Glossary of Terms

The following offers brief explanation of the most popular terms used in the currency market today.


Aggregate (Risk)

Total exposure a bank has with a customer for both spot and forward contracts.

Aggregate Demand

Total demand for goods and services in the economy. Aggregate demand includes private and public sector demand for goods and services within the country, and the demand of consumers and firms in other countries for goods and services.

Aggregate Supply

Total supply of goods and services in the economy (including imports) available to meet aggregate demand.


Difference in the value between currencies. Also used to describe percentage charges for conversion from paper money into cash, or from a weak into a strong currency.

American Option

An option which may be exercised on any valid business date throughout the life of the option. A European option can only be exercised on a specific date.


Describes a currency strengthening in response to market demand as opposed to increasing in value as a result of official action.


A risk-free type of trading where the same instrument is bought and sold simultaneously in two different markets in order to cash in on the difference between the markets.


Used in quoting forward premium/discount.

Ask Price

The price at which the currency or instrument is offered. Ask is the lowest price acceptable to the buyer.


The right to receive from a counterparty an amount of currency either in regards to a balance sheet asset (e.g. a loan), or at a specified future date in regards to an unmatched Forward or spot deal.

Association Cambiste International

The international society of foreign exchange dealers consisting of national "Forex clubs" affiliated on a worldwide basis.

At Best

An instruction given to a dealer to buy or sell at the best rate that is currently available in the market.

At or Better

An order to deal at a specific rate or better.

At Par Forward Spread

When the forward price is equivalent to the spot price.

At the Price Stop-Loss Order

A stop-loss order that must be executed at the requested level regardless of market conditions.


An option whose strike/exercise price is equal to or near the current market price of the underlying instrument.


Sale of an item to the highest bidder. (1) A method commonly used in exchange control regimes for the allocation of foreign exchange. (2) A method for allocating government paper, such as US Treasury Bills. Small investors are given preferential access to the bills. The average issuing price is then computed on the basis of the competitive bids accepted. In some circumstances, such as government auctions, it is the yield rather than the price which is bid.

Average Rate Option

A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an Asian option.


Back Office

Settlement and related processes.

Back to Back

(1) Transaction where all the obligations and liabilities in one transaction are mirrored in a second transaction. (2) Transaction where a loan is made in one currency in one country against a loan in another country in another currency.

Balance of Payments

A systematic record of the economic transactions during a given period for a country. (1) The term is often used to mean either: (i) balance of payments on current account; or (ii) the current account plus certain long term capital movements. (2) The combination of the trade balance, current balance, capital account and invisible balance, which together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital transfers, and or decline in currency values.

Balance of Trade

The value of exports less imports. Invisibles are normally excluded, which is why balance of trade is also referred to as mercantile or physical trade. Figures can be quoted as FoB/FaS , customs cleared, or FoB export.


The range in which a currency is permitted to move. A system used in the ERM.

Bank Line

Line of credit granted by a bank to a customer, also known as a "line".

Bank Notes

Bank notes are paper issued by the central or issuing bank. They are legal tender, but are not usually considered to be part of the FX market. However bank notes can be converted, in some countries, into FX. Bank notes are normally priced at a premium to the current spot rate for a currency.

Bank Rate

The rate at which a central bank is prepared to lend money to its domestic banking system.

Banking Day

See trading day and value date.

Barrier Option

A family of path dependent options whose pay-off pattern and survival to the expiration date depend not only on the final price of the underlying currency, but also on whether or not the underlying currency breaks a predetermined price level at any time during the life of the option. See Down and Out call/put, Down and in call/put, Up and out call/put, Up and in call/put.

Base Currency

The currency in which the operating results of the bank or institution are reported.

Base Rate

A term used in the UK for the rate used by banks to calculate the interest rate to borrowers. Top quality borrowers will pay a small amount over base.


The difference between the cash price and futures price.

Basis Convergence

The process whereby the basis tends towards zero as the contract expiry approaches.

Basis Point

One per cent of one per cent.

Basis Price

The price expressed in terms of yield maturity or annual rate of return.

Basis Trading

Taking opposite positions in the cash and futures market with the intention of profiting from favorable movements in the basis.


A group of currencies normally used to manage the exchange rate of another currency, sometimes referred to as a unit of account.


A person (investor) who believes that prices will decline.

Bear Market

A market in which prices decline sharply against a background of widespread pessimism (opposite of Bull Market).

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 Price

The price at which a buyer has offered to purchase the currency or instrument. Bid is the highest price that the buyer is offering for the particular currency at the moment; the difference between the ask price and the bid price is the spread. Together, the two prices constitute a quotation. The bid-ask spread is stated as a percentage cost of transacting in the foreign.

Big Figure

Refers normally to the first three digits of an exchange rate that dealers treat as understood in quoting. For example, a quote of "30/40" on dollar mark could indicate a price of 1.5530/40BIS: Bank of International Settlement.

Bilateral Clearing

A system used where foreign currency is limited. In such a system, payments are usually routed through the central banks, and sometimes require that the trade balance is equaled every year.

Binary Options

A binary call (or step up) is like a standard European call option except that the pay off at expiry is fixed at one unit of the counter currency when the call expires in the money.

Black-Scholes Model

An option pricing formula initially derived by Fisher Black and Myron Scholes for securities options and later refined by Black for options on futures. It is widely used in the currency markets.


The recording of a transaction outside the country where the transaction is itself negotiated.


Slang for Russian trading.

Break Even Point

The price of a financial instrument at which the option buyer recovers the premium, meaning that either a loss or gain is made. In the case of a call option, the break even point is the exercise price plus the premium.

Break Out

In the options market, undoing a conversion or a reversal to restore the option buyer’s original position.


The site of the 1944 conference which led to the establishment of the post war foreign exchange system that remained intact until the early 1970s. The conference also resulted in the formation of the IMF. The fixed exchange rate system established at Bretton-Woods allowed 1% fluctuations of a given currency to gold or the dollar.

Broken Dates or Period

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 dates or broken period.


An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market, brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries, affiliates and partners in many countries.


See Dealer.


Commission charged by a broker.


Bundesbank, the central bank of Germany.


A person (investor) who believes that prices will rise.

Bull (call or put) Spread

An option position composed of both long and short options of the same type, either calls or puts, designed to be profitable in a declining market. An option with a lower strike price is bought and one with a higher strike price is sold.

Bull Market

A market characterized by rising prices.


Sterling bonds issued in the UK by foreign institutions.


A term for gold bars, not coin.


Central bank of Germany.

Butterfly Spread

(1) A futures butterfly spread is a spread trade in which multiple futures months are traded simultaneously at a differential. The trade basically consists of two futures spread transactions with either three or four different futures months at one differential. (2) An options butterfly spread is a combination of a bear and bull spread trade in which multiple options months and strike prices are traded simultaneously at a differential. The trade basically consists of two options spread transactions with either three or four different options months and strikes at one differential.


The purchaser of an option, whether a call or put option. The buyer may also be referred to as the option holder. Option buyers receive the right, but not the obligation, to enter a futures/securities market position.

Buying Rate

Rate at which the market and a market maker in particular are willing to buy the currency. Sometimes called bid rate.

Buying The Spread

To buy the nearby contract and simultaneously sell the deferred contract. Also referred to as a bull spread.



A term used in the foreign exchange market for the US Dollar/British Pound rate.

Cable Transfer

Telegraphic transfer of funds from one centre to another. Now synonymous with interbank electronic fund transfer.

Calendar Spread

An option position comprising the purchase and sale of two option contracts of the same type with different expiration dates at the same exercise price.


An option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period.

Call Option

A call option confers the right but not the obligation to buy stock, shares or futures at a specified price.


French term for foreign exchange dealer.

Capital Account

Juxtaposition of the long and short term capital imports and exports of a country.


The interest cost of financing securities or other financial instruments held.

Carry-Over Charge

A finance charge associated with the storing of commodities (or foreign exchange contracts) from one delivery date to another.


Normally refers to an exchange transaction contracted for settlement on the day the deal is struck. This term is mainly used in the North American markets and those countries that rely on these markets for foreign exchange services because of time zone preferences i.e. Latin America. In Europe and Asia, cash transactions are often referred to as value same day deals.

Cash and Carry

The buying of an asset today and selling of a future contract on the asset. A reverse cash and carry is possible by selling an asset and buying a future.

Cash Delivery

Same day settlement.

Cash Settlement

A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.


Chicago Board Options Exchange.


Chicago Board of Trade.


Certificate of Deposit.

Central Bank

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. It is normally the issuing bank and controls bank licensing, and any foreign exchange control regime.

Central Rate

Exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.

Certificate of Deposit (CD)

A negotiable certificate in bearer form issued by a commercial bank as evidence of a deposit with that bank which states the maturity value, maturity rate and interest rate payable. CDs vary in size with maturities ranging from a few weeks to several years. CDs may normally be redeemed before maturity only by sale on the secondary market, but may also be redeemed back to issuing bank through payment of a penalty.


The Commodity Futures Trading Commission, the US Federal regulatory agency for futures traded on commodity markets, including financial futures.


Clearing House Automated Payment System.


An individual who studies graphs and charts of historic data to find trends and predict trend reversals. These 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.


The New York clearing house clearing system. (Clearing House Interbank Payment System). Most euro transactions are cleared and settled through this system.


Copenhagen Interbank Rate, the rate at which the banks lend the Danish Krone on an unsecured basis. The rate is calculated daily by the Denmark's Nationalbank (the Danish Central Bank), based on rules set out by the Danish Banker’s Association.


The process of setting a number of items against one another and making fund transfers only on the net balance as part of the settlement process.

Closed Position

A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.

Closing Purchase Transaction

The purchase of an option identical to one already sold to liquidate a position.


Chicago Mercantile Exchange Cock Dates (see broken dates).

Coincident Indicator

An economic indicator that generally moves in line with the general business cycle such as industrial production.


Commodity Exchange of New York.


The fee that a broker may charge clients for dealing on their behalf.

Compound Option

An option on an option, the dates and price of such option being fixed.


French term for spot settlement in foreign exchange.


A memorandum to the other party describing all the relevant details of the transaction.

Consumer Price Index

Monthly measure of the change in the prices of a defined basket of consumer goods including food, clothing, and transport. Countries vary in their approach to rents and mortgages. Rising CPI is normally associated with expectations of higher short term interest rates and may therefore be supportive for a currency in the short term. Nevertheless, a longer term inflation problem will eventually undermine confidence in the currency and weakness will follow.


An agreement to buy or sell a specified amount of a particular currency or option during a specified month in the future (See Futures contract).

Contract Expiration Date

The date on which a currency must be delivered to fulfill the terms of the contract. For options, the last day on which the option holder can exercise his right to buy or sell the underlying instrument or currency.

Contract Month

The month in which a futures contract matures or becomes deliverable if not liquidated or traded out before the date specified.

Correspondent Bank

The bank that regularly performs services on behalf of a foreign bank that has no branch in the relevant centre, e.g. to facilitate the transfer of funds. In the US, this often occurs domestically due to interstate banking restrictions.

Cost of Carry

The interest rate parity, where the forward price is determined by the cost of borrowing money in order to hold the position.

Cost of Living Index

Broadly equivalent to Retail Price Index or Consumer price.

Counter Value

Where a person buys a currency against the dollar, it is the dollar value of the transaction.


The other side to a deal (customer, or bank) with which a foreign exchange deal is executed.

Counterparty Risks

Foreign Currency Inter-bank Exchange (FOREX) instruments are Positions (Buy and/or Sell) between the Client and its Counterparty and, unlike exchange-traded foreign exchange instruments which are, in effect, guaranteed by a clearing organization affiliated with the exchange on which the instruments are traded, are not guaranteed by a clearing organization. Thus, when the Customer purchases an OTC foreign exchange instrument, it relies on the Counterparty from which it has purchased the instrument to fulfill the contract. Failure of a Counterparty to fulfill a Position could result in losses of any prior payment made pursuant to the Positions, as well as the loss of the expected benefit of the transaction.

Country Risk

Factors that affect currency trading unique to the specific country including political, regulatory, legal and holiday risks.


(1) On bearer stocks, the detachable part of the hide behind nominee status. Certificate exchangeable for dividends. (2) Denotes the rate of interest on a fixed interest security.

Coupon Value

The annual rate of interest of a bond.

Cours du Change

(French) Exchange rate.

Cours Libre

(French) Free exchange rate.

Cours Officiel

(French) Official exchange rate.


French for "short" as in une position courte.


(French) Broker.


(1) To take out a forward foreign exchange contract. (2) To close out a short position by buying currency or securities which have been sold.

Covered Call

A term used in the foreign exchange market for the US Dollar/British Pound rate.

Covered Call Write

A strategy of writing call options against a long position in the underlying asset. A covered put write being based on a short position in the asset.

Covered Interest Rate Arbitrage

An arbitrage approach which consists of borrowing currency A, exchanging it for currency B, investing currency B for the duration of the loan, and, after taking off the forward cover on maturity, showing a profit on the entire set of deals. It is based on the theorem of interest rate parity (one of the key theoretical economic relationships), which says that the return on a hedged foreign investment will just equal the domestic interest rate on investments of identical risk. When the covered interest rate differential between the two money markets is zero, there is no arbitrage incentive to move funds from one market to another.

Covered Margin

The interest rate margin between two instruments denominated in different currencies after taking into account of the cost of forward cover.


Consumer Price Index. Monthly measure of the change in the prices of a defined basket of consumer goods including food, clothing, and transport. Countries vary in their approach to rents and mortgages.


Committee on Payment and Settlement Systems.

Crawling Peg (Adjustable Peg)

An exchange rate system where a country’s exchange rate is "pegged" (i.e. fixed) in relation to another currency. The official rate may be changed from time to time.

Credit Lombard

See Lombard rate.

Credit Risk

The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised for delivery.

Cross Deal

A foreign exchange deal entered into involving two currencies, neither of which is the base currency.

Cross Hedge

A technique using financial futures to hedge different but related cash instruments based on the view that the price movements between the instruments move in concert.

Cross Rate

. An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, as most currencies are quoted against the dollar.


A cross-trade transaction is a transaction in which either the buy-broker and the sell-broker are the same, or the buy-broker and the sell-broker belong to the same firm.

Crossed Market

The situation which exists when a broker’s bid is higher than the lowest offer of another broker


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.

Currency Basket

Various weightings of other currencies grouped together in relation to a basket currency (e.g. ECU or SDR). Sometimes used by currencies to fix their rate, often on a trade weighted basket.

Currency Swaps

See swaps.

Current Account

The net balance of a country’s international payments arising from exports and imports together with unilateral transfers such as aid and migrant remittances. It excludes capital flows.

Current Balance

The value of all exports (goods plus services), less all imports of a country over a specific period of time, equal to the sum of trade and invisible balances plus net receipts of interest, profits and dividends from abroad.


The set of expiration dates applicable to different classes of options.


Day Order

An order that if not executed on the specific day, is automatically cancelled.

Day Trader

Speculators who take positions that are liquidated prior to the close of the same trading day.

Day Trading

A Day-Trading deal is a currency exchange deal which renews automatically every night at 22:00 (GMT time) starting the day the deal was made and until it ends. The deal ends in one of the following events: 1. Termination initiated by the trader. 2. The day trading rate has reached the Stop-Loss rate (or Take-Profit rate) you predefined. 3. The deal end date. As long as the deal is open, it is charged a renewal fee every night at 22:00 (GMT time).

Daylight Exposure Limit

See intra-day position.

Deal Date

The date on which a transaction is agreed upon.

Deal Ticket

The primary method of recording the basic information relating to a transaction.


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, in contrast to brokers, who do trade only on behalf of their clients.

Dealing Board

The panel of communications equipment forming part of a dealer’s desk.

Declaration Date

The latest day or time by which the buyer of an option must intimate to the seller his willingness or unwillingness to exercise the option.


Shortfall in the balance of trade, balance of payments, or government budgets.


Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate.


The settlement of a transaction by receipt, or tender of a financial instrument or currency.

Delivery Date

The date of maturity of the contract, when the final settlement of transaction is made by exchanging the currencies. This date is more commonly known as the value date.

Delivery Month

The calendar month in which a futures contract comes to maturity and becomes deliverable.

Delivery Points

Those locations designated by futures exchanges at which the currency represented by a futures contract may be delivered in fulfillment of the contract.

Delivery Risk

A term to describe when counterparty is not able to complete his side of the deal. This risk is very high in the case of over the counter transactions where there is no exchange which can stand as a guarantee to the trade between the two parties to the contract.


The change in the value of the option premium made fully paid by the capitalization of reserves, and given relative to the instantaneous change in the value of the underlying instrument, expressed as a coefficient.

Delta Hedging

A method used by option writers to hedge the risk exposure of written options by purchase or sale of the underlying instrument in proportion to the delta.

Delta Spread

A ratio spread of options established as a neutral position by using the deltas of the options concerned to determine the hedge ratio.




(French) Discount.

Deposit Dealings

Money Market operations.


Describes a currency weakening in response to market demand as opposed to increasing in value as a result of official action.


A broad term relating to risk management instruments such as futures, options, swaps, etc.. The contract value moves in relation to the underlying instrument or currency. The issue of derivatives and their control following large losses by banks and corporations has been the subject of much debate.


Term referring to a group dealing with a specific currency or currencies.


All the information required to finalize a foreign exchange transaction, i.e. name, rate, dates and point of delivery.


Deliberate downward adjustment of a currency against its fixed parities or bands, which is normally accompanied by formal announcement.

Devisen, Devises

Foreign exchange in German and French respectively.


German for spot exchange market.


German for forward exchange market.

Diagonal (bull or bear) Spread

The purchase of a longer maturity option and the sale of a shorter maturity, lower exercise price option. The choice of calls or puts will determine its bear or bull character.

Direct Quotation

Quoting in fixed units of foreign currency against variable amounts of the domestic currency.


(1) See also forward rate. Less than the spot price. Example: forward discount. Forward rate is lower than spot rate. (2) An option that is trading for less than its intrinsic value.

Discount Rate

The rate at which a bill is discounted. Specifically it refers to the rate at which a central bank is prepared to discount certain bills for financial institutions as a means of easing their liquidity, and is more accurately referred to as the official discount rate.

Disposable Income

Earnings after tax.

Domestic Rates

The interest rates applicable to deposits domiciled in the country of origin. Values may vary from Eurodeposits due to taxation and varying market practices.

Durable Goods Orders

Durable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order.



Modest decline in price.

Economic Exposure

Reflects the impact of foreign exchange changes on the future competitive position of a company in the sense of the impact it can have on the future cash flows of the company.

Economic Indicator

A statistic which indicates current economic growth rates and trends such as retail sales and employment.

ECU – European Currency Unit

A basket of the member currencies. As a composite unit, the ECU consists of all the European Community currencies, which are individually weighted. It was created by the European Monetary System with the eventual goal of replacing the individual European member currencies.

Effective Exchange Rate

An attempt to summarize the effects on a country’s trade balance of its currency’s changes against other currencies.


Electronic Funds Transfer.

Either Way Market

In the Euro Interbank deposit market where both bid and offer rates for a particular period are the same.


European Monetary System.


European Monetary Union.


Indicates that both the spot and forward maturity, or two forward maturities in a swap transaction, fall due on the last business day of appropriate calendar months.


European Options Exchange.


The change in the price of an option associated with a 1% change in implied volatility (technically the first derivative of the option price with respect to volatility). Also referred to as eta, vega, omega and kappa.


Exchange Rate Mechanism.

Euro Clear

A computerized settlement and depository system for safe custody, delivery of, and payment for Eurobonds.


A long-term loan issued in a currency other than that of the country or market in which it is issued. Interest is paid without the deduction of tax.


A currency domiciled outside its country of origin normally held by non-residents.


US dollars deposited in a bank (US or non US) located outside the USA.


Swiss Franc (formerly also Belgian Francs) traded on the Eurocurrency market. Normally Swiss Francs are the more common currency.


Deutschmarks traded on the Eurocurrency market.

European Option

An option that can be exercised only on its expiration date rather than before that date.

European Union

The group formerly known as the European Community.

Exchange Control

A system of controlling inflows and outflows of foreign exchange. Exchange Control devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges.

Exchange Rate Risk

The potential loss that could be incurred from an adverse movement in exchange rates.

Exercise Limit

A limit on the number of options contracts a holder may exercise within a specific period.

Exercise Notice

The formal notification that the holder of a call (or put) option wishes to buy (or sell) the underlying security at the exercise price.

Exercise Price

See Strike price.

Exercise Value

For a call option, this is the amount by which the strike price is below the underlying investment; for a put option, it is the amount by which the strike price is above the underlying investment.


A less broadly traded currency.

Expiration Date

(1) Options – the last date after which the option can no longer be exercised. (2) Bonds – the date on which a bond matures.

Expiration Month

The month in which an option expires.

Expiry Date

The last day on which the holder of an option can exercise his right to buy or sell the underlying security.

Expiry Date

The last date on which an option can be bought or sold.


The total amount of money loaned to a borrower or country. Banks set rules to prevent overexposure to any single borrower. In trading operations, it is the potential for running a profit or loss from fluctuations in market prices.


Fast Market

Rapid movement in a market caused by strong interest by buyers and/or sellers. In such circumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported.


The United States Federal Reserve. Federal Deposit Insurance Corporation Membership is compulsory for Federal Reserve members. The corporation had deep involvement in the Savings and Loans crisis of the late 80s.

Fed Fund Rate

The interest rate on Fed funds. This is a closely watched short term interest rate as it signals the Feds view as to the state of the money supply.

Fed Funds

Cash balances held by banks with their local Federal Reserve Bank. The normal transaction with these funds is an interbank sale of a Fed fund deposit for one business day. Straight deals are where the funds are traded overnight on an unsecured basis.


Foreign Exchange Dealers Association of India is an association of all dealers in foreign exchange which sets the ground rules for fixation of commissions and other charges and also determines the rules and regulations relating to day-to-day transactions in foreign exchange in India. The FEDAI has recognized 38 currencies for dealing.

Federal National Mortgage Association

A privately owned, but US government sponsored, corporation that trades in residential mortgages. Its activities are funded by the sale of instruments commonly known as Fannie Maes.

Federal Open Market Committee


Federal Reserve Board

The board of the Federal Reserve System, appointed by the US President for 14 year terms. One member of the board is appointed chairman every four years.

Federal Reserve System

The central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board. Membership in the Fed is compulsory for banks chartered by the Comptroller of Currency, and optional for state chartered banks.

Financial Future

A futures contract based on a financial instrument.

Fine Rate

(1) A quote with a narrow spread. (2) The most favorable rate charged to a high quality borrower.

Firm Quotation

The price given in response to a request for a rate at which the quoting party is willing to execute a deal for a reasonable amount, for spot settlement. Screen quotes are indicative. Quotes on matching systems are normally firm depending on the systems requirement to reconfirm rate prior to completing matching.

Fiscal Policy

Use of taxation as a tool in implementing monetary policy.

Fixed Dates

The monthly calendar dates similar to the spot. There are two exceptions. For detailed description see value dates.

Fixed Exchange Rate

Official rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower bands, leading to intervention by the central bank.


A method of determining rates by normally finding a rate that balances buyers to sellers. Such a process occurs either once or twice daily at defined times. Used by some currencies, particularly for establishing tourist rates . The system is also used in the London Bullion market.


Where a client has not traded in that currency, or where an earlier deal is reversed thereby creating a neutral (flat) position. For example, you bought $500,000 then sold $500,000 = FLAT .

Flexible Exchange Rate

Exchange rates with a fixed parity against one or more currencies with frequent revaluation. A form of managed float.


(1) See Floating exchange rate. (2) Cash in hand or in the course of being transferred between banks. (3) The Federal Reserve Float exists because checks sent to the Federal Reserve Banks are sometimes credited in advance of the depositing bank loosing the reserve.

Floating Exchange Rate

When the value of a currency is decided by the market forces dictating the supply and demand of that particular currency.


(1) An agreement with a counterparty that sets a lower limit to interest rates for the floor buyer for a stated time. (2) A term for an exchanges trading area (cf. screen based trading), normally the trading area is referred to as a pit in the commodities and futures markets.


Federal Open Market Committee, the committee that sets money supply targets in the US, which tend to be implemented through Fed Fund interest rates etc.

Foreign Exchange

The purchase or sale of a currency against the sale or purchase of another.

Foreign Position

A position in which one party agrees to purchase from or sell to the other party an agreed amount of foreign currency.


An abbreviation of foreign exchange.

Forex Deal

The purchase or sale of a currency against the sale or purchase of another currency. The maximum time for a deal is defined when the deal opens. The deal can be closed at any moment until the expiry date and time. For technical reasons, a deal cannot be closed in its first 3 minutes.

Forward / Forward

A forward / forward deal is one where both legs of the deal have value dates greater than the current spot value date.

Forward Contract

Sometimes used as synonym for forward deal or future. More specifically, it refers to arrangements with the same effect as a forward deal between a bank and a customer.

Forward Cover Taking

Forward contracts intended to protect against movements in the exchange rate.

Forward Deal

A deal with a value date greater than the spot value date.

Forward Margins

Discounts or premiums between spot rate and the forward rate for a currency. Normally quoted in points.

Forward Maturities

Trading days on which day contracts can be transacted later than the spot date.

Forward Operations

Foreign exchange transactions for which the fulfillment of the mutual delivery obligations is made on a date later than the second business day after the transaction was concluded.

Forward Outright

A commitment to buy or sell a currency for delivery on a specified future date or period. The price is quoted as the spot rate minus or plus the forward points for the chosen period.

Forward Points

The interest rate differential between two currencies expressed in exchange rate points. The forward points are added to or subtracted from the spot rate to give the forward or outright rate, depending on whether the currency is at a forward premium or discount.

Forward Rate

The rate at which a foreign exchange contract is struck today for settlement at a specified future date, which is decided at the time of entering into the contract. The decision to subtract or add points is determined by the differential between the deposit rates for both currencies concerned in the transaction. The base currency with the higher interest rate is said to be at a discount to the lower interest rate quoted currency in the forward market. Therefore the forward points are subtracted from the spot rate. Similarly, the base currency with the lower interest rate is said to be at a premium, and the forward points are added to the spot rate to obtain the forward rate.

Forward Rate Agreements

The FRA is an agreement between two parties that determines the interest rate that will apply to a notional future loan or deposit of an agreement.

Free Reserves

Total reserves held by a bank less the reserves required by the authority.

Front Office

The activities carried out by the dealer, normal trading activities.

Fundamental Analysis

Analysis based on economic and political factors.


The macro economic factors that are accepted as forming the foundation for the relative value of a currency. These include inflation, growth, trade balance, government deficit, and interest rates.


A term for USD/CAD/Fungibles Instruments that are equivalent, substitutable and interchangeable in law. May apply to certain exchange traded currency contracts offered on a number of exchanges.

Futures Contract

A contract traded on a futures exchange that requires the delivery of a specified quality and quantity of a commodity, currency or financial instruments within a specified future month, if not liquidated before the contract matures.

Futures Exchange-Traded Contracts

They are firm agreements to deliver (or take delivery of) a standardized amount of something on a certain date at a predetermined price. Futures exist in currencies, money market deposits, bonds, shares and commodities. They are traded on an exchange with the clearing corporation guaranteeing the contract and moreover the trade is done on a mark to market basis.


Foreign Exchange.



G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.


The Group of Five. The five leading industrial countries: US, Germany, Japan, France, UK.


The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.


The rate at which a delta changes over time, or for one unit change in the price of the underlying asset.


A mismatch between maturities and cash flows in a bank, or individual dealer's position book. Gap exposure is effectively interest rate exposure.


A system for global after hours electronic trading in futures and options developed by Reuters for CME and CBOT, for use in conjunction with various exchanges around the world.

GNP Deflator

Removes inflation from the GNP figure. Usually expressed as a percentage and based on an index figure.


The difference between the actual real GNP and the potential real GNP. If the gap is negative an economy is overheated.

Going Long

The purchase of a stock or commodity for investment or speculation.

Going Short

The selling of a currency or instrument not owned by the seller.

Gold Standard

The original system for supporting the value of currency issued. Accordingly, the monetary system backs its currency with a reserve of gold, and allows currency holders to convert their currency into gold. This system was in vogue before 1973 when the fixed exchange rates were prevalent.


Before deduction of tax.

Gross Domestic Product

Total value of a country’s output, income or expenditure produced within the country’s physical borders. GDP is the broadest measure of aggregate economic activity available. Reported quarterly, GDP growth is widely followed as the primary indicator of the strength of economic activity. GDP represents the total value of a country's production during the period and consists of the purchases of domestically produced goods and services by individuals, businesses, foreigners and governments.

Gross National Product (GNP)

Gross domestic product plus factor income from abroad – income earned from investment or work abroad.


See Good until cancelled.

GTC "Good Till Cancelled"

An order left with a dealer to buy or sell at a fixed price. The order remains in place until it is cancelled by the client. Different than normal practice, the order does not expire at the end of the trading day, although normally terminates at the end of the trading month.


Hard Currency

A currency whose value is expected to remain stable or increase in terms of other currencies.

Head and Shoulders

A pattern in price trends which chartists consider indicative of a price trend reversal. In this pattern, the price has risen for some time, and 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.


The purchase or sale of options or futures contracts as a temporary substitute for a transaction to be made at a later date. Usually it involves opposite positions in the cash, futures or options markets.


A hedging transaction is one whose main aim is to protect an asset or liability against a fluctuation in the foreign exchange rate, rather than profit from the exchange rate fluctuations.


Hong Kong Inter-bank Offered Rate.

Historical Volatility

The annualized standard deviation of percentage changes in futures prices over a specific period. It is an indication of past volatility in the marketplace.

Hit the Bid

Acceptance of purchasing at the offer, or selling at the bid.


Same as buyer.

Housing Starts

Housing starts are a measure of the number of residential units on which construction has begun each month.


Very high and self-sustaining inflation levels. One definition is the period from which inflation exceeds 50%, until it drops below that level for 12 months.



International Commodities Clearing House Limited, a clearing house based in London operating worldwide for many futures markets.


International Foreign Exchange Master Agreement.


International Monetary Fund, established in 1946 to provide international liquidity on a short and medium term, and to encourage liberalization of exchange rates. The IMF helps its members to tide over the balance of payments problems by supplying the necessary loans.


International Monetary Market, part of the Chicago Mercantile Exchange that lists a number of currency and financial futures.

Implied Rates

The interest rate determined by calculating the difference between spot and forward rates.

Implied Volatility

A measurement of the market’s expected price range of the underlying currency futures based on the traded option premiums.

Implied Volatility Skews

The implied volatility variances for different strikes of an option.

In the Money

A call option is in the money when the strike price is less than the current price of the underlying instrument. A put is when the strike price is greater.


A call option is in-the-money if the price of the underlying instrument is higher than the exercise/strike price. A put option is in-the-money if the price of the underlying instrument is below the exercise/strike price.

Inconvertible Currency

Currency which cannot be exchanged for other currencies either because it is forbidden by the foreign exchange regulations or the currency experiences extreme volatility that it is not perceived to be a safe haven for parking the funds.

Indicative Quote

A market-maker’s price which is not firm.

Indirect quote

See reciprocal currency.

Industrial Production Index

A coincident indicator measuring physical output of manufacturing, mining and utilities.


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.

Info Quote

Rate given for information purposes only.

Initial Margin

The deposit required by the Broker before a client can trade/transact a particular deal in order to have some cushion in the event of default by the party.

Interbank Rates

The Forex rates large international banks quote to other large international banks. Normally the public and other businesses do not have access to these rates.

Interest Rate Floor

An agreement which provides the buyer of the floor with a minimum interest rate for future lending requirements.

Interest Rate Options

An agreement permitting a party to obtain a particular interest rate, issued both OTC and by exchanges.

Interest Rate Risk

The potential for losses arising from changes in interest rates.

Interest Rate Swaps

An agreement to exchange interest rate exposures from floating to fixed or vice versa. There is no swap of the principal. The principal amount is notional as at the end of the tenure only cash flows related with the interest payments (whether payment or receipt) are exchanged.


Action by a central bank to affect the value of its currency by entering the market. In India the intervention by Reserve Bank of India is confined to the events of extreme volatility.

Intra Day Limit

Limit set by bank management on the size of each dealer’s Intra Day Position.

Intra Day Position

Open positions run by a dealer within the day. Usually squared by the close.

Intrinsic Value

The amount by which an option is in-the-money. The intrinsic value is the difference between the exercise/strike price and the price of the underlying security.


Index and Options Market part of the Chicago Mercantile Exchange.


Industrial Production Index. A coincident indicator measuring physical output of manufacturing, mining and utilities.

ISDA (International Securities Dealers Association)

Organization that foreign currency exchange banks have formed to regulate inter-bank markets and exchanges.


J Curve

A term describing the expected effect of devaluation on a country’s trade balance. It is expected that import bills will rise before export orders and receipts increase.


Key Currency

Small countries, which are highly dependent on exports, orient their currencies to their major trading partners, the constituents of a currency basket.


Slang for the New Zealand dollar.

Knock In

A process where a barrier option (European) becomes active as the underlying spot price is in-the-money.

Knock Out

Has a corresponding meaning to Knock In (see above), although the option may permanently cease to exist.


Last Trading Day

The day on which trading ceases for an expiring contract.

Lay Off

To carry out a transaction in the market to offset a previous transaction and return to a square position.


Less developed countries, often used with respect to a secondary debt market.

Leading Indicators

Statistics that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders.

Leads and Lags

The effect on foreign trade payments of an anticipated move in the exchange rate, normally devaluation. The importers speed up the payment for the imports, and exporters delay receiving payment for the exports.


In options terminology, this expresses the disproportionately large change in the premium in terms of the relative price movement of the underlying instrument.


In terms of foreign exchange: the obligation to deliver to counterparty an amount of currency, either in regards to a balance sheet holding at a specified future date, or in regards to an un-matured forward or spot transaction.


The London Interbank Bid Rate. The rate charged by one bank to another for a deposit.


The London Interbank Offered Rate, the rate charged by one bank to another for lending money.

LIBOR (London Interbank Offer Rate)

British Bankers’ Association average of interbank offered rates for dollar deposits in the London market based on quotations at 16 major banks. Effective rate for contracts entered into two days from date appearing.


London International Financial Futures Exchange.


(1)The maximum price fluctuation permitted by an exchange from the previous session’s settlement price for a given contract. (2) In international banking the limit a bank is willing to lend in a country. (3) The amount that one bank is prepared to trade with another. (4) The amount that a dealer is permitted to trade in a given currency.

Limit Down

The maximum price decline from the previous trading day’s settlement price permitted in one trading session.

Limit Order

An order to buy or sell a specified amount of a security at a specified price or better.

Limit Order Reserved  Day Trading Deal

An order to perform a Day-Trading deal at a rate pre-defined by the customer, when and if such rate comes up in real market time. The Limit rate is superior to the existing rate at the time of reservation. The reservation order lasts for a period defined by the customer, and is associated by the necessary collaterals to facilitate the potential Day Trading deal when, and if, activated under the pre-defined terms.

Limit Up

The maximum price advance from the previous trading day’s settlement price permitted in one trading session.

Limited Convertibility

When residents of a country are prohibited from buying other currencies even though non-residents may be completely free to buy or sell the national currency, and foreign institutional investors have the liberty to buy and sell shares on the stock exchange of that country.


An arrangement by which a bank agrees to lend to the line holder during some specified period any amount up to the full amount of the line.


Any transaction that offsets or closes out a previously established position.


The ability of a market to accept large transactions without having any major impact on interest rates.

Lombard Rate

One of the key commercial interest rates, normally referring to Germany although such rates exist in France, Belgium, and Switzerland. An interest rate for a loan against the security of pledged paper.


A market position where the Client has bought a currency not previously owned. For example: long Dollars.

Long Hedge

The purchase of futures contracts for price protection purposes, as a defensive position against an increase in cash prices or falling interest rates.



Cash in circulation. Only used by the UK.


Cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities.


Includes demand deposits, time deposits and money market mutual funds excluding large CDs.


In the UK, it is M1 plus public and private sector time deposits and sight deposits held by the public sector.


In the US, it is M2 plus negotiable CDs.

Maintenance Margin

The minimum margin which an investor must keep on deposit in a margin account at all times in regards to each open contract.

Make a Market

A dealer is said to make a market when he quotes both the bid and offer prices at which he stands ready to buy and sell.

Managed Float

When the monetary authorities intervene regularly in the market to stabilize the rates or to push the exchange rate in a required direction. It is also called the dirty float, as in India.


Collateral that the holder of a position in securities, options, Forex or futures contracts, has to deposit to cover the credit risk of his counterparty. Other definitions to MARGIN, used in other areas are: (1) Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward. (2) For options, the sum required as collateral from the writer of an option. (3) For futures, a deposit made to the clearing house on establishing a futures position account. (4) The percentage reserve required by the US Federal Reserve to make an initial credit transaction.

Margin Call

A demand for additional funds to cover positions. A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse future price movements.

Marginal Risk

The possibility that a customer goes bankrupt after entering into a forward contract. In such an event, the issuer must close the commitment, running the risk of having to pay the marginal movement on the contract.

Mark Up



The profits and/or losses are tallied at the end of the session according to the closing prices of the security, and the account is "marked to the market" daily. The party will be called upon to make good the losses if there has been an adverse movement in the prices, and it can book the profits in the event there has been a favorable movement in the prices.

Market Amount

The minimum amount conventionally dealt for between banks.

Market Maker

A market maker is a person or firm authorized to create and maintain a market in an instrument.

Market Order

An order to buy or sell a financial instrument immediately at the best possible price.

Market Value

Market value of a Forex position at any time is the amount of the domestic currency that could be purchased at the then market rate in exchange for the amount of foreign currency to be delivered under the Forex Contract.


Marche a Terme International de France.


Date for settlement of the transaction which is decided at the time of entering into the contract.

Maturity Date

(1) The last trading day of a futures contract. (2) Date on which a bond matures, at which time the face value will be returned to the purchaser. Sometimes the maturity date is not one specified date, but a range of dates during which the bond may be repaid.

Micro Economics

The study of economic activity as it applies to individual firms or well defined small groups of individuals or economic sectors.

Mid Office

The control of the trading activity including position keeping.

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.


European term for 1,000 million.


Expression used to indicate that the contracting party is willing to buy at the rate offered by the quoting bank.

Minimum Price Fluctuation

The smallest increment of market price movement possible in a given futures contract.

Minimum Reserve

Reserves required to be deposited at central banks by commercial banks and other financial institutions, sometimes referred to as Registered Reserves.




Japanese ministry of International Trade & Industry.


Money Markets.

Money Market

A market consisting of financial institutions and dealers in money or in credit, who wish to either borrow or lend.

Money Market Operations

Comprises the acceptance and re-lending of deposits on the money market.

Money Supply

The amount of money in the economy, which can be measured in a number of ways. In India there are four measures of money supply i.e. M1, M2, M3, M4.

Moving Average

A way of smoothing a set of data, widely used in price time series.

Multiple Exchange Rates

Different exchange rates for different types of transaction. The South African Rand is an example.

Mutual Fund

An open-end investment company. Equivalent to unit trust.


Nearby Month

The nearest actively traded delivery month, a.k.a. current delivery month, lead month.

Net Position

The number of futures contracts bought or sold which have not yet been offset by opposite transactions.


US term for five basis points.

Nostro Account

A foreign currency current account maintained with another bank. The account is used to receive and pay currency assets and liabilities denominated in the currency of the country in which the bank is resident.

Not Held Basis Order

An order whereby the price may trade through or better than the client’s desired level, but the principal is not held responsible if the order is not executed.


A financial instrument consisting of a promise to pay rather than an order to pay, or a certificate of indebtedness.



Organization for Economic Cooperation and Development, an international organization helping governments tackle the economic, social and governance challenges of a globalized economy.


The operations of a financial institution which although physically located in a country, has little connection with that country’s financial systems. In certain countries a bank is not permitted to do business in the domestic market, but can do business with other foreign banks. This is known as an off-shore banking unit.


The rate at which a dealer is willing to sell the base currency.

Offered Market

Temporary situation where offers exceed bid.

Official Settlements Account

A US balance of payments measure based on movement of dollars in foreign official holdings and US reserves. Also referred to as reserve transaction account.


The closing-out or liquidation of a futures position.

Old Lady

Old lady of Threadneedle Street, a term for the Bank of England.

One Cancels Other Order

Where the execution of one order automatically cancels a previous order – also referred to as OCO or One cancels the other.

Open Interest

The total number of outstanding option or futures contracts that have not been closed out by offset or fulfilled by delivery.

Open Market Committee

See Federal Open Market Committee.

Open Market Operations

Central bank operations in the markets to influence exchange and interest rates.

Open Position

Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date. It can be termed as a high risk, high return proposition.


A contract conferring the right but not the obligation to buy (call) or to sell (put) a specified amount of an instrument at a specified price within a predetermined time period.

Option Class

All options of the same type – calls or puts -listed on the same underlying instrument.

Option Series

All options of the same class having the same exercise/strike price and expiration date.

Original Margin

See Initial Margin.


See Over the Counter.


A put option is out-of-the-money if the exercise/strike price is below the price of the underlying instrument. A call option is out-of-the money if the exercise/strike price is higher than the price of the underlying instrument.

Outright Deal

A forward deal that is not part of a swap operation.

Outright Forward

A foreign exchange transaction involving either the purchase or the sale of a currency for settlement at a future date.

Outright Rate

The forward rate of a foreign exchange deal based on spot price plus forward discount/premium.

Over Bought or Over Sold

See long and short.

Over The Counter (OTC)

A market conducted directly between dealers and principals via a telephone and computer network rather than a regulated exchange trading floor. These markets have not been very popular because of the risks both the parties face in case the other party fails to honor the contract. They have never been part of the Stock Exchange since they were seen as "unofficial".

Overheated (Economy)

Is an economy on a high growth rate trajectory placing pressure on the production capacity, resulting in increased inflationary pressures and higher interest rates.


A deal from today until the next business day.

Overnight Limit

Net long or short position in one or more currencies that a dealer can carry over into the next dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces the need for dealers to maintain these unmonitored exposures.


Package Deal

When a number of exchange and /or deposit orders have to be fulfilled simultaneously.


(1) The nominal value of a security or instrument. (2) The official value of a currency.


The value of one currency in terms of another.


(1) Foreign exchange dealer’s slang for your price is the correct market price. (2) Official rates in terms of SDR or other pegging currency.

Payment Date

The date on which a dividend or bond interest payment is scheduled to be delivered.

Payroll Employment

Payroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government. Monthly changes in payroll employment reflect the number of net new jobs created or lost during the month. Changes are widely followed as an important indicator of economic activity. Large increases in payroll employment are seen as signs of strong economic activity that could eventually lead to higher interest rates that are supportive of the currency at least in the short term.

Permitted Currency

It means a foreign currency which is freely convertible, i.e. a currency which is permitted by the rules and regulations of the country concerned to be converted into major reserve currencies, and for which a fairly active and liquid market exists for dealing against the major currencies.


Foreign exchange reserves of oil producing nations arising from oil sales.


Paris Inter-bank Offered Rate.


See point. (0.0001 of a unit).

Plaza Accord

The 1985 Plaza Hotel agreement by the G5 to lower the dollar.


(1) 100th part of a per cent, normally 10,000 of any spot rate. Movements of exchange rates are usually in terms of points. (2) One percent of an interest rate, e.g. from 8-9%. (3) Minimum fluctuation or smallest increment of price movement.

Political Risk

The potential for losses arising from a change in government policy or due to the risk of expropriation (nationalization by the government).


The netted total exposure 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).

Position Limit

The maximum position, either net long or net short, in one future or in all futures of one currency or instrument one person is permitted to hold or control.


Producer Price Indices. See Wholesale Price Indices.


(1) The amount by which a forward rate exceeds a spot rate. (2) The amount by which the market price of a bond exceeds its par value. (3) In regard to options, the price a put or call buyer must pay to a put or call seller for an option contract. (4) The margin paid above the normal price level.

Prime Rate

(1) The rate from which lending rates by banks are calculated in the US. (2) The rate of discount of prime bank bills in the UK.


A dealer who buys or sells stock for his/her own account.

Producer Price Index (PPI)

PPI is a measure of the average level of prices of a fixed basket of goods received in primary markets by producers. A rising PPI is normally expected to lead to higher CPI, and thereby to potentially higher short term interest rates.

Profit Taking

The unwinding of a position to realize profits.

Purchasing Power Parity

Model of exchange rate determination stating that the price of a good in one country should equal the price of the same good in another country after adjusting for the changes in the price due to the change in exchange rate. Also known as the law of one price.

Put Call Parity

The equilibrium relationship between premiums of call and put options of the same strike and expiry.

Put Option

A put option confers the right but not the obligation to sell currencies, instruments or futures at the option exercise price within a predetermined time period.



(1) A limit on imports or exports. (2) A country’s subscription to the IMF.


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.


The price of one currency in terms of another. It has the same meaning as the term parities.

Ratio Calendar Spread

Selling more near-term options than longer maturity options at the same strike price.

Ratio Spread

Buying a specific quantity of options and selling a larger quantity of out-of-the-money options.


A decline in prices following an advance.


A price, interest rate or statistic that has been adjusted to eliminate the effect of inflation.


A decline in business activity. Often defined as two consecutive quarters with a real fall in GNP.

Reinvestment Rate

The rate at which interest earned on a loan can be reinvested. The rate may not attract the same level of interest as the principal amount.

Repo Rate

See Repurchase Agreement.


French term for premium.

Repurchase Agreement

Agreements by a borrower where they sell securities with a commitment to repurchase them at the same rate with a specified interest rate.

Reserve Currency

A currency held by a central bank on a permanent basis as a store of international liquidity. Reserve currencies are typically Dollar, Deutschemark, and sterling.

Reserve Requirement

The ratio of reserves to deposits, expressed as a fraction prescribed by national banking authorities, including US.

Reserve Tranche

(French) The 25% of its quota to which a member of the IMF has unconditional access, and for which there is no obligation to repay.


Funds held against future contingencies, normally a combination of convertible foreign currency, gold, and SDRs. Official reserves are to ensure that a government can meet near term obligations. They are an asset in the balance of payments.


A price level at which the selling is expected to take place.

Resistance Point or Level

A price recognized by technical analysts as a price which is likely to result in a rebound but if broken through is likely to result in a significant price movement.

Retail Price Index

Measurement of the monthly change in the average level of prices at retail, normally of a defined group of goods.

Retail Sales

Retail Sales are a measure of the total receipts of retail stores. Monthly percentage changes reflect the rate of change of such sales and are widely followed as an indicator of consumer spending. Rises in Retail Sales are often associated with a strong economy, and therefore an expectation of higher short term interest rates that are often supportive to a currency in at least the short term.

Reuter Dealing

A system for screen based trading that has been in operation since the early 1980s. Reuter Dealing now has a matching optional enhancement known as Dealing 2000-2.


Increase in the exchange rate of a currency as a result of official action.

Revaluation Rate

The rate for any period or currency which is used to revalue a position or book.


Process of changing a call into a put.

Risk management

The identification and acceptance, or offsetting of the risks threatening the profitability or existence of an organization. With respect to foreign exchange, involves among others consideration of market, sovereign, country, transfer, delivery, credit, and counterparty risk.

Risk Position

An asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates.

Risk Premium

Additional sum payable, or return, to compensate a party for adopting a particular risk.

Risk Reversal

A combination of purchasing put options with the sale of call options. The put limits downside, while the call limits the upside.


There are risks associated with any market. It means variance of the returns and the possibility that the actual return might not be in line with the expected returns. The risks associated with trading foreign currencies are: market, exchange, interest rate, yield curve, volatility, liquidity, forced sale, counter party, credit, and country risk.

Rolling over

The substituting of a far option for a near option of the same underlying stock at the same strike/exercise price.


(1) Where the settlement of a deal is carried forward to another value date, based on the interest rate differential of the two currencies example: next day. (2) An overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).

Running a Position

Keeping open positions in the hope of a speculative gain.


Same Day Transaction

A transaction that matures on the day the transaction takes place.

Sandwich Spread

Same as a butterfly spread.


A strategy of buying at the bid and selling at the offer as soon as possible.


Special Drawing Right. A standard basket of five major currencies in fixed amounts as defined by the IMF.

Selling Rate

Rate at which a bank is willing to sell foreign currency.


All options of the same class which share a common strike price and expiration date.


Actual physical exchange of one currency for another.

Settlement Date

It means the business day specified for delivery of the currencies bought and sold under a Forex contract.

Settlement Price

The official closing price for a future set by the clearing house at the end of each trading day.

Settlement Risk

Risk associated with the non-settlement of the transaction by the counterparty.


A market position where the client has sold a currency he does not already own, usually expressed in base currency terms.

Short / Short Position

A shortage of assets in a particular currency. See Short Sale.

Short Contracts

Contracts with up to six months to deliver.

Short Covering

Buying to unwind a shortage of a particular currency or asset.

Short Forward Date/Rate

The term short forward refers to a period of up to two months, although it is more commonly used with respect to maturities of less than one month.

Short Sale

The sale of a currency futures not owned by the seller at the time of the trade. Short sales are usually made in expectation of a decline in the price.

Short-Term Interest Rates

Normally the 90 day rate.


See Short Forward Date/Rate.


Standard International Trade Classification. A system for reporting trade statistics in a common manner.


Swiss Options and Financial Futures Exchange, a fully automated and integrated trading and clearing system.

Soft Market

More potential sellers than buyers, which creates an environment where rapid price falls are likely.

Split Date

See Broken Date.


(1) The most common foreign exchange transaction. (2) Spot refers to the buying and selling of the currency where the settlement date is two business days forward.

Spot Month

The contract month closest to delivery.

Spot Next

The overnight swap from the spot date to the next business day.

Spot Price/Rate

The price at which the currency is currently trading in the spot market.

Spot Week

A standard period of one week swap measured from the current value date of the currency spot rate.


(1) The difference between the bid and ask price of a currency. (2) The difference between the prices of two related futures contracts. (3) For options, transactions involving two or more option series on the same underlying currency.


Purchases and sales are in balance and thus the dealer has no open position.

Squawk Box

A speaker connected to a phone, often used in broker trading desks.


Action by a central bank to reduce supply in order to increase the price of money.

Stable Market

An active market which can absorb large sales or purchases of currency without having any major impact on the interest rates.


Recession or low growth (stagnation) in conjunction with high inflation rates.


A term referring to certain normal amounts and maturities for dealing.

Standard and Poors (S&P)

A US firm engaged in assessing the financial health of borrowers. The firm also lends its name to the S&P 500 Stock Index.


Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the Forex market.


British pound, otherwise known as cable.


Market slang for Swedish Krona.

Stop Loss Order

Order given to ensure that, should a currency weaken by a certain percentage, a short position will be covered even though this involves taking a loss. Realize profit orders are less common.

Stop Out Price

US term for the lowest accepted price for Treasury Bills at auction.


The simultaneous purchase/sale of both call and put options for the same share, exercise/strike price and expiry date.


A bond with unquestioned right to repayment of principal and interest at the specified dates with no additional further rights or bonuses.

Straight Date

See fixed dates.


A combination of two calls and one put.

Strike Price

Also called exercise price. The price at which an option holder can buy or sell the underlying instrument.


A combination of two puts and one call.

Structural Unemployment

Unemployment levels inherent in an economic structure.

Support Levels

A price level at which the buying is expected to take place. When an exchange rate depreciates or appreciates to a level where (1) Technical analysis techniques suggest that the currency will rebound, or not go below; (2) The monetary authorities intervene to stop any further downward movement. See Resistance Point.


The simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another. A swap can be a swap against a forward. In essence, swapping is somewhat similar to borrowing one currency and lending another for the same period. However, any rate of return or cost of funds is expressed in the price differential between the two sides of the transaction.

Swap Price

A price as a differential between two dates of the swap.

Swap Rate

See Forward Margin.


An option to enter into a swap contract.


Society for Worldwide Interbank Financial Telecommunications is a Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions.


Market slang for Swiss Franc.


See Deposit Swap.


Options or futures that create a position that is able to be achieved directly, but is generated by a combination of options and futures in the relevant market. In foreign exchange a SAFE combines two forward contracts into a single transaction where settlement only involves the difference in values.



Treasury Bill.


Expresses the price change of an option for a percentage change in the implied volatility.

Technical Analysis

The study of the price that reflects the supply and demand factors of a currency. Common methods are flags, trend-lines spikes, bottoms, tops, pennants, patterns and gaps.

Technical Correction

An adjustment to price not based on market sentiment but technical factors such as volume and charting.


(1) A formal offer to supply or purchase goods or services. (2) In the UK, the term for the weekly Treasury Bill issue.


(French) Period.

Terms of Trade

The ratio between export and import price indices.


A measure of the sensitivity of the price of an option to a change in its time to expiry.

Thin Market

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.


Tokyo Inter-bank Offered Rate.


A minimum change in price, up or down.


See Deal Slip


Tokyo International Financial Futures Exchange.

Time Value

That part of an option premium which reflects the length of time remaining in the option prior to expiration. The longer the time remaining until expiration, the higher the time value.


Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa. Also referred to as overnight.

Tomorrow Next (Tom next)

Simultaneous buying and selling of a currency for delivery the following day and selling for the next day or vice versa.

Tradable Amount

Smallest transaction size acceptable.

Trade Balance

The Trade Balance is a measure of the difference between imports and exports of tangible good and services. The level of the trade balance, and changes in exports and imports, are widely followed by foreign exchange markets.

Trade Date

The date on which a trade occurs.

Trade Deficit/Surplus

The difference between the value of imports and exports, often only reported in visible trade terms.

Trade Ticket

See Deal Ticket.


(French) A portion of. Specifically used for borrowings from the IMF.


The buying or selling of securities resulting from the execution of an order.

Transaction Date

The date on which a trade occurs.

Transaction Exposure

Potential profit or loss generated by current foreign exchange transactions.

Translation Loss/Profit

When consolidating into the base currency, the calculation of loss or profit resulting from the valuation of foreign assets and liabilities for balance sheet purposes.

Treasury Bills

Short-term obligations of a Government issued for periods of one year or less. Treasury bills do not carry a rate of interest, but are issued at a discount on the par value. Treasury bills are repaid at par on the due date. In the UK they are normally for 91 days, and are offered at weekly tenders. In the US they are auctioned.

Treasury Bonds

Government obligations with maturities of ten years or more.

Treasury Notes

Government obligations with maturities more than one year, but less than ten years.

Treasury Stock

Previously issued stock that has been repurchased by, donated to or otherwise acquired by the issuing firm. Treasury stocks pay no dividends and have no voting privileges.

Troc, Troquer

(French) FX term for swap.


The total money value of currency contracts traded which is calculated by multiplying size by the number of contracts traded.

Two-Way Quotation

When a dealer quotes both buying and selling rates for foreign exchange transactions.



Continental term for month or year end.


Another term for an open position.

Under Reference (Order)

Before finalizing a transaction all the details should be submitted for approval to the order giver, who has the right to turn down the proposal.


An exchange rate is normally considered to be undervalued when it is below its purchasing power parity.


A colloquial term for reversing a transaction. e.g. a spot sale by means of a forward purchase or, if done in error, a spot purchase.

Unit of Account

A device designed to provide a consistent value with varying currencies. e.g. ECU and SDR.

Up Tick

A transaction executed at a price greater than the previous transaction.


Valeur Compensee

(French) Payments are said to be "valeur compensee" when payment by one party in one centre, and settlement by the other party in another centre, takes place on the same day.

Value Date

For exchange contracts, it is the day on which the two contracting parties exchange the currencies which are being bought or sold. For complete description see the chapter on trading. For a spot transaction, it is two business banking days forward in the country of the bank providing quotations which determines 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 the 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 centers, 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.

Value Spot

Normally settlement for two working days from the date the contract is entered into.

Value Today

Transaction executed for same day settlement; sometimes also referred to as "cash transaction"


A simple option whose terms and conditions do not include any provisions other than exercise style, expiry and strike. To compare with exotic options which have additional terms.

Variation Margin

Funds required to be deposited by a client when a price movement has caused funds to fall below the stipulated percentage of the value of the contract.


Expresses the price change of an option for a one per cent change in the implied volatility.

Velocity of Money

The speed with which money circulates, or turnover in the economy. It is calculated as the annual national income; average money stock in the period.

Vertical (Bear or Bull) Spread

The sale of an option with a high exercise price and the purchase (in the case of a bull), or the sale (in the case of a bear), of an option with a lower exercise price. Both options will have the same expiration date.


A measure of the amount by which an asset price is expected to fluctuate over a given period. Normally measured by the annual standard deviation of daily price changes (historic). Can be implied from futures pricing, implied volatility.

Vostro Account

A local currency account maintained with a bank by another bank. The term is normally applied to the counterparty’s account from which funds may be paid into or withdrawn as a result of a transaction.


Wholesale Money

Money borrowed in large amounts from banks and institutions rather than from small investors.

Wholesale Price Index

Measures changes in prices in the manufacturing and distribution sector of the economy, and tends to lead the consumer price index by 60 to 90 days. The index is often quoted separately for food and industrial products.

Working Balance

Discretionary element in the monetary reserves of a central bank.

Working day

A day on which the banks in a currency’s principal financial center are open for business. For FX transactions, a working day only occurs if the banks in both currencies financial centers are open (all relevant currency centers in the case of a cross).

World Bank

A bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available.


The seller of a position. Also known as the grantor of the trade. "Writing a Currency" is to sell it.



Slang for milliard, one thousand million (1 European milliard = 1 US billion = 1,000 million).

Yield Curve

The graph showing changes in yield on instruments depending on time to maturity. A system originally developed in the bond markets is now broadly applied to various financial futures. A positive sloping curve has lower interest rates at the shorter maturities, and higher at the longer maturities. A negative sloping curve has higher interest rates at the shorter maturities.



Certificate issued by the Bank of England to "discount houses" in lieu of stock certificates to facilitate their dealing in the short dated gilt edge securities.

Zero Coupon Bond

A bond that pays no interest. The bond is initially offered at a discount to its redemption value.

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