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Glossary
Day Trader Speculators who take positions in commodities which are then liquidated prior to the close of the same trading day. Deal Ticket/Deal Slip 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 securities. Dealers trade for their own account and risk. Dealing Systems On-line computers which link the contributing banks around the world on a one-on-one basis Declaration Date The latest day or time by which the buyer of an option must indicate to the seller his intention to the option. Default The latest day or time by which the buyer of an option must indicate to the seller his intention to the option. Delivery Date 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. Delivery Month The calendar month in which a futures contract comes to maturity and becomes deliverable. Delivery Points Those locations designated by futures exchanges at which the currency represented by a futures contract may be delivered in fulfilment of the contract. Delivery Risk A term to describe when a counterparty will not be able to complete his side of the deal, although willing to do so. Delivery The settlement of a futures contract by receipt or tender of a financial instrument or currency. Devaluation Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement. Delta The change in the value of the option premium made fully paid by the capitalisation of reserves and given relative to the instantaneous change in the value of the; underlying instrument, expressed as a coefficient. Direct Quotation Quoting in fixed units of foreign currency against variable amounts of the domestic currency. Discount Rate The interest rate at which eligible depository institutions may borrow funds directly from the Federal Reserve Banks. This rate is controlled by the Federal Reserve and is not subject to trading. Discount Forward rate is lower than spot rate (2) an option that is trading for less than its intrinsic value. Double An option either to buy or sell an instrument or currency at a specified price. The exercise of the right to sell causes the right to buy to expire and vice versa. Durable Goods Order An economic indicator which measures the changes in sales of products with a life span in excess of three years.
Economic Exposure Reflects the impact of foreign exchange changes on the future competitive position of a company. Elliot Wave Principle A system of empirically derived rules for interpreting action in the markets. It refers to a five-wave/three-wave pattern which forms one complete bull market /bear market cycle of eight waves. Economic and Monetary Union (EMU) The irrevocable fixing of exchange rates between member currencies and their replacement by a single European currency, the euro. The euro is to be issued by a future European central bank, to be independent of political control and federal in nature. All countries which fulfil the five convergence criteria in 1998 will proceed to EMU in 2000. The UK and Denmark have secured opt-outs from EMU. Sweden's joining is subject to ratification by parliament. European Currency Unit A basket of the member currencies. As a composite unit, the ECU consists of all the European Community currencies, which are individually weighted. It was created by the European Monetary System with the eventual goal of replacing the individual European member currencies. European Monetary System A system designed to stabilise 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. Italy and the UK are currently not part of the system. Only Germany and the Benelux are within the current narrow band. Exercise Notice A formal notification that the holder of an option wishes to exercise it by buying or selling the underlying stock at the exercise price. Exercise Price (Strike Price) The price at which an option may be exercised. Expiry Date The last day on which the holder of an option can exercise his right to buy or sell the underlying security. Exposure The total amount of money loaned to a borrower or country. Banks set rules to prevent overexposure to any single borrower. In trading operations, it is the potential for running a profit or loss from fluctuations in market prices.
Factory Orders An economic indicator which refers to the total orders of durable and nondurable goods. The nondurable goods orders consist of food , clothing , light industrial products and products designed for the maintenance of the durable goods. FASB #8 (Financial Accounting Standards Board's Statement Number 8) The original accounting rules regarding foreign exchange were standardized in 1975, which set the procedures for foreign currency translations into US Dollars in the consolidated balance sheets of US multinational corporations. Fedwire An automated communications and settlement system linking the Federal Reserve banks with other banks and with depository institutions. Fill or Kill An order which must be entered for trading, normally in a pit three times, if not filled is immediately cancelled. Finex A currency market part of the New York Cotton Exchange (NYCE), the oldest futures exchange in New York. The exchange lists futures on the European Currency Unit and the USDX a basket of 10 currencies. Foreign Exchange Centers London is the largest centre of foreign exchange trading. New York, Tokyo, Singapore, Zurich and Hong Kong are also important. Foreign Exchange Market Market where currencies are traded internationally. About a trillion (million million) dollars-worth of foreign exchange is traded globally every day, making forex larger than all bond markets put together. Currency markets exist in the form of spot, forward, futures and options markets. Foreign exchange transactions are made up of: Trade flows Only 5% to 10% of total forex transactions. Imports usually need to be paid for in the currency of the country from which they originate. Exports are usually paid for in one's own currency. A trade deficit therefore causes a currency to depreciate. Flow-ons Created when a large trade is split up into several smaller trades. Capital flows Cross-border investment. Speculation Short-term investment based on expected currency movements. This accounts for the lion's share of forex market volume. 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 Outright Foreign exchange deal which matures on any day past the spot delivery 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. Forward Spread (forward points or forward pips) Forward price used to adjust a spot price to calculate a forward price. It is based on the current spot exchange rate, interest rate differential and the number of days to delivery. Futures Exchange-traded contracts. They are firm agreements to deliver (or take delivery of) a standardized amount of something on a certain date at a predetermined price. Futures exist in currencies, money market deposits, bonds, shares and commodities. The Chicago Board of Trade's Treasury bond future is the world's most actively-traded derivative contract. The Chicago Mercantile Exchange's Eurodollar contract has the world's largest open interest.
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