A I B I C I D I E I F I G I H I I I J I K I L I M  I N I O I P I R I S I T I U I V I W I Y 

A 

Arbitrage

A method of profiting from trading by simultaneously purchasing and selling an asset. The trades usually try to benefit from the difference in price of the asset which is being traded in different markets.

B

Bid-Ask Spread

The difference between the selling price and the purchase price of a particular security. When a security is being offered by a market maker, the spread represents the market maker's profit.

Blotter

A registry of recorded trades that have been made over a specific period of time - for example, a day, a week or month. The Blotter lists all relevant details pertaining to the trade, such as price, execution time and date, order size and notional.  

Breach of Limit

When a trader exceeds the margin limit available in his/her account.

Broker

An individual or firm that charges a fee or commission for executing buy and sell orders on behalf of an investor. The term can also refer to a firm which acts on behalf of a client.

Broker-Dealer

A firm or individual that carries out trades on behalf of clients and also trades on his own behalf.

Brokerage Fee

A fee charged by a broker for carrying out transactions on behalf of clients.

C

Cash Delivery

When a foreign exchange trade is settled on the same day. Settling the trade means that the trade must be opened and closed on the same trading day. Cash delivery also refers to same-day settlement.

Collateral

Collateral is a form of security to the lender in case the borrower fails to pay back the loan.

Credit Limit

The maximum amount of credit that a bank or counterparty will give to a customer for trading purposes.

Currency Pair

The representation of two currencies and their relative value. In the foreign exchange market, the value of one currency is determined in relation to another currency. The first currency in the pair is known as the base currency and the second currency is known as the quote currency.

Currency Basket

A chosen group of currencies whose weighted average is used as a benchmark. A currency basket usually acts as a standard for regional currency movements.

Currency Swap

A transaction that involves the exchange of principal and interest in one currency for the same in another currency. It is considered to be a foreign exchange transaction and is not required by law to be shown on the balance sheet. 

F

FX

An an acronym for Foreign Currency. See also Forex

Futures Contract

A contractual agreement, generally made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument at a pre-determined price in the future. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash.

H

Hedge

An investment that is made in order to counter the risk of another investment. The hedge usually consists of taking an opposite position to a transaction.

L

Liquidity

The extent to which an asses or security can be traded in the market. A high level of liquidity is characterized by high trading volumes.

Lliquidity Provider

A body that works with exchanges to handle confirmation, delivery and settlement of transactions that occur through the exchange. While FOREX OTC markets do not have clearinghouses, large banks and brokerages serve this function. In this case they are usually referred to as clearinghouses or liquidity providers.

M

Mark-to-Market

The method of providing the representative market value for an investment portfolio. Mark-to-market is also known as revaluation.

Market Maker

A brokerage or bank that maintains a bid and ask price in a given security by standing ready, willing, and able to buy or sell at publicly quoted prices (called making a market). These firms display bid and offer prices for specific numbers of specific securities, and if these prices are met, they will immediately buy for or sell from their own accounts. Market makers are very important for maintaining liquidity and efficiency for the particular securities that they make markets in.

Margin Account

A method of trading where a broker lends the customer money to purchase securities. The securities and cash serve as collateral for the loan.  If the value of the investment drops below a certain level, the account holder will be required to deposit more cash or sell a portion of the securities in order to maintain margin levels in the account.

Margin Call

A request by a broker or bank to a counterparty, that they deposit additional funds in their margin account.

N  

Notional Amount

The total value of a leveraged position's assets. This term is commonly used in the options, futures and currency markets because a very small amount of invested money can control a large.

O

Option

A contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (excercise date).

Over the Counter (OTC)

Trading that is not carried out through an exchange, but is done directly between counterparties.

R

Risk Management

The process of mitigating the uncertainty related to investing in financial markets. In order for risk management to be effective, investor need to have an accurate and detailed analysis of their investments. Understanding the potential for loss inherent in their portfolio, enables investors to take corrective action.

S

Scenario Analysis

A process of applying different market conditions, for example a change in interest rate or spot rate, to an investment in order to evaluate how these would affect the value of the security.

Spot Trading

When a foreign currency of commodity trading transaction is delivered on the same day as the trade.

Spot Price

The current trading price of a currency or commodity.

Stress Testing

A mathematical approach that simulates how portfolios will respond under different market conditions. Stress testing is usually carried out to assess, "worst case scenarios".

V

VaR - Value at Risk

A method of assessing the potential losses or risk, of a securities portfolio based on an historical analysis of past price trends and volatilities.