19 June 2019

Industry Glossary

Industry Glossary

A B C D E F G H I J K L M N O P Q R S T U V W Y

 

 

 

A

Aggressive – If a trader or price action is acting with particular conviction

Aggregate risk – The amount of exposure a financial institution has to forex counterparty risk from a client

Analyst – A financial expert specialising in investment evaluation, advising clients whether to buy, sell or hold

Appreciation – A product is known to ‘appreciate’ if a product strengthens in a reactionary response to market demand

Arbitrage – The practice of capitalising on price differences through the simultaneous buying and selling of a product

Asain Central Banks – An umbrella term for the central banks and financial institutions across Asia

Asain session – Running between the hours of 23:00-8:00 GMT, this is Asia’s most prominent trading session

Ask price – The price at which the market wants to sell a product

At best – Buying or selling a product at the highest possible rate

At or better – Buying or selling a product at a specific price, or at a price exceeding that value

B

Balance of trade – Calculated by subtracting a country’s imports from their exports

Bar chart – A chart displaying the opening and closing prices and the high and low prices of a product

Base currency – The foundation currency in any pairing, used as a means of measuring value fluctuations of the quote currency. Most commonly this is the US dollar

Basing – A chart patten used to observe a product’s supply and demand

Bearish/bear market – A trader’s term predicting the weakening of one currency against another

Bears – A trader who holds short positions with the expectation a price will decline

Bid / ask spread – The difference between the bid and ask price

Big figure – The first 3 digits of a quote

BIS – The Bank of International Settlements, located in Basel

Black box – A systematic trader

BOC – Canada’s central bank, the Bank of Canada

BOE – The UK’s central bank, the Bank of England

BOJ – Japan’s central bank, the Bank of Japan

Bond – Debt issued for specific time periods

Broker – A financial professional who connects buyers and sellers for a commission

Bullish / bull market – A trader’s term for the belief one currency will strengthen in value against another

Bundesbank – Germany’s central bank

Buy – Purchasing a product with the expectation it will rise in value

C

Call option – Trading to take advantage of a difference in interest rates between two countries

Candlestick chart – A chart indicating the day’s potential trading range, in addition to the opening and closing prices

Capitulation – At the end of an extreme trade, traders holding losing positions will exit, signalling an expected market reversal in innamant

Carry trade – A strategy in which a trader borrows at a low interest to invest in an asset that is likely to have a significantly higher return

Cash price – The instant price of a product

CBS – Abbreviation for ‘central banks’

Chartist – A technical trader who uses chart and graph interpretation to predict market trends and valuation movements

Cleared funds – Freely available funds to settle an open trade

Clearing – The settling of an open trade

Closing – Halting a live deal by trading the direct opposite of the initial trade

Closing price – A term for either the price of the day’s last transaction or a product’s price at close

Collateral – An asset to secure a loan or performance

Commission – The fee attached to a trade

Contagion – The spreading of an economic crisis across financial markets

Contract note – A confirmation summarising the details of any trade

Controlled risk – A position with limited risk because of a guaranteed stop

Corporate action – A corporate event that affects the equity structure of stock

Corporates – A business in the market for the purpose of financial management

Counter currency – The latter currency in a pairing

CPI – Consumer Price Index measuring inflation

Cross – A pairing not including the USD

Crown currencies – The currencies of the traditional Commonwealth nations

Currency pair – The two separate currencies that constitute a trade

D

Day trading – Making both an open and close trade in the same product on the same day

Dealer – Whereas a broker puts together buyers and sellers for a certain fee or commission, a dealer is either an individual or firm that acts as a counterpart or principal to a particular transaction

Dealing spread – The difference in price between the buying and selling amount of a contract

Defend a level – The act when a solo, or group of traders, prevents a product from trading in a particular price zone or for a particular price. This usually occurs as they have a financial interest in doing so

Delisting – The act of removing a stock’s listing on a particular exchange

Depreciation – When an asset decreases in value over time

Devaluation – The opposite of revaluation, devaluation is when a fixed rate is allowed to depreciate based on official actions

Discount rate – The interest rate that is charged to a depository institution to borrow funds from the Federal Reserve Bank

Dividend – A company’s earnings, equally distributed to its shareholders

E

ECB – Stands for the European Central Bank – the main bank for those countries who use the euro

Economic indicator – A government statistic indicating stability and current economic growth

End of day order – An order to buy or sell at a stated price before the end of the trading day (usually 17:00 New York time)

EST/EDT – An abbreviation for United States Eastern Standard Time/ Eastern Daylight Time – the timezone for New York City

EMU – Stands for European Monetary Union which are the group of policies that coordinate fiscal and economic policies in all EU Member States

European session – 07:00-16:00 London (GMT) trading time

Expiry day/price – The specific time and date when an option is set to expire and the market sees an increase in activity. These times are commonly accepted as 10:00am ET (or NY time) and 3:00pm Tokyo time (or 15:00 Tokyo time)

Exporters – A corporation who sells their goods on the international market, therefore making them buyers of their domestic currency and sellers of foreign currency

Extended – When a market is thought to have travelled too fast

F

FED – Stands for The Federal Reserve Bank which is the central bank of the United States

FED officials – The members on the Board of Governors of the Federal Reserve

Fill – The successful completion of an order

Fill or kill – An order that will be cancelled if not able to be filled

Fix – 1 of 5 times in the trading day when large amounts of currency must be bought or sold to fill a commercial order

Flat/square – A phrase used by traders to describe a neutral position that was bought and sold at the same price

FOMC – Stands for the Federal Open Market Committee

Foreign exchange/forex/FX – The global market for transactions that consist of buying and selling currency

Fundamental analysis – The assessment of available information on a product to determine its price outlook

Future – An agreement between traders to exchange goods at a specific price on a set date

G

G7 – Stands for the Group of 7 nations defined by the IMF as being the 7 major global economies, they consist of: United States, United Kingdom, Japan, Italy, Germany, France and Canada

Gapping – Usually following on from economic news or announcements, gapping is a quick market move where no trades occur

Go long – Purchasing currency, commodity or stock and expecting the price to increase

Go short – Selling a product or currency that doesn’t belong to the seller and expecting the price to decrease

Gold standard – A monetary system that no longer exists whereby currency was defined by a fixed amount of hold. This system was deserted during the Great Depression in the 1930s, however fluctuations in the price of gold still affects the currency markets today

Good ‘til cancelled (GTC) – An order that is left with a dealer to be bought or sold at a fixed price until cancelled by the client

Good ‘til date – An order that will expire on a predetermined date if not filled before this

Gross domestic product – The value of goods and services produced within a country over a particular length of time (usually measured either quarterly or annually)

Guaranteed stop – A stop-loss order that’s guaranteed to close your position at a level dictated by you in the case that the market moves to or beyond a particular point, this is then guaranteed even if there happens to be gapping in the market

H

Handle – Also known as the ‘big figure’, this is the part of the price quote that belongs to both the offer and the bid. For example, if the EUR/USD currency pair has a bid of 1.4231 and an ask of 1.4255, the handle is therefore 1.42

Hawkish – When a country’s monetary policymakers believe that higher interest rates are needed to restrain rapid economic growth or to combat inflation

Head and shoulders – A chart pattern with a high peak, also known as ‘the head’, which can be seen within two lower peaks, referred to as ‘the shoulders’

Hedging – Hedging strategies seek to minimise losses in the case of unexpected and potentially volatile market movement, therefore reducing the risk of market movements on a trader’s portfolio

High/low – Daily figures of what is considered to be a high and low price for a given currency pair

Hit the bid – Selling at the current market bid

HK40 – The name for the Hong Kong Seng Index

Hyperinflation – Periods of unusually high inflation – generally considered, monthly rates of 50% or higher would be classed as hyperinflation

I

International Commodities Clearing House (ICCH) – This was an independent clearing house that preceded the British London Clearing House Ltd (LCH)

International Foreign Exchange Master Agreement (IFEMA) – The agreement created by the Foreign Exchange Committee outlining best practices for conducting transactions in the forex market

Illiquid – A lack of liquidity in the forex market that can create choppy trading conditions

The International Monetary Market (IMM) – A currency futures market traded on the Chicago Mercantile Exchanges floor where IMM sessions run from 8am to 3pm local New York time

Implied rates – The interest rate calculated by working out the difference between forward and spot rates

Industrial production – When an economy’s output is measured against what’s produced by manufacturers, mines and utilities. This is a good indicator of future employment and indicates personal income data

Inflation – An economic term that defines when prices for consumer goods rise, therefore getting rid of a consumer’s purchasing power

Interbank rates – These are the foreign exchange trading rates that large international trading banks will decide on between one another that individual traders don’t have access to

The International Monetary Fund (IMF) – With headquarters in Washington DC, this international organisation aims to promote international employment, trade, monetary cooperation, sustainable economic growth, exchange-rate stability and make resources available to those member countries who find themselves in financial difficulty

Intervention – This term refers to the influence central banks have on the value of their own currency

Intraday trading – This is when a trader opens and closes his or her position within the same trading session or day and typically capitalise on small movements in the market using leverage

J

J curve – A diagram that resembles the letter ‘J’ where the curve falls at the outset before increasing to a position higher than the starting point – generally indicating a period where initial loss is followed by significant gain, resulting in an overall profit

Japaneses machine tool orders – A measure relating to the Japanese yen of all new orders within the country that acts as a major indicator of production

JPN225 – This is another name for the NIKKEI index – the most referred to stock market for the Tokyo Stock Exchange

K

Keeping your powder dry – This is when a trader limits their trades due to harsh trading conditions – usually staying on the sidelines in narrow or choppy markets, waiting for a clear opportunity to arise

Knock-ins – This is a trading option where an underlying product is required to trade at a certain price before a previously bought option becomes active. This type of option strategy is used to reduce premium costs of the underlying option which can cause hedging activities once an option has been activated

Knock-outs – This is a trading option that invalidates a previously bought option if the underlying product trades a particular level

L

Ladder option – Like rungs on a ladder, this type of option locks in what your trade has gained when the underlying asset hits a certain price level. Even if the price drops subsequently, these gains remain locked in

Leverage – Widely known as margin, this is the fractional increase or percentage you can trade from your available capital. So, for example, a leverage of 50:1 means you can trade 50 times more than the amount of capital you have in your trading account

Liability – Generally speaking, liability refers to a potential debt, loss or financial obligation. In forex terms, it is the obligation to deliver a specific amount of currency to another part on an agreed-upon date

The London Inter-Bank Offered Rate – The base rate that banks use when lending between one another

Limit order – A type of order that looks to either buy at lower levels than the market or sell at higher ones

Limit price – This is the particular price or rate stated as part of a limit order

Liquid market – A type of market that has enough active buyers and sellers for a price helping it to move smoothly

Liquidations – Generally, this refers to the act of selling a bankrupt entity’s assets. In forex terms however, this means closing an existing position by performing an offsetting transaction

London session – The accepted trading session in London: 8:00-17:00 GMT

Long position – This is when the base currency in a particular pair is bought with the expectation that the market will rise – making it a long position. Simply put, it’s a position that appreciates in value if/when market price inflates

Loonie – Slang for the US/Canadian dollar (USD/CAD) currency pair

M

Macro trader – A trader who bases their trades on fundamental analysis, also known as the longest-term trader. A macro trade’s holding period lasts from 6 months to many years

Manual trader – A trader who manually inputs their trades, without using, for example, application programming interface (API)

Manufacturing production – With the manufacturing aspect of Industrial Production making up an estimated 80% of total Industrial Production, the figures from this data act as a good indicator of forthcoming employment and personal income

Margin – Otherwise known as maintenance margin, it is the collateral required to preserve an open position. For example, to keep an open position of £100,000 with a leverage of 50, you’d require a margin of £2,000

Margin call – A request by a dealer or broker for extra funds or collateral to cover a position that moved against the customer

Mark to market – The act of recording both profits and losses, according to the value of open positions at current market prices, once a trading session is over

Market close – This is simply the end of the trading session

Market maker – A dealer who is ready to make a two-sided market, quoting both the bid and the ask prices

Market order – An command to buy or sell at the current price

Market rate – A quote for a currency pair

Market risk – The possibility of a trader experiencing losses due to changes in positions and financial market prices

Maturity – The due date of a settlement or expiry of a particular financial product

MoM – Abbreviation for the term, ‘month on month’, which is the change in statistics and other crucial data relative to the previous month’s level

Momentum traders – This refers to traders that follow an intra-day trend, attempting to grab 50-100 pips

N

NASDAQ – A major American stock exchange in terms of market capitalisation, second only to the New York Stock Exchange

NASDAQ-100 – Refers to the equity securities issued by the top 100 largest non-financial companies listed on the crucial stock market index, NASDAQ.

Net position – Total currency bought or sold that hasn’t yet been offset by opposite transactions

New York session – The accepted trading session in New York: 8:00-17:00 New York time

O

Offer – The price which the market is willing to sell a product at

Offered – A term given to a market when a pair is attracting a large amount of offers or selling interest

Offsetting transaction – The term given to a trade that offers some (or all) of the risk of an open position

Order – An instruction to carry out a trade

Order book – A system showing the market depth of traders willing to buy or sell beyond the best available prices on the market

Overnight position – A trade that stays open until the next working day

P

Pair – A forex quoting convention that defines matching one currency against another

Parabolic – A type of market that moves a large distance in a short period of time, either up or down

Partial fill – A phrase used when only part of an order has been filled

Patient – This is when a trader waits on particular news events or certain levels before entering a position

PIPS – Smallest unit of price pertaining to any given foreign currency and refers to the digits subtracted from or added to the fourth decimal place, e.g 0.0003

Political risk – The risk that a change in governmental policy can have on an investor’s position

Position – The net total holdings of a specific product

Profit – The difference between the cost and sale price when the sale price is the highest of the two prices

Pullback – The act of a trending market retracing a portion of gains before it continues to move in the same direction again

Q

Qualitative analysis – Evaluating the unquantifiable factors that affect the market with the means to identify investment opportunities

Quantitative analysis – Analysing statistical models and readily applying them to the market a means of identifying areas of potential profit

Quantitative easing – The act of a central bank putting money into an economy as a means of stimulating market growth

Quote – An indication of market price

R

Rally – A price recovering following a period of decline

Range – The defined highs and lows of a moving valuation

RBA – The Reserve Bank of Australia, Australia’s central bank

RBNZ – The Reserve Bank of New Zealand, New Zealand’s central bank

Retail Investor – A trader using their own funds as opposed to those of a financial institution

Revaluation – The strengthening of a currency as a direct result of official action

Rights issue – Shareholders purchase further stock in a corporate action aiming to raise capital

Risk management – A trading/analytical technique with the purpose of properly observing the amount of risk associated with a given trade

S

Sell – Taking a short position on a trade with the expectation of a decline in market price

Short-covering – Traders who had originally taken a short position begin buying back following a price decline

Short position – The selling of a base currency, benefiting from a decline in market price

Short squeeze – A market catalyst forces traders in short positions to buy quickly, leading to a market price increase

Slippage – The price difference between that requested and that obtained as a result of a change in the market

Slippery – The expectation of quick market movement in either direction

SNB – The Swiss National Bank, Switzerland’s central bank

Spot market – Products traded in an immediate exchange

Spot price – The term used to describe the current market price

Spot trade – The purchasing or selling of a product for immediate delivery

Spread – This refers to the difference between the bid and offer prices

Stock exchange – The market which facilitates the trading of product

Stock index – The combined price of a collection of stock against a defined base number, enabling the ready assessment of company performance

Stop entry order – An order to buy above the market price or, contrastingly, sell below the market price

Stop loss order – An effective risk management tool that practices selling below the current price as a means of closing a long position or, contrastingly, buying above current price to close a short position

Support – A base price for past/future movements

Suspended trading – Temporarily halting trading on a particular product

T

Technical analysis – The study of past price patterns and charts as a means of obtaining clues to future market direction
Technicians – A trader who works solely based on technical analysis

Thin – A market subject to uncertain trading conditions. Commonly used alternatives to this term include illiquid, slippery and choppy

Time to maturity – The time until the expiry of a contract

Tokyo session – Tokyo’s trading window, running between 9:00-18:00 JST

Trading bid – Multiple bids enter the market at once, subsequently pushing the prices up and strengthening pairings

Trading offered – Multiple sell offers enter the market at once, subsequently weakening currency pairings

Transaction cost – The cost associated with the buying and selling of a product

Transaction date – The date of a trade’s completion

Trend – A net change in value based on the movement of a price

U

Ugly – Violent and rapidly changing market conditions

Underlying – A product price that is informed by it’s previous trading market

Uptick – A quote higher than its previous quote

V

Value date – An alternate phrase used to describe the maturity date of a trade

Variation margin – When a trader holds funds in their accounts as a means of withstanding any market fluctuations

Volatility – A term describing the trading potential of a market

Volume – The total of financial instruments exchanged on any given trading day

W

Wave – Describing the upward, downward or sideways movement of market price

Wedge chart pattern – A chart demonstrating the narrowing of a price range of a set date range

Whipsaw – Often followed by a reversal, this is a highly volatile market as a result of substantial price movement

Y

Yield – A percentage return on an investment

Yuan – The Chinese base currency