Forex Glossary



Describes a currency strengthening in response to market demand rather than by official action.


Ask Price

Ask is the lowest price acceptable to the buyer.

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".



Bundesbank, the Reserve Bank of Germany.

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, and is otherwise referred to as mercantile or physical trade. Figures can be quoted on FoB/ FaS, customs cleared, or FoB export.


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

Bank Rate

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

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.

Basis Convergence

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

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.


The difference between the cash price and futures price.


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

Bear Market

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


A person who believes that prices will decline.

Bid Price

Bid is the highest price that the seller is offering for the particular currency at the moment; the difference between the ask and the bid price is the spread. Together, the two prices constitute a quotation; the difference between the two is the spread. The bid-ask spread is stated as a percentage cost of transacting in foreign exchange.

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 1.5530/40 BIS: Bank for International Settlements.

Binary Options

Binary Options are cash-settled which means that they can only be exercised on the expiration date. If, at expiration, the options settle in-the-money, the buyer or seller of the options receives a pre-specified dollar amount.


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

Break Even Point

The price of a financial instrument at which the option buyer recovers the premium, meaning that he makes neither a loss nor a gain. 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.

Bretton Woods

The site of the conference which in 1944 led to the establishment of the post war foreign exchange system that remained intact until the early 1970’s. The conference resulted in the formation of the IMF. The system fixed currencies in a fixed exchange rate system with 1% fluctuations of the currency to gold or the dollar.


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.

Bull Market

A market characterized by rising prices.


A person who believes that prices will rise.



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

Call Option

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


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

Capital Account

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

Carry-Over Charge

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


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

Cash Settlement

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

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.

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.

Closed Position

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


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

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 where either the buy broker and the sell broker are the same, or the buy broker and the sell broker belong to the same firm.


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.

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 receipt of interest, profits and dividends from abroad.


Day Order

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


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 the brokers who trade only on behalf of their clients.


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


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.


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



Electronic Fund Transfer.

Economic Indicator

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

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.


Fed - Federal Reserve

The Central Bank of the United States.

Fixed Exchange Rate (Representative Rate)

An official exchange rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.

Flat (also Square, Balanced)

To be neither long nor short is the same as to be flat or square. One would have a flat book if he/she has no positions or if all the positions cancel each other out.

Forex - Foreign Exchange (also FX)

The simultaneous buying of one currency and selling of another in an over-the-counter market; Most major FX is quoted against the US dollar.


The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the differential interest rate between the two currencies involved.

Forward Points

The pips added to or subtracted from the current exchange rate to calculate a forward price.

Front and Back Office

The front office usually comprises of the trading room and other main business activities.

Fundamental Analysis

Analysis of economic and political information with the objective of determining future movements in a financial market.

Futures Contract

An obligation to exchange a good or instrument at a set price on a future date; the primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contracts - ETC), versus forwards, which are considered Over the Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.



The five leading industrial countries - US, Germany, Japan, France, UK.


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

Gross Domestic Product

Total value of a country's output, income or expenditure produced within the country's physical borders.

Gross National Product

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


Hard Currency

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


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 or futures or options market.


Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.


Inconvertible Currency

Currency which cannot be exchanged for other currencies either because it is forbidden by the foreign exchange regulations or the currency witnesses 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

Where the foreign currency is a variable amount and the domestic currency is fixed at one unit.


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 deal to have some cushion in the event of default by the party.

Interbank Rates

The foreign exchange 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 Risk

The potential for losses arising from changes in interest rates


Action by a central bank to affect the value of its currency by entering the market.

Intraday 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.


J Curve

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



Slang for the New Zealand Dollar.

Knock In

A latent option contract that begins to function as a normal option ("knocks in") only once a certain price level is reached before expiration.

Knock Out

An option with a built in mechanism to expire worthless, should a specified price level be exceeded. A knock-out option sets a cap to the level an option can reach, in favor of the holder.



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

Limit Order – Reserved Day Trading Deal

An order to perform a Day Trading deal at a rate predefined 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 predefined terms.

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 the foreign institutional investors also have the liberty to buy and sell shares on the stock exchange of that country.


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 the interest rates.


A market position where the client has bought a currency they previously did not own. For example: long Dollars.


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 stabilise the rates or to push the exchange rate in a required direction. Also called a dirty float.

Margin Call

A demand for additional funds to cover positions.


Collateral that the holder of a position in securities, options, currencies or futures contracts has to deposit to cover the credit risk of his counterparty. Other definitions of 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.

Marginal Risk

The risk 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.

Market Value

Market value of a foreign exchange 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 Contract.




OCO - One Cancels the Other

A contingent order where the execution of one part of the order automatically cancels the other part.

Open order

An order that will be executed when a market moves to its designated price; normally associated with Good-Till-Cancelled Orders.

Open Position

An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.


An agreement that allows the holder to have the option to buy/sell a specific security at a certain price within a certain time. (two types of options – call and put; a call is the right to buy while a put is the right to sell. One can write or buy call and put options.)


An order is an instruction from a client to a broker to trade. An order can be placed at a specific price or at the market price. Also, it can be good until filled or until close of business.

Overnight Position

A trade that remains open until the next business day.


Points, Pips

The term used in the currency market to represent the smallest incremental move an exchange rate can make. (Depending on context, normally one basis point, i.e., 0.0001 in the case of EUR/USD, GBP/USD, USD/CHF and .01 in the case of USD/JPY.)


A position is a trading view expressed by buying or selling. It can refer to the amount of a currency either owned or owed by an investor.


In the currency markets, it is the amount of points added to the spot price to determine a forward or futures price.

Profit/Loss (P&L)

The actual "realized" gain or loss resulting from trading activities on Closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.



An indicative price. The price quoted for information purposes but not to deal.



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.

Reserve Currency

A foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are usually priced in the reserve currency, causing other countries to hold this currency to pay for these goods.


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

Rolling Over

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


Where the settlement of a deal is carried forward to another value date based on the interest rate differential of the two currencies.



The process of exchanging the consideration for financial instruments once a transaction has been executed. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.


To go `short` is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back with a profit in the future.

Short Position

An investment position that benefits from a decline in market price (when the base currency in the pair is sold, the position is said to be short).


A transaction that occurs immediately, but the funds will usually change hands within two days after the deal is struck.

Spot Price

The current market price (settlement of spot transactions usually occurs within two business days).


The difference between the bid and offer (ask) prices; used to measure market liquidity (narrower spreads usually signify high liquidity).

Stop Loss Order

An order to buy/sell at an agreed price (one could also have a pre-arranged stop order, whereby an open position is automatically liquidated when a specified price is reached or passed).

Support Levels

A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself (the opposite of resistance).


A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.


Technical Analysis

An effort to forecast prices by analyzing market data, e.g. historical price trends, averages, volumes, open interest, etc.


A minimum change in price, up or down.

Tomorrow Next (Tom/Next)

Simultaneous buying and selling of a currency for delivery the following day.

Two Way Price

Both the bid and ask rate is quoted for a foreign exchange transaction.



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


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 a spot transaction it is two business banking days forward in the country of the bank providing quotations which determine the spot value 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 and 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.