FX Dictionary and Glossary of Terms

- A -

Account Statement report – This FXDD report will give the client all the debit and credit activity that occurs in the client account over a user specified time period. 

Account Status window – The Account Status Window is the window that shows the FXDirectDealer Margin Monitor.  Including is account balances, and the unrealized profit/loss on open positions.  It also has a numerical and graphical representations of the FXDD margin levels for the client given existing open positions. 

Account Value – The current value of a customers account given the amount of money deposited and changes as a result of profits and losses from existing and closed out positions, credits and debits from daily rollovers, and charges from such things as commissions, transfer fees or bank related fees if applicable.

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

Aggregate risk - Size of exposure of a single customer to a market related movement

Aggregate Supply - Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.

Agreement - The FXDirectDealer Customer Agreement.  All clients must read and sign the FXDD Customer Agreement before opening an account with FXDD.

Application – The FXDirectDealer software program.

Appreciation - Describes a currency increasing or strengthening in response to a market reaction

Arbitrage - The simultaneous purchase and sale on different markets, of the same or equivalent financial instruments to profit from price or currency differentials.

Asset Allocation - Dividing funds among different investment alternatives in order to attempt to achieve diversification or maximum return.

Ask - The price at which the currency or instrument is offered for sale by FXDirectDealer or another counterparty.

“At best” – A specific instruction given to a dealer to buy or sell at the best rate that can be obtained.   The term is synonymous with the term “at the market” or is implied by the customer issuing a “market order”.

“At or Better” - An order to deal at a specific rate/price or better.

Authorized Dealer  - A third party to which Customer grants trading authority or control over a Customer’s Account. FXDirectDealer does not, by implication or otherwise, endorse or approve of the operating methods of the Authorized Agent. FXDirectDealer shall not be responsible with respect thereto. 

 Available Trading Power – Given a customer’s Account Value and existing position, the amount of incremental foreign exchange position, expressed in a specified currency, that the customer could take.  Mathematically,  the Available Trading Power = (Account Value * Maximum Trading Leverage) – Open Positions Amount

- B -

Back Office – The customer support area for FXDirectDealer in charge of Account setup, funds transfers into and out of the customer account, trade reconciliation issues, customer inquiries, and other activities that do not directly involve the buying or selling of a currency pair.  

Balance of Payments - A systematic record of the real economic transactions during a given period for a particular country.   Countries are either in a balance of payment excess or balance of payment deficit.  Prolonged balance of payment deficits could lead to restrictions in capital transfers, and or decline in currency values.

Balance of Trade or Trade Balance – In general terms, the value of exports less imports for a particular country.  A balance of trade deficit is when a country imports more than it exports.  A balance of trade surplus is when a country exports more than it imports.   If a country is in a prolonged trade deficit condition, the currency versus its trading partners should decline or weaken making the cost of imports more expensive and exports cheaper for the trading partners. 

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

Banking day (or Business day) – Any day that commercial banks are open for business in the financial center of the country whose currency a position is taken.

Bank of Japan or BOJ – The central bank of Japan.

Base currency - The first currency in a currency pair.  In the currency pair EUR/USD, the Base Currency is the EUR.  When entering a contract with FXDirectDealer, the base currency remains constant at a contracted lot value amount.  For example, if a lot is 100,000, the customer who transacts to buy 1 lot of EUR/USD at a currency rate of .9600 would be contracting to exchange 100,000 EUR for $96,000 USD. 

Base Rate - A term used predominantly in the UK for the rate used by banks to calculate the interest rate charged to borrowers. Top quality borrowers will pay a small amount over base rate while lesser quality credits will pay a rate much higher than the base rate..

Basis point - One per cent of one per cent.  The difference between 3.75% and 3.76%.

Bear market - A situation whereby there exists prolonged period of generally falling prices for a particular investment product.

Bear Squeeze – The condition in the market where investors or traders who are short an investment product are forced to cover their position because a rising market condition, has inflicted losses on the account

Bear - An investor who believes that price of an investment product is going to fall.

Best-Efforts Basis – The execution of an order at the next available price taking into consideration the volume available to buy or sell at that price and the quantity and volume of orders that precede the customers order. 

Bid - The price at which FXDirectDealer (or another counterparty) offers to buy the currency pair from a customer. 

Big Figure - Refers normally to the first three digits of an exchange rate that dealers treat as understood in quoting.  NOTE: A EUR/USD exchange rate of .9630 implies a “0” as the first figure.  So, the price would be 0.9630 with the big figure being 0.96. 

Break or Break out – Term used to describe a sudden or rapid fall in instruments pricing away from a consolidated range.

Broker - an agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread.

Brokerage - Commission charged by a broker.

Bull market - A prolonged period of generally rising prices for a particular investment product.

Bull - An investor who believes that prices of particular investment products are going to rise.

Bundesbank – The Central Bank of Germany.

Business Day - Any day on which commercial banks are open for business other than Saturday or Sunday in the principal financial center of the country in whose currency a position is taken. 

Buy Limit - Specifies the highest price at which the purchase of the Base Currency in a Currency Pair can be executed. The limit price in a Buy limit order should be BELOW the current dealing Ask price. 

Buy Stop - A Buy Stop is a Stop Order that is placed ABOVE the current dealing Ask price and is not activated until the market Ask price is at or above the Stop Price. The buy stop order, once triggered, becomes a market order to buy at the current market price.

- C - 

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

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

Cash Delivery - Same day settlement.

Cash - normally refers to an exchange transaction contracted for settlement on the day the deal is struck.

Cash on Deposit – Cash on Deposit equals the amount of funds deposited in the account, plus or minus the realized closed position P/L and other debits or credits such as rollovers, and commission (if any).

Central Bank - A bank, which is responsible for controlling a country’s or region’s monetary policy. The Federal Reserve is the central bank for the United States, the European Central Bank is the central bank of Europe, the Bank of England is the central bank of England and the Bank of Japan is the central bank of Japan.

Central Bank Intervention – The act by which a central bank or central banks enter the spot foreign exchange market and attempt to influence unbalanced supply and demand forces through the direct purchase (or sale) of foreign exchange.  

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

Chartist – An individual who studies graphs and charts of historical data in an attempt to find trends that will help predict the direction and magnitude of a particular investment product.

Client or Customer– A FXDirectDealer Account holder.  The Client can be an Individual, Money Manager, corporate entity, trust account, Co-Owner or any legal entity that has an interest in the value of the account. 

Closed position - A transaction that is opposite in direction and magnitude to an existing position that has the effect of realizing a gain or loss.

CME - Chicago Mercantile Exchange

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

Confirmation – An electronic or printed notice that describes all the relevant details of a 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.

Contract - An Over the Counter (OTC) agreement done with FXDirectDealer to buy or sell a specified amount of a particular currency in return for a specified amount of another currency for settlement on a specified Value Date (normally the Spot Date).  The contracted amounts are determined by the foreign exchange rate that the two parties contract to.

Conversion Rate – The rate for a specific currency pair that is used to convert (or sweep) non-US dollar profits/losses into dollars at the end of a trading day.

Co-Owner – A person who has a co-interest in a FXDD Account.  Co-owners are required to read, fill out and sign account application forms and corresponding documents including but not limited to the FXDD Risk Disclosure document, and the W-8/W-9 forms.

Correspondent Bank - The foreign banks representative who regularly performs services for a bank which has no branch in the relevant center, e.g. to facilitate the transfer of funds

Counter Currency – The second currency in a currency pair.  In the Currency Pair EUR/USD, the Counter Currency is the USD.

Counterparty - The other entity or party with whom the exchange deal is being transacted.

Country risk - The risk attached to a transaction by virtue of its association to a particular country. This involves examination of economic, political and geographical factors of a particular country.

Cover - The act of performing a transaction that closes out a position.

Credit Risk - The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised to be delivered.

Cross Currency Contract – A spot contract to purchase or sell one foreign currency in exchange for another specific foreign currency.  The currencies exchanged are not the US Dollar.

Currency – A Foreign Currency or US Dollar.

Currency Pair – The two currencies in a foreign exchange transaction.   The “EUR/USD” is an example of a currency pair.

- D -

Daily Cut-off (or Close of Business Day)  - The single point in time that signifies the end of that Business Day. The Trade Date of any Contract entered into after the Daily Cut-off shall be considered executed on the next Business Day. The Daily Cut-off will occur at a time selected on any Business Day solely by FXDirectDealer and may be changed at the discretion of FXDirectDealer.

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

Day trader - Speculators who take positions in investment products, which are then liquidated prior to the close of the same trading day.

Deal Blotter – A listing of all the deals that were executed over a specified time period, usually the trading day. 

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.

Dealer - An individual or firm acting as a principal, rather than as an agent, in the purchase and/or sale of foreign exchange. Dealers trade for their own account and risk.

Dealing Desk – Generally speaking, the collection of dealers working for FXDirectDealer that facilitate the pricing and execution of customer orders.

Default - Generally speaking a breach of contract.

Depreciation - A fall or decline in the value of a currency due to market forces

Depth of market - A measure of the size of volume available for transaction purposes for a particular currency pair at a specific point in time. 

Details - All the information required to finalize a foreign exchange transaction, i.e. name, rate, and dates.

Devaluation – The deliberate downward adjustment of a currency against its fixed parities or bands, normally initiated by a formal announcement by a country. 

Discretionary Income - Net of tax and fixed personal spending commitments.

DM, DMark - Deutsche Mark.

Domestic Rates - The interest rates applicable to deposits in the country of origin.

“Done” – The term used by FXDirectDealer representative to indicate that a verbal deal has been executed and is now a binding deal. 

Down tick - The sale of a security (usually an equity or stock) at a price lower than the previous one.

- E -

Easing – A decline in interest rates initiated by the central  

ECU - European Currency Unit.

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

Escrow account – Money deposited with FXDirectDealer is deposited in an escrow account at Citibank, NA.

Euro – The exchange currency of the European Union

Euro Rates - The interest rates quoted for Euro-currencies over specific periods.

Eurocurrency - A currency deposited outside its country of origin.

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

European Union - The group formerly known as the European Community.

Event Notifications window – The window of FXDirectDealer that summarizes the transactions that have occurred in a clients account over the course of a business day.

Excess Margin Deposits – Money deposited with FXDirectDealer that is not used for margin against an existing open position. 

Exchange – A physical location where instruments are traded and often regulated.  Examples: the New York Stock Exchange, the Chicago Board of Trade

Exchange control - A system of controlling inflows and out flows of foreign exchange, devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges.

Exotic - A less broadly traded currency.

 - F -

Fast market – The rapid movement of prices or rates in a market caused by disequilibria in supply and demand conditions from buyers and/or sellers.  In such circumstances rates or prices may not be readily available to clients until orderly markets resume.

Fed Fund Rate - The short term (overnight) rate pegged by the Federal Reserve Bank used to conduct monetary policy and affect changes in the money supply that causes changes in the level of activity in the United States economy. 

Fed Funds - Cash balances held by banks with their local Federal Reserve Bank.

Fed - The United States Federal Reserve Bank.

Federal Open Market Committee – Also known as the FOMC.   The body of individuals that decide the course of monetary policy that will be conducted in United States.  The FOMC is directly responsible for pegging the Federal Funds rate and the Discount Rate.  Both rates are influential in controlling the levels of money supply growth and the levels of economic activity in the United States..

Federal Reserve Board - The board of the Federal Reserve System, appointed by the US President for 14 year terms, one of whom is appointed for four years as chairman.

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

Fill or Filled - A deal that has been executed on behalf of a Customer’s Account given a Customer’s Order. Once filled, an Order cannot be canceled, amended or waived by Customer. 

Firm quotation - A verbal price given in response to a request for a firm rate at which the quoting party is willing to execute a deal for a reasonable amount for spot settlement..

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. Often the fixed exchange rate permits fluctuation within a band.

Fixing - 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.

Floating exchange rate - 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.

FOMC - 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 sale or purchase of another.

Forex - Foreign Exchange.

Forward Deal - A deal with a value date greater than the spot value date.

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 Rate - Forward rates are quoted in terms of forward points, which represents 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.

Front Office - The activities carried out by the dealer , normal trading activities.

Fundamentals - 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.

FX - Foreign Exchange

FXDD – FXDirectDealer, LLC

FXDirectDealer Demo Trading Platform – FXDirectDealer maintains a demo-trading platform that is a full feature replica of the FXDirectDealer Internet Trading Platform used by authorized FXDD margined clients to enter into contracts to buy and sell foreign exchange from FXDirectDealer.   The demo-trading platform allows potential FXDirectDealer clients to get used to the actual trading platform’s functionality and features without risking their capital by executing contracted trades.  Since, the platform does not involve actual deals or contracts, any profit or loss generated by using the platform do not accrue nor are they an obligation of the demo customer.  It is strictly for demonstration purposes only.

FXDirectDealer Internet Trading Platform – The software application used by authorized FXDirectDealer customers to contract foreign exchange transactions for the purpose of speculating on the direction of the currency movements.   It is also referred to simply as FXDirectDealer.  Any transactions done on the FXDirectDealer Internet Trading Platform is  a legally binding contract that the client is responsible for as per the Customer Agreement and other documents presented and signed by the client.

FXDirectDealer Menu Bar – The Bar included in the FXDD Window that allows the client to access, format, position the various FXDD windows including the various customer Reports windows, Chart windows, Spot Book window, etc.  It also gives the client access to the FXDD Help Window.

FXDirectDealer Risk Disclosure document – The document outlines the risks associated with opening an account with FXDirectDealer.  All clients who have a financial interest in FXDirectDealer are required to read and sign the document in order to open an account. 

FXDirectDealer Title Bar – The bar at the top of the FXDD Window that the Version Number of the FXDD release and the world clocks.

FXDirectDealer Toolbar Icons – Icons automatically displayed in the FXDD Window that allow the user to access via a single mouse click, the Event Notification, Account Status, Open Position, Pending Orders, Spot Book, and Help Windows. 

FXDirectDealer Window – The term used to describe the entire space on a clients computer screen that is home to all the other FXDirectDealer windows that allow the client to monitor positions and profit and losses, Pending Orders, the Spot Book, Chart Window, etc.  

- G -

G7 - The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.

G10 - G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.

Going long - The act of buying a currency pair.  For example, if a client bought the EUR/USD, he would be “going long” the Euro.

Going short – The act of selling a currency pair. For example, if a client sold the EUR/USD, he would be “going short” the Euro.

Good til canceled (GTC order)  – A specific instruction to a broker that unlike normal practice the order does not expire at the end of the trading day, although normally terminates at the end of the trading month.

GTC – SEE: Good til canceled.

- H -

“Hit the bid” – Term used to describe the action of a seller of a currency pair when wanting to sell at the market bid side.

Holder – Buyer of a currency pair.

- I - 

Indicative quote - A market-maker's price which is not “firm” or “firm quotation”.

Initial margin requirement - The minimum Margin Balance necessary to establish a NEW Open Position. FXDIRECTDEALER reserves the right to change the Initial Margin requirement at it’s sole discretion. The Initial Margin requirement can be expressed as a percentage (i.e., 2% of US dollar position amount) or can be calculated by the Leverage Ratio. For example, a $100,000 position in USD/JPY would require $2,000 of margin given a 2% Margin Requirement. Expressed as a leverage ratio, if 50:1 leverage ratio is used a $100,000 position would require the same Initial Margin ($100,000 / 50 = $2,000).

Interbank Market - The interbank market is the over-the-counter market of dealers that make markets in foreign exchange to one another.

Intervention – Buy or sell action by a central bank in an attempt to affect the value of its currency. Concerted intervention refers to action by a number of central banks to influence the value of exchange rates.

Intra day position - Open positions run by a client of FXDirectDealer within the day. Usually squared by the close.

Introducing Broker – A person or legal entity that introduces customers to FXDirectDealer often in return for compensation in terms of a fee per transaction.  Introducing Brokers are prevented from accepting margined funds from their clients.

- K -

Kiwi - Slang for the New Zealand dollar.

- L -

Left-hand side - Taking the left hand side of a two way quote i.e. selling the quoted currency.

Leverage – The control of a large notional position through the use of a small amount of capital.

Limit order - A Limit Order is a Customer Order to Buy or Sell a specific amount of a Currency Pair at a specific user defined price.  A Limit Order does not guarantee execution; rather it guarantees only that if execution occurs, it will be at the stated Limit Price.  Note that sometimes the market briefly touches a limit price, only to immediately retreat back away from the limit price level with very little if any volume traded.  Under such circumstances the Limit Order may not have be executed and the limit order will remain in effect, until that time when the order can be executed or until the Customer cancels the order.   A Limit Order specifies that execution should be attempted after the market reaches or goes through a set price level - the limit price. Once issued, the limit order will be held pending until the limit price is reached. Once the market hits or goes through the limit price, the order is triggered and the FXDD dealer attempts to execute the order at the Limit Price. 

Limit Price – The price that the client specifies when entering a Limit Order

Liquid – The condition in the market where there is ample amount of volume to buy or sell.

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

Liquidation Level – The account value level that initiates the liquidation of all the client’s open position at the best price or exchange rate available at that moment.   Liquidation occurs when the Account Value is not sufficient to maintain the current open position(s).  A client can prevent liquidation by depositing additional margin into the account, or by closing out existing open position(s).

Liquidation Level Excess/Deficit – Remaining Account Value before automated liquidation is triggered.  The level is equal to the Account Value – Liquidation % * Margin. If loss on open position(s) exceeds this amount, FXDirectDealer will automatically liquidate ALL open positions.  The level is represented graphically as the top of the ‘brown” level in the FXDD Margin Monitor.

Liquidity – The term used to describe the amount of volume available to buy or sell at a point in time. 

Long - The term used to describe a client who has opened a new position by buying a currency pair.

Loss in Excess of their Margin Deposit – There exists the opportunity for clients to lose more than the margin that they initially pledge to open and maintain a position. 

- M -

Maintenance Margin - The minimum margin, which an investor must keep at FXDirectDealer to maintain an open position. 

Maintenance Margin Excess/Deficit – Remaining funds against which a customer can maintain/hold a position(s) until a Margin Call is triggered.  Maintenance Margin Excess/Deficit = Account Value – Maintenance % * Margin.  It is represented graphically as the top of the “red” level in the FXDD Margin Monitor.

“Make a market” - A dealer is said to “make a market” when a quoted bid and ask price is given to a client.  The price represents the firm prices that the dealer is ready to buy or sell.

Margin Call - A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse exchange rate movements.

Margin - The aggregate amount of customer cash pledged against the aggregate Open Position(s).  The margin pledged is a function of Maximum Trading Leverage Ratio.  The higher the leverage, the lower the pledged Margin.  The lower the leverage, the higher the Margin needed to carry the position. 

Mathematically, Margin = Open Position Amount / Maximum Trading Leverage Ratio.  For example, a USD/CHF 100,000 USD position at Maximum Trading Leverage Ratio 100:1 will require pledged Margin equal to 100,000/100 or $1,000.

Note: To calculate margins for currency pairs, where USD is NOT the Base (First) Currency (e.g. EUR/USD, GBP/USD…) and crosses (EUR/JPY, GBP/JPY…), the Counter Currency amount is first converted into USD using the average exchange rate(s).

Example: Customer buys 1 lot of EUR/USD when the price is 1.30.  The average exchange rate is 1.30.  Therefore, 100,000 EUR equals 130,000 USD.  $130,000 / 100 Leverage Ratio = $1,300

Mark to Market - The daily adjustment of an account to reflect unrealized profits and losses

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

Market order - A Market Order is an order to buy or sell a chosen currency pair at the current market price.  A Market Order will be executed at the price displayed at the moment user clicks the “Place” button, but only if the currency price remains within a price range (for example, 5 pips) set by the FXDD. 

Maximum Trading Leverage Ratio – Leverage expressed as a ratio, available to open a new position(s).  For example, a leverage ratio of 100:1 allows a client the ability to control a $100,000 lot position with $1,000 of margin ($100,000 / 100 = $1,000). 

  Maximum Trading Power – Mathematically, the Maximum Trading Power = Account Value * Maximum Trading Leverage Ratio

Moving Average - A way of smoothing a set of price/rate data by taking the average price of data range of values. 

- N - 

Net Interest Rate Differential – The difference in interest rates from the countries of two different currencies.  For example, if the spot next rate for the Euro is 3.25% and the spot/next rate in the US is 1.75%, the interest differential is 1.50% (3.25% - 1.75% = 1.50%).

Netting - The method of settling under which only the differences in the traded currencies are settled at the close.

Foreign Exchange – FXDirectDealer does not make physical delivery of foreign currency into foreign bank accounts. 

- O -

OCO Order (One Cancel the Other Order) - A One Cancels the Order is a Stop and Limit orders set simultaneously, whereby once either one is executed, the other is canceled. For example, an OCO may be place to close an existing position either with a Limit (take profit), or with a protective Stop (stop loss).

Offer - The price at which a dealer is willing to sell.  The Offer is also called the Ask or Ask Price.

Offered market - Temporary situation where offers exceed bid.

Old Lady - Old lady of Threadneedle Street, a term for the Bank of England., the central bank of England

Omnibus Account - An account maintained by one broker with another in which all of the accounts of the former are combined and carried only in its name, rather than designated separately.

Open position - The difference between assets and liabilities in a particular currency. This may be measured on a per currency basis or the position of all currencies when calculated in base currency.

Open Position window – The FXDD window that shows all the current client positions that are open.

Order(s) – Clients directions either electronically via the FXDirectDealer Internet Trading Platform, verbally or via an electronic chat application like DirectDealer, to enter into a specific foreign exchange contract with FXDirectDealer by buying or selling a specified currency pair now or at a time when the price meets the clients specific requirements.

OTC Margined Foreign Exchange - Over-the-Counter (Off-exchange) Foreign Exchange markets, in which markets participants, such as FXDirectDealer and Customer, enter into privately negotiated Contracts or other transactions directly with each other for which margin is deposited and pledged against outstanding positions.

Overnight - A deal from today until the next business day.

- P -

Pip – The smallest measure of movement for a foreign exchange rate.

Pending Orders report – The Pending Orders report will show all the pending orders that the client has entered over the user specified dates whether the Pending Order is executed or not.  Any Pending Order that is cancelled by the client will still be displayed, giving the client a full audit trail of the orders. 

Pending Orders window – The FXDD window that shows all the outstanding orders that are still pending or outstanding.  Before closing FXDD if the client has any Pending orders, the application will warn the client that these orders are still outstanding.  The orders can remain even though the client is logged out.  However, they may be executed when the client is offline. 

Position - 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).

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

Profit Taking - The unwinding of a position to realize a profit.

- Q -

Quote – Consists of the Bid and Ask for a currency pair.

Quote Panel - The quote panel is the section in the FXDD Window that displays the quotes of major currencies and crosses and allows access to FXDirectDealer charts

- R -

Range - The difference between the highest and lowest price of a future recorded during a given trading session.

Rate - The price of one currency in terms of another, normally against USD.

Realized P/L – The profit and loss generated from closed positions.

Regulated Market – A market that is regulated usually by a governmental agency that issues a number of guidelines and restrictions designed to protect investors. 

Reports window – The FXDD Reports window is where the client can access various account status reports that show in detail the activity as a client of FXDD.   There are 5 different Reports and the client can customize any of the reports as to a specific time period.  The 5 reports are the Trading History, the Pending Orders History, the Account History, the Session History and the Account Statement. 

Resistance Point or Level - A price recognized by technical analysts as a price which will usually stop a movement of a foreign exchange rate from going higher.  If a resistance level is “broken” the technician will conclude that the price movement of the instrument will continue to go higher.

Right hand side – Corresponds to the Ask or Offer price of a foreign exchange rate.  For example, given a price of .9630 - .9635, the right hand side is .9635.  The right hand side is the side that a client would buy at.

Risk Capital - The amount of money the Customer is willing to put at risk and, which if lost would not, change the Customer’s lifestyle or the Customer’s family lifestyle.

Rollover – At the end of each business day, FXDirectDealer will automatically rollover or swap, all existing open positions into the next spot date.  The mechanics in effect involve the simultaneous close of an existing position and the opening of a new spot position.  FXDirectDealer will debit or credit the client’s account depending on the interest rate differential between the base currency and the counter currency and the direction of the client’s position.   For example, if the client is long a currency pair where the overnight rate for the base currency is higher than the counter currency, the client will earn a small credit for positions held overnight.  If the opposite is true, the client account will be debited for the difference in the interest rate differential.  The fundamental reason is if a client is long a higher yielding currency, he should  benefit from being able to invest and earn a higher return overnight than what he has to pay for being short the lower yielding currency.   

Rollover credit – The credit (in base currency terms) added to a client’s account that is long a higher yielding currency overnight. 

Rollover Debit – The debit subtracted from a client’s account that is long a lower yielding currency overnight.

- S - 

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

Sell Limit - Specifies the lowest price at which the sale of Base Currency in a Currency Pair can be executed. The limit price in a Sell limit order should be ABOVE the current dealing Bid price.

Sell Stop - A Sell Stop is a Stop Order that is placed BELOW the current dealing Bid price and is not activated until the market Bid price is is at or below the stop price. The sell stop order, once triggered, becomes a market order to sell at the current market price.

Settlement date - The date by which an executed order must be settled by the transference of instruments or currencies and funds between buyer and seller.

Short – Having an open position that was created by selling a currency.  If you sold the EUR/USD, the client is said to be “Short” the currency pair (sold the base currency).  If a client bought the EUR/USD, he would be long the currency pair, but short USD currency.  Foreign exchange transactions assume being long one currency and short another. 

Short Covering - Buying to unwind a short position of a particular currency pair

Sophisticated Foreign Exchange Investor  - Investor possessing sufficient knowledge, experience and/or capitalization to trade in Foreign Exchange market. The investor has to decide for him/herself if Forex is a suitable investment vehicle for his or her purposes.  

Sovereign risk - (1) Risk of default on a sovereign loan; (2) Risk of appropriation of assets held in a foreign country.

Speculative – Trading Foreign Exchange is speculative in that there is no guarantee that those who invest in Foreign Exchange will make any money.  The conditions also exist that the client can lose his entire deposited margin making trading FX highly speculative.  Those who trade foreign exchange should only risk that capital which is considered risk capital, defined as the amount of which if lost would not, change the Customer’s lifestyle or the Customer’s family’s lifestyle.

Spot Book – The FXDD Spot Book window will show the clients outstanding Overnight Positions, the deals that were executed during the course of the day, and the clients existing open positions.  The window includes relevant information about the listed items in each of the different section such as the deal rate, the current value of the deal, the current mark to market rate, the P/L, the time the deal was executed, etc.  

Spot - Spot or Spot date refers to the spot transaction value date that is two business days from the deals Trade Date.  In instances where there is holiday, weekend or other day when the banks in the countries represented by the currencies in the currency pair are closed, the spot date will be adjusted forward to the next value date where the banks are open.  In the case of US Dollar versus the Canadian dollar, the spot date is 1 business day forward from the Trade Date.

Spot price/rate - The price at which a currency pair is currently trading in the spot market.

Spot Settlement Basis - The standardized settlement procedure for foreign exchange transactions that sets the value date 2 business days forward from the Trade Date (see: Spot).

Spread - The difference between the bid and ask price for a foreign currency price.

Square – The condition whereby the client’s purchases and sales are in balance and there is no open position.

Squawk Box - A speaker connected to a phone often used in broker trading desks.

Sterling - British pound, otherwise known as cable.

Stop loss order – A specific order entered by the client to close out a position if the price moves in the opposite direction of the position by a certain amount of pips.  In most cases Stop Orders are executed as soon as the market reaches or goes through the Customer set Stop Price level.  Once issued, the stop order will be held pending until the stop price is reached.  Stop orders may be used to close out a position (Stop Loss), to reverse a position, or open a new position. The most common use is to protect an existing position (by limiting losses or protecting unrealized gains). Once the market hits or goes through the stop price, the order is activated (triggered) and FXDD will execute the order at the next available price. Unlike a Limit Order, a Stop Order does not guarantee execution at the stop price.  Market conditions including volatility and lack of volume may cause a Stop order to be executed at a price different than the order. 

Stop Price Level – The client entered price that activates a Stop Loss Order. 

Sweep/Sweeping – When a client of FXDirectDealer has a P/L in another currency other than US dollars, the P/L must be converting at the close of each business day into US dollars, at an exchange rate prevailing at the time (known as the Conversion Rate).  This process is called sweeping.   Note that until the P/L is swept, the clients Account Value may fluctuate slightly (up or down) as exchange rate for the Profit and Loss currency changes.  For example, if the client has a profit in Yen, if the value of the yen rises after the position is closes, but before the profit is swept into dollars, the Account Value will change.  The change is only on the profit/loss amount so the effect is minimal.   

SWIFT - Society for World-wide Interbank Telecommunications is Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions. The society is also responsible for the standardization of the currency codes used for confirmation and identification purposes (i.e.. USD = US Dollars, EUR = The Euro, JPY = Japanese Yen) 

Swissy - Market slang for Swiss Franc.

- T -

"Take the Offer "- A verbal market order whereby the customer wants FXDirectDealer to pay the Ask or Offer price for a customer desired amount of lots. 

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

Thin market - A market condition in which trading volume and liquidity is low and in which usually bid and ask quotes are wider than normal.

Tick - A minimum change in price, up or down.

Tomorrow next (Tom next) - Simultaneous buying of a currency for delivery the following day and selling for the spot day or vice versa.  FXDirectDealer

Trade date - The date on which a trade occurs.

Trading margin Excess/Deficit - Remaining funds against which a customer can open a new position(s) or increase the amount of an existing position(s) = Account Value – Margin.  It is a function of the position size and the Profit and Loss on the existing position. It is represented graphically as the top of the “yellow” level in the FXDD Margin Monitor.

 Trading Platforms – A software application where a client can give an order to execute a transaction on that customers behalf.  FXDirectDealer and DirectDealer are both examples of trading platforms.

Transaction date - The date on which a trade occurs.

Transaction - The buying or selling of foreign exchange amount resulting from the execution of an order.

Two-Way Quote - When a dealer quotes a bid and ask price for foreign exchange transactions to a customer.

- U -

Uncovered position - Another term for an open position.

Unrealized P/L - Unrealized P/L is the real time profit or loss on the current open position(s), given the current exchange rate(s).  NOTE: The Unrealized P/L is calculated using the price that the client would need to deal on to liquidate the position.  For example, if the client were long EUR/USD, the client would need to sell at the Bid side of the current market.  P/L is unrealized until the position is closed out.  The P/L will then be added or subtracted from the Cash on Deposit to get the new Cash on Deposit amount.

Up tick - A transaction executed at a price greater than the previous transaction.

US Dollar – The legal tender of the United States of America.

- V - 

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 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. The enquirer is the party who must make sure that his 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 effect 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.

- W -

Wire Transfer – The transfer of money electronically from one bank to another.

- Y -

Yard - Slang for milliard, one thousand million.