set. This term is inappropriate in the context of a floated currency i.e. the AUD
Amount by which a currency is cheaper to buy for future delivery than for spot delivery.
In international finance "the dollar" is always the U.S. dollar. All other "dollar" currencies should be described specifically. i.e. The Australian Dollar.
One of the most popular market indices in the world, of 30 largest US companies – leaders in their industry. A price - weighted index, where higher-priced stocks have more influence over the index’s performance than lower-priced ones.
Indicates that a currency is weakening/weaker than from where it was previously quoted.
European Central Bank, the central bank for the Eurozone.
Statistical data about a country's economy, regarding unemployment, gross domestic product (GDP), consumer price index (CPI), the housing sector etc.
Elliot Wave Principle
A system of empirically derived rules for interpreting action in the markets. It refers to a five-wave/three-wave pattern which forms one complete bull market /bear market cycle of eight waves.
Euro Stoxx 50
This is the leading Eurozone’s capitalization- wighted, blue-chip index, composed by companies – leaders in their respective sectors. It features 50 stocks from 11 eurozone countries, namely Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
The expression of value of one currency in terms of another. For example, in the exchange rate AUD/USD0.8950, one Australian dollar is equal to 89.50 United States cents (AUD1.0000 = USD0.8950).
The date at which an option transaction is expired which is usually 2 business days before the settlement date.
Currencies not having a developed international market, and which are infrequently dealt – thus are characterized by illiquidity, with, consequently, large bid – ask spreads.
(Federal Reserve): the central bank of the United States. The decision on US monetary policy lies with the Federal Open Market Committee (FOMC).
Indicates that a currency is strengthening or is stronger than previously quoted.
Foreign Exchange Market
Market where currencies are traded internationally. About 3 trillion (3 million million) dollars-worth of foreign exchange is traded globally every day, making forex larger than all bond markets put together. Currency markets exist in the form of spot, forward, futures and options markets. Foreign exchange transactions are made up of: Trade flows Only 5% to 10% of total forex transactions. Imports usually need to be paid for in the currency of the country from which they originate. Exports are usually paid for in one's own currency. A trade deficit therefore causes a currency to depreciate. Flow-ons Created when a large trade is split up into several smaller trades. Capital flows Cross-border investment. Speculation Short-term investment based on expected currency movements. This accounts for the lion's share of forex market volume.
A transaction with a settlement date that is more than 2 business days after the trade date.
Forward Exchange Rate
The expression of value of one currency in terms of another where the settlement date is more than 2 business days after the trade date. A forward exchange rate is the spot exchange rate of the currencies on the trade date adjusted for the forward points.
The value of the interest rate differential for the currency pair over the period from the spot settlement date to the forward settlement date, expressed as an adjustment to the spot exchange rate.
Forward Settlement Date
A settlement date for a Forward transaction, which is greater than 2 business days from the trade date.
The basic economic determinants of exchange rates, such as inflation, interest rates, commodity prices and economic activity.
The seven leading industrial countries: The United States, Germany, Japan, France, United Kingdom, Canada, and Italy.
Good Until Cancelled
An instruction to a broker that unlike normal practice the order does not expire at the end of the trading day, although normally terminates at the end of the trading month.
Haven (safety haven)
Currencies that draw investors’ preference, during time of market turbulence – like CHF and JPY.
Head and Shoulders
A pattern in price trends which chartist consider 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 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.
A strategy used to offset market risk, whereby one position protects another.
Currency which cannot be exchanged for other currencies, because it is forbidden by the foreign exchange regulations.
A market-maker's price which is not firm for dealing.
The International Monetary Fund, the mission of which is to promote global growth and economic stability, while in parallel, finance its members in economic difficulties.
Continued 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.
The specification of the banks at which funds shall be paid upon settlement.
The bid and offer rates at which international banks place deposits with each other. The basis of the Interbank market.
Interest Rate Differential
The difference between the interest rates applicable to the currency pair.
Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.
The New Zealand Dollar (NZD).
Taking the left hand side of a two way quote i.e. selling the quoted currency. AUD/USD = .9310/15, you would sell on the LHS at .9310.
In terms of foreign exchange , the obligation to deliver to a counterparty an amount of currency either in respect of a balance sheet holding at a specified future date or in respect of an un-matured forward or spot transaction.
Excess of purchases over sales or of foreign currency assets over liabilities.
Make a Market
A dealer is said to make a market when they quote bid and offer prices at which they stand ready to buy and sell.
Market to Market
The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins.
A market maker is a person or firm authorised to create and maintain a market in an instrument.
An order to buy or sell a financial instrument immediately at the best possible price.
Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward.
Market Spot Exchange Rate
The current or prevailing spot exchange rate in the foreign exchange market.
Date on which, under the contracted agreements, the foreign exchange is to be delivered or received.
Mid-price or Middle Rate
The price half-way between the two prices, or the average of both buying and selling prices offered by the market makers.
One million. 1,000,000.
A modest loosening of monetary constraint by changing interest rate, money supply, deposit ratios.
A central bank's management of a country's money supply. Economic theory underlying monetary policy suggests that controlling the growth of the amount of money in the economy is the key to controlling prices and therefore inflation. However, central banks' monetary capability is severely limited by global money movements. This forces them to use the indirect tool of exchange rate manipulation.
A market consisting of financial institutions and dealers in money or credit who wish to either borrow or lend.
A way of smoothing a set of data, widely used in price time series.
The price at which a seller is willing to sell. The best offer is the lowest such price available.
One Cancels Other Order (O.C.O. Order)
A contingent order where the execution of one part of the order automatically cancels the other part.
The difference between assets and liabilities in a particular currency. This may be measured on a per currency basis or the position of all currencies when calculated in base currency.
Optional Settlement Period
A range of settlement dates allowed under a Forward transaction agreed between you and Pepperstone before the Forward transaction is entered.
A forward deal that is not part of a swap operation.
Quantitative methods designed to provide signals regarding the overbought and oversold conditions.
Is the term applied when the forward price of the purchase or sale of a currency is the same as the spot price.
(1) 100th part of a per cent, normally 10,000 of any spot rate. Movement of exchange rates are usually in terms of points. i.e. if AUD/USD moves from .9310 to .9320, it has moved 10 points / pips. (2) Minimum fluctuation or smallest increment of price movement.
The netted total commitments 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).
Amount by which a currency is more expensive to buy for future delivery than for spot delivery.
Profit & Loss or P&L
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 Mark-to-Market.
An indicative price. The price quoted for information purposes but not to deal.
A recovery in price after a period of decline.
The difference between the highest and lowest price of a future recorded during a given trading session.
Resistance Point or Level
A price recognised by technical analysts as a price which is likely to result in resistance but if broken through is likely to result in a significant price movement.
Taking the right hand side of a two way quote i.e. buying the quoted currency. AUD/USD = .9310/15, you would buy on the RHS at .9315.
The extension of a maturing foreign exchange contract.
Excess of sales over purchases or of foreign currency liabilities over assets.
Foreign exchange bought and sold for delivery two business days after the deal is firmed.
An arrangement whereby a position is automatically closed out when it reaches a certain loss or when exchange rates reach specified values.
Is concerned with past price and volume trends and often with the help of chart analysis in a market in order to be able to make forecasts about future price developments of the commodity being traded.
An adjustment to price not based on market sentiment but technical factors such as volume and charting.
The period from and including the trade date to and including the settlement date.
A 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.
Tomorrow Next (Tom Next)
Simultaneous buying of a currency for delivery the following day and selling for the spot day or vice versa.
The date on which a transaction is entered into.
The period from and including the trade date to and including the settlement date.
When a dealer quotes both buying and selling rates for foreign exchange transaction.
A transaction executed at a price greater than the previous transaction.
For exchange contracts it is the day on which the two contracting parties exchange the currencies which are being bought or sold. For a spot transaction it is two business banking days forward in the country of the bank providing quotations which determine 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 his 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 centres 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.
A transaction with a settlement date that is on the same day as the trade date.
A transaction with a settlement date that is 1 business day after the trade date.
A measure of the extent to which the exchange rate changes over a given period.
The number, or value, of securities traded during a specific period.
A day on which the banks in a currency's principal financial centre are open for business. For FX transactions, a working day only occurs if the bank in both (all relevant currency centers in the case of a cross) are open.