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Glossary

Arbitrage: Simultaneous purchase of cash commodities or futures in one market against the sale of cash commodities or futures in the same or a different market to profit from a discrepancy in prices. Also includes some aspects of hedging. Bar Chart: 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. Bank Notes: Paper issued by the central bank, redeemable as money and considered to be full legal tender. Base Currency: The currency in which the operating results of the bank or institution are reported. Base Price: One hundredth of a percentage point. 50 basis points [50bp] is half a percentage point. Bear Call Spread: A spread designed to exploit falling exchange rates by purchasing a call option with a high exercise price and selling one with a low exercise price. Bear Put Spread: A spread designed to exploit falling exchange rates by purchasing a put option with a high exercise price and selling one with a low exercise price. Bid-Offer Spread: The difference between the buy (bid) and sell (offer) price of a currency or financial instrument. Breakaway gap: A price gap which occurs in the beginning of a new trend, many times at the end of a long consolidation period. It may also appear after the completion of major chart formations. Break-Even Point: The price of a financial instrument at which the option buyer recovers the premium. Buying Rate: 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/mark" means buy the dollar/sell the mark. Traders buy when they expect a currency's value to rise and sell when they expect a currency to fall. Closed position: A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency. Cross-Rate: The exchange rate between two currencies, e.g., Yen / USD. Currency: 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. If one US dollar can buy 1.55 Deutschmarks, then one Deutschmarks can buy 0.65 US dollars. Gap: The price Gap between consecutive trading ranges ( i.e. the low of the current range is higher than the high of the previous range) GTC:  Good-Till-Canceled. An order left with a Dealer to buy or sell at a fixed price. The GTC will remain in place until executed or canceled. LIBOR: London Interbank Offer Rate. The interest rate that the largest international banks will lend to each other. Lagging Indicator: A measure of economic activity which tends to change after change has occurred in the overall economy e.g. CPI. At-the-Money: When an option's exercise price is the same as the current trading price of the underlying commodity, the option is at-the-money. In-The-Money: A term used to describe an option contract that has a positive value if exercised. A call at $400 on gold trading at $10 is in-the-money 10 dollars. Limit Order:  An order to buy at or below a specified price or to sell at or above a specified price. Margin Call:  A requirement from a broker or dealer for additional funds or other collateral to bring the margin up to a required level to guarantee performance on a position that has moved against the customer. Margin Trading: Foreign exchange trading is normally undertaken on the basis of margin trading. A relatively small deposit is required in order to control much larger positions in the market. This is possible because when you buy one currency you sell another. Margin requirements are set by your Customer broker and vary from as little as 1% to 10% margin. This means that in order to trade 1,000,000 USD on 1 % margin, you need to place just 10, 000 USD by way of security. That same security of 10,000 USD, traded on a 10% margin could control up to 100,000 USD bought or sold against another currency Market Maker:  A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices. A market maker runs a trading book. Market Order:  An order to buy/sell at the best price available when the order reaches the market. 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. Out-Of-The-Money: A term used to describe an option that has no intrinsic value. For example, a call at $400 on gold trading at $390 is out-of-the-money 10 dollars. Pips (Basis points) Refers to the last decimal place of a quotation. Risk Capital: The amount of money that an individual can afford to invest, which, if lost would not affect their lifestyle. Short: To go `short` is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit. Short position:  When one sells a currency, their position is short. Spread: The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity. Stop Order:  An order to buy/sell at an agreed price. One could also have a pre- arranged stop order, whereby an open position is automatically liquidated when a specified price is reached or passed. Overbought:  A technical opinion that the market price has risen too steeply and too fast in relation to underlying fundamental factors. Rank and file traders who were bullish and long have turned bearish. Oversold:  A technical opinion that the market price has declined too steeply and too fast in relation to underlying fundamental factors. Rank and file traders who were bearish and short have turned bullish. FOK: (Fill or Kill Order): An order which demands immediate execution or cancellation.