Describes a currency strengthening in response to market demand rather than by official action. An instruction given to a dealer to buy or sell at the best rate that can be obtained. In general terms the base currency is the currency in which an investor or issuer maintains its book or accounts. In FX markets the US Dollar is normally considered the base currency for quotes, meaning that quotes are expressed as a unit of 1 USD per the other currency quoted in the pair.
The distance, usually in pips, between the Bid and the Ask price. A tighter spread is better for the trader! Dealer expression referring to the first few digits of an exchange rate. These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity.
Rate at which the market and a market maker in particular is willing to buy the currency. Sometimes called bid rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid s. This is an example of a reciprocal currency. The market in the actual financial instrument on which a futures or options contract is based.
A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency. The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency. To take out a forward foreign exchange contract. To close out a short position by buying currency or securities which have been sold. The exchange rates between any two currencies that are considered non-standard in the country where the currency pair is quoted.
Always quoted in terms of the currency value with respect to the US Dollar. Parameters of the futures contract are standardized by the exchange. The date of maturity of the contract, when the exchange of the currencies is made. This date is more commonly known as the value date in the FX or Money markets. A fall in the value of a currency due to market forces rather than due to official action. A statistic which indicates current economic growth rates and trends such as retail sales and employment.
A system designed to stabilize if not eliminate exchange risk between member states of the EMS as part of the economic convergence policy of the EU. It permits currencies to move in a measured fashion divergence indicator within agreed bands the parity grid with respect to the ECU and consequently with each other.
In foreign exchange, a potential for gain or loss because of movement in foreign exchange rate. There are three primary types of exposure. The change in future earning power and cash flow arising from a change in exchange rates. In effect, it represents a change in the value of a company holding foreign currency. A potential gain or loss arising from transactions that will definitely occur in the future, are currently in progress, or could have already been completed. A signed but not shipped sales contract, a receivable or foreign currency payment collected but not converted to local currency would all be examples of transaction exposure.
In such circumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported. 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.
The United States Federal Reserve. The corporation had deep involvement in the Savings and Loans crisis of the late 80s. An order which must be entered for trading, normally in a pit three times, if not filled is immediately canceled.
Official rate set by monetary authorities. Often the fixed exchange rate permits fluctuation within a band. Exchange rates with a fixed parity against one or more currencies with frequent revaluations. A form of managed float. An exchange rate where the value is determined by market forces. Even floating currencies are subject to intervention by the monetary authorities. When such activity is frequent the float is known as a dirty float. 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.
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.
The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved. Forward rates are quoted in terms of forward points, which represent the difference between the forward and spot rates. In order to obtain the forward rate from the actual exchange rate the forward points are either added or subtracted from the exchange rate.
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 lower interest rate base currency is said to be at a premium, and the forward points are added to the spot rate to obtain the forward rate.
Switzerland is sometimes peripherally involved. Any one of the major world currencies that is well traded and easily converted into other currencies. The interest rate determined by calculating the difference between spot and forward rates.
The margin required by a Foreign Exchange firm to initiate the buying or selling of a determined amount of currency. The bid and offer rates at which international banks place deposits with each other. The basis of the Interbank market. Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates. Statistics that are considered to precede changes in economic growth rates and total business activity, e.
The amount, expressed as a multiple, by which the notional amount traded exceeds the margin required to trade. A request to deal as a buyer or seller for a foreign currency transaction at a specified price, or at a better price, if obtainable.
The amount of money or collateral that must be, in the first instance, provided or thereafter, maintained, to ensure against losses on open positions. Initial margin must be placed before a trade is entered into. Maintenance or Variation margin must be added to initial to maintain against losses on open positions. The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins.
An order to buy or sell a financial instrument immediately at the best possible price. The price half-way between the two prices, or the average of both buying and selling prices offered by the market makers. The amount of currency bought or sold which have not yet been offset by opposite transactions. The price at which a seller is willing to sell. The best offer is the lowest such price available. The netted total commitments in a given currency.
A position can be either flat or square no exposure , long, more currency bought than sold , or short more currency sold than bought. The cost, often quoted in terms of dollars or pips per day, of holding an open position. A currency that is normally quoted as dollars per unit of currency rather than the normal quote method of units of currency per dollar. Sterling is the most common example. An overnight swap, specifically the next business day against the following business day also called Tomorrow Next, abbreviated to Tom-Next.
The sale of a specified amount of currency not owned by the seller at the time of the trade. Short sales are usually made in expectation of a decline in the price. Refers to the negative or depreciating pip value between where a stop loss order becomes a market order and where that market order may be filled. More potential sellers than buyers, which creates an environment where rapid price falls are likely.
Spot or Spot date refers to the spot transaction value date that requires settlement within two business days, subject to value date calculation. The difference between the bid and ask price of a currency. The difference between the price of two related futures contracts. Order to buy or sell at the best available price when a given price threshold has been reached. 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.
For a spot transaction it is two business banking days forward in the country of the bank providing quotations which determine the spot value date. The only exception to this general rule is the spot day in the quoting centre coinciding with a banking holiday in the country ies of the foreign currency ies.
The value date then moves forward a day. Ready to go straight live? Open a Live Trading Account Here. Please click the appropriate letter to navigate to that section:More...