Glossary

Accelerator/Decelerator Oscillator (AC)

The indicator that measures the acceleration and the deceleration of the current driving force. It changes direction before any trend reversals take place, thus, changes its direction before any price changes.

Accumulation/Distribution (A/D)

A momentum indicator that attempts to gauge supply and demand by determining whether investors are generally “accumulating” (buying) or “distributing” (selling) by identifying divergences between the price and volume flow. It is calculated using the following formula:
Acc/Dist = ((Close – Low) – (High – Close)) / (High – Low) * Period’s volume

Arbitrage

The simultaneous buying and selling of an asset to profit from a difference in the price.

Aroon

The AROON Oscillator indicator uses AROON Up/Down to calculate the strength of a current trend and the likelihood that this trend will continue. The calculation is Aroon Up – Aroon Down. Readings above 0 indicate that an upward trend is present, whereas readings below 0 indicate the instrument is on a downtrend. Many traders will set alerts for when the FX instrument has just crossed above the 0 line – this suggests the beginning of a new uptrend (buy). Similarly, if the indicator starts to drop below the zero line this suggests the very start of a downtrend (sell).

Average Directional Movement Index Rating (ADXR)

A technical analysis tool that averages the day’s average directional index (ADX) with the ADX from two weeks prior. It is designed to indicate the strength of the ADX trend.

Awesome Oscillator (AO)

Awesome Oscillator (AO) is a momentum indicator reflecting the precise changes in the market driving force which helps to identify the trend’s strength up to the points of formation and reversal.

Around

Dealer jargon used in quoting when the forward premium/ discount in near parity. For example, “two-two around” would translate into 2 points to either side of the present spot.

Ask Rate

The rate at which a financial instrument is offered for sale (as in bid/ask spread).

Balance of Power (BoP)

An indicator measures the strength of the bulls vs. bears by assessing the ability of each to push price to an extreme level, and is calculated by:
BOP = (Close price – Open price) / (High price – Low price)

Base Currency

The first currency in a currency pair. In a currency exchange, the exchange rate is quoted as the units of one currency in terms of a single unit of a base currency. For example, in a currency exchange of U.S. dollars for Japanese Yen, the base currency is the U.S. dollar.

Bears Power

The Bears’ Power indicator shows the strength of the bears. If the indicator is below nought, the bears are strong; if it is above nought, they are weak. It is based on the moving average and the lowest price in a day, the difference shows how strong the bears are; the bigger the gap, the more the bears brought down the price.
The Bears’ Power (BEARS) indicator is the lowest price for the day (LOW) minus the 13-day exponential moving average (EMA) price:
BEARS = LOW – EMA (13)

Bollinger Bands ( up to 3 σ)

Bollinger Bands are displayed as three bands. The middle band is a normal moving average. The upper band and lower band are shifted up and down from the middle band by adding and subtracting the number of standard deviations (e.g. 2σ).

Bulls Power

The Bulls’ Power indicator shows the strength of the bulls. If the indicator is above nought, the bulls are strong; if it is below nought, they are weak. It is based on the moving average and the highest price in a day, the difference shows how strong the bulls are; the bigger the gap, the more the bulls pushed up the price.
The Bears’ Power (BEARS) indicator is the highest price for the day (HIGH) minus the 13-day exponential moving average (EMA) price:
BULLS = HIGH – EMA (13)

Broker

An individual or firm that acts as an intermediary, put together buyers and sellers for a fee or commission.

Balance of Trade

The value of country’s exports minus it’s imports.

Bid / Ask Spread

The difference between the bid and offer price, and the most widely used measure of market liquidity.

Big Figure

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. For example, a USD/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits i.e. “30/35”.

Book

In a professional trading environment, a book is the summary of a trader’s or desk total positions.

Cable

Trader jargon referring to the Sterling/US Dollar exchange rate.

Candlestick Chart

A price chart that displays the high, low, open, and close price over a specified period of time. There are many trading strategies based upon patterns in candlestick charting.

Cash Market

The marketplace for immediate settlement.

Central Bank

A government body that manages a country’s monetary policy.

Consumer Price Index (CPI)

An economic indicator which gauges changes in the cost of living by measuring price changes in a common basket of goods and services that most people use in daily life.

Counter Party

The other party that participates in a financial transaction. For every transaction there must be a counterparty for the transaction in order to go through. Every buyer of an asset must be paired up with a seller that is willing to sell, and vice versa.

Currency Risk

The probability of sustaining a financial loss when there is an adverse movement in exchange rates.

Currency Swap

An arrangement in which two parties exchange the holding of different currencies over a specified time period by way of the spot buying/selling of the currencies against a forward reversing exchange contract at an exchange rate calculated by adjusting the interest rate differential between the 2 currencies.

Currency Swaption

The option to enter into a currency swap. In exchange for an option premium, the buyer gains the right but not the obligation to enter into a specified swap agreement with the issuer on a specified future DeMarkerdate.

Chartist

An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as technical trader.

Clearing

The process of settling a trade.

Collateral

Something was given to secure a loan or as a guarantee of performance.

Confirmation

A document exchange by counterparts to a transaction that states the terms of said transaction.

Contagion

The tendency of an economic crises to state from one market to another. In 1997, political instability in Indonesia caused high volatility in their domestic currency, the Rupiah. From there the contagion spread to other Asian emerging currencies, then to Latin America, and is now referred as the ‘Asian Contagion’.

CounterParty

One of the participants in a financial transaction.

Country Risk

The risk associated with a cross-border transaction, including but not limited to legal and political conditions. 

Day Trading

This refers to positions which are opened and closed on the same trading day.

Deflation

A deep and long-lasting decrease in the price of goods and services within an economy.

Directional Movement Index (DMI)

Directional movement compares an asset’s trading range for one day to the trading range on the previous day. Positive directional movement (+DM) occurs when today’s high is greater than yesterday’s high, while negative directional movement (-DM) appears when today’s low is less than yesterday’s low. Based on the average of positive and negative directional movement over a certain time period, a positive directional movement indicator (+DI) and a negative directional movement indicator (-DI) can be plotted. When the +DI crosses the -DI to the upside, it generates a long signal. On the contrary, a short signal is generated when the +DI crosses through the -DI to the downside.

Dealer

An individual who acts as a principal or counterpart to a transaction. Principals take a one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

Depreciation

A fall in the value of a currency due to market forces.

Derivative

A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument.

Economic Indicator

Statistics issued by governmental and non-governmental bodies that indicates current economic growth and stability. Common indicators include employment rates, unemployment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.

Electronic Communication Network (ECN)

An automated system for financial instruments that bring buyers and sellers together for the electronic execution of trades.

Envelopes

A type of technical indicator typically formed by two moving averages that define upper and lower price range levels. An envelope is a technical indicator to identify extreme overbought and oversold conditions in a market. The envelopes, which typically appear overlaid on a price chart, are also useful in identifying trading ranges.

Estrangement

Estrangement is a representation of the current price, the moving average line and the degree of separation between the moving average lines.

Exposure

The amount of risk an investor has taken on in a particular investment.

EURO

The currency of the European Monetary Union (EMU). A replacement  For the European Currency Unit (ECU).

European Monetary Union (EMU)

The principal goal of the EMU is to establish a single European currency called the Euro, which will officially replace the national currencies of the member EU Countries in 2002. On January 1, 1999 the transitional phase to introduce the euro began. The Euro now exists as a banking currency and paper financial transaction and foreign exchange are made in Euros. This transition period will last for three years, at which time Euro notes an coins will enter circulation. On july1, 2002, only Euros will be legal tender for EMU participants. The national currencies of the member countries will cease to exist. The current member of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, The Netherlands, Spain and Portugal.

Federal Reserve (Fed)

The central bank of the United States.

Foreign Exchange – (Forex, FX)

Buying of one currency against the selling of another.

Forward

A contract to buy/sell currencies at a pre-determined FX rate on a specified future date.

Fundamental Analysis

An analysis of economic and political information (macro factors) with the objective of determining future movements in a financial market.

Futures Contract

An agreement to exchange a good or instrument at a pre-price on a future date.

Flat/Square

Dealer Jargon used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.

Gearing Ratio

An strategy used by investors/traders with the intention to maximise his investment returns by taking an investment portfolio of a greater value relative to the money (margin) deposited as collateral. Gearing ratio measures the multiplying effect of the capital deployed.

Good Till Date Order (GTD)

An order to buy or sell at a specified price. This order remains open until the end of the trading day which is typically 5PM NY time.

Good Till Friday Order (GTF)

An order to buy or sell at a specified price. This order remains open until the end of the nearest Friday which is typically 5PM NY time.

Heikin-Ashi (Average Bar)

A type of candlestick chart that shares many characteristics with standard candlestick charts, but differs because of the values used to create each bar. Instead of using the open-high-low-close (OHLC) bars like standard candlestick charts, the Heikin-Ashi technique uses a modified formula:
Close = (Open+High+Low+Close)/4
Open = [Open (previous bar) + Close (previous bar)]/2
High = Max (High,Open,Close)
Low = Min (Low,Open, Close)

Hedge

An investment position intended to offset potential losses or gains that may be incurred by a contrary investment position.

Ichimoku Kinko Hyo

A technical indicator that is used to gauge momentum along with future areas of support and resistance. The Ichimoku indicator is comprised of five lines called the tenkan-sen, kijun-sen, senkou span A, senkou span B and chickou span. This indicator was developed so that a trader can gauge an asset’s trend, momentum and support and resistance points without the need of any other technical indicator.

IFD

If Done Order – a two-legged order, upon execution of the first leg order, the second leg is then activated. Either leg can be a Stop, a Limit, or an OCO in a dormant state.

IMF

International Monetary Fund.

Initial Margin

The initial deposit of collateral required to enter into a position as a guarantee on future performance.

Inflation

An economic condition whereby prices for consumer goods rise, eroding purchasing power

Kagi-Ashi (Step Chart)

Step charts(KAGI-ashi) were created when the Japanese stock market began trading in the 1870. It displays a series of connecting vertical lines where the thickness and direction of the lines are dependent on the underlying price action. It ignores the passage of time. If prices continue to move in the same direction, Up or Down, the vertical line is extended. However, if prices reverse by a “reversal” amount, a new line is then drawn in a new column. When prices penetrate a previous high or low, the colour of the Kagi line changes. “Reversal” amount is a key factor to this chart, which is depending to volatility or price of the asset.

Leverage

Depositing a certain percentage of the total contract value as collateral for entering into a contract. The purpose is to gear up the investment portfolio to maximise the profit opportunity.

LIBOR

London Inter-Bank Offer Rate.

Linear Regression Line

A statistical measure that attempts to determine the strength of the relationship between one dependent variable (usually denoted by Y) and a series of other changing variables (known as independent variables). Linear regression uses one independent variable to explain and/or predict the outcome of Y.

Linear Regression: Y = a + bX + u, where:
Y= the variable that we are trying to predict
X= the variable that we are using to predict Y
a= the intercept
b= the slope
u= the regression residual

Liquidation

The mandatory closing of an open position through the execution of an offsetting transaction.

Long Position

Long position is when the bought quantity is more than the sold quantity. A long position appreciates in value if market prices increase.

Leading indicators

Statistics that are considered to predict future economic activity.

Margin

The required amount of equity that an investor must deposit to open a position.

Margin Call

A demand on an investor to deposit additional funds to top up the deposit back to initial margin level.

Market Order

Order to buy / sell at immediate price level.

Market Risk

An exposure to changes in market prices.

Momentum

Momentum indicator can be used as a trend-following oscillator similar to the MACD. Buy when the indicator bottoms and turns up, and sell when the indicator peaks and turns down. If the Momentum indicator reaches extremely high or low values (relative to its historical values), it is assume that the current trend is likely to continue.

Moving Average Convergence / Divergence (MACD)

Moving Average Convergence / Divergence (MACD) gives the cross-over of the exponential moving averages (EMA) of 2 selected time periods – “n1” and “n2” with the EMA line of a selected third time period “n3” overlay on top. The common numbers used for “n1”, “n2” and “n3” are 12, 26 and 9.

When the MACD is above zero, it means the 12-day moving average is higher than the 26-day moving average. This is a bullish signal because it indicates that current expectations are more bullish than previous expectations. When the MACD falls below zero, it means that the 12-day moving average is less than the 26-day moving average, implying that a bearish force makes a shift in the supply/demand lines.

OCO

One Cancels the Other – a two way order that consists of a limit order and a stop order placed at the same time. As one order is executed, the other will be cancelled.

Offsetting Transaction

A trade which serves to cancel or offset some or all of the open positions.

Open Order

An order that is still valid.

Open Position

A position that has not yet been offset / closed.

Over the Counter (OTC)

A transaction that is not conducted over an exchange.

Offer

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

Pips

Digits added to or subtracted from the fourth decimal place, i.e. 0.0001, for 5-digit pricing FX pairs, or the second decimal place, i.e. 0.01 for JPY relating price quotes.

Pivot Point

A primary support/resistance point calculated based on the previous trend’s High, Low, and Close rates.

Political Risk

An exposure to changes in governmental status or policy in which there will be an adverse effect on an investor’s position.

Position

The net holding of an investment product.

Price Transparency

Quotes made openly to all market participants.

Producer Price Index

An economic indicator that gauges price changes that producers receive for their output.

Quote

An indicative market price, normally used for information purposes only. 

Rank Correlation Index (RCI)

Rank Correlation Index (RCI) is an oscillator which evaluates the correlation between the rank of the price and the rank of the date within a certain period. “RCI Above” is a trigger which occurs when the RCI is above the given threshold. “RCI Below” is a trigger which occurs when the RCI is below the given threshold.

Rate Of Change (ROC)

The speed at which a variable changes over a specific period of time. Rate of change is often used when speaking about momentum, and it can generally be expressed as a ratio between a change in one variable relative to a corresponding change in another. Graphically, the rate of change is represented by the slope of a line.

Relative Strength Index (RSI)

Relative Strength Index (RSI) has a value between 0 and 100. A lower level and an upper level should be shown to indicate oversold and overbought levels. Typically, the upper and lower levels are recognized at 70 and 30, respectively. When the RSI moves below the lower level and reverses direction, a bullish buy signal appears. When the RSI moves above the upper level and peaks, a bearish sell signal occurs. The most commonly used time spans “n” are 10 days and 14 days.

Resistance

A term used in technical analysis indicating a specific price level above which analysis predicts the product will not break through.

Revaluation

The calculation of the book value of the open position using the market closing rate.

Risk Management

A system control policy to mitigate or control various types of risk.

Roll-Over

Positions not closed at day end are extended to the next trade day, calculated from the interest differential between the two currencies.

Settlement

The physical delivery of the currencies traded between the two parties to a contract on maturity date.

Simple Moving Average (SMA)

SMA is calculated by adding the asset prices for the most recent “n” time periods and divided by “n”. Moving average represents the consensus of investor expectations over a specific time span (e.g. 20 days). Investors typically buy when asset price rises above its moving average and sell when the price drops below.

Slippage

The difference between the expected price of a trade and the price at which the trade is actually executed.

Shin-Ne-Ashi (Trident Chart)

Trident chart(SHIN-NE-ashi), same as Step chart, display a series of connecting vertical lines where the direction of the lines are dependent on the price action. The charts ignore the passage of time. If prices continue to move in the same direction, Up or Down, the vertical line is extended. However, if prices reverse by the amount more than last three, a new line is then drawn in a new column. Unlike other charts such as, Step chart or Brick chart, it reverse only when a new price exceeds or underlies the latest three prices(high or low). When prices penetrate a previous high or low, the colour of the Trident line changes.

Spot Price

The current market price. Spot transactions are settled two business days after trade day.

Sterling

A jargon for British Pound.

Stop Order

Order to limit trading losses by liquidating positions when the market price breaks a pre-determined level.

Support Levels

A system used to speed up the transaction process. The information will be transferred from one party to another electronically without subsequently requiring its manual re-entry.

Swap

A currency swap is the simultaneous sale and purchase of the same amount of a given currency at agreed spot rate and forward rate between the two parties.

Stop Loss Order 

Order type whereby an open position is automatically liquidated as a specific price. Often used to minimize exposure to losses if the market moves against an investors position as an example, if an investor is long USD at 156.27 they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possible below 155.49.

Transaction Cost

The cost of buying or selling a financial product.

Transaction Date

The execution date of trade.

Two-Way Price

The bid and offer rate of a FX quote.

Uptick

A new price quote at a price higher than the proceeding quote.

Us Prime Rate 

The interest rate at which US banks will lend to their prime corporate customers

Value Date

The date on which counterparts to a financial transaction agree to settle their respective obligations. For spot currency transactions, the value date is normally two business days after trade date.

Volume

The number of contracts traded over a given period of time.

Value date

The date on which counterparts to a financial transaction agree to settle their respective obligations i.e. exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date. 

Williams’ Percent Range

A dynamic technical indicator, which determines whether the market is overbought/oversold. Williams’ %R is very similar to the Stochastic Oscillator. The only difference is that %R has an upside down scale and the Stochastic Oscillator has internal smoothing.

Whipsaw

Slang for a condition for a highly volatile market where a sharp price movement is quickly followed by a sharp reversal. 

Zigzag

A trend following indicator that is used to predict if the momentum on reversal. The indicator is to eliminate random price fluctuations and attempts to profit when the trend changes. The Zig Zag tool is often used in wave analysis to determine the positioning of the asset in the overall cycle.