Glossary



Glossary

ACB (Asian Central Bank) – sovereign market participants, but with some special characteristics: They engage mostly in short-term trading and their goal is to recycle their FX reserves. ACB‘s tend to have their orders for the London session clustered near the Asian high and low.

Barrier option – a type of option whose payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price. A barrier option can be a knock-out, meaning it can expire worthless if the underlying exceeds a certain price, limiting profits for the holder but limiting losses for the writer. It can also be a knock-in, meaning it has no value until the underlying reaches a certain price. One side will try to protect the strike price placing orders ahead of it, while the other side will try to push into the strike level by buying/selling aggressively as price approaches it.

Bearish - a trader who believes that a particular instrument or the overall market will fall in price.

Bids – we will note cluster of buy limit orders (bids) in the market, which will usually dampen downside momentum for a bit and act as support.

Big Figure – e.g. 1.3000, 1.3100, 1.3200, 1.3300

BIS (Bank of International Settlement) - a powerful institution based in Basel, Switzerland that handles trading for central banks. Their orders can have a large impact on market, especially when markets are rather quiet, so pay attention when the BIS is mentioned.

BoC – Bank of Canada (current Governor: Stephen Poloz)

BoE – Bank of England (current Governor: Mark Carney)

BoJ – Bank of Japan (current Governor: Haruhiko Kuroda)

Bullish - a trader who believes that a particular instrument or the overall market will rise in price.

Buy Stops – stop loss orders located above the current market price.

Cable – nickname for GBP/USD

Clearer - market term for a large bank, the term originates from those banks that clear checks.

Corporates - large corporations use the FX markets to hedge themselves against currency risk. For example, a company may have high revenues in USD’s but high costs in EUR’s.

Cross pair - A pair of currencies traded in the FX market that does not include the U.S. dollar. One foreign currency is traded for another without having to first exchange the currencies into USD.

Custodian - A custodian bank, or simply custodian, is a specialized financial institution responsible for safeguarding a firm's or individual's financial assets. A global custodian safekeeps assets for their clients in multiple jurisdictions around the world, using their own local branches or other local custodian banks with which they contract to be in their "global network" in each market to hold accounts for their respective clients.

Day traders - traders who attempts to profit by making rapid trades intraday. A day trader often closes out all trades before the market close and does not hold any open positions overnight. Most day traders use leverage to magnify the returns generated from small price movements.

Dealers - a dealer makes a market by quoting his clients a bid price (the price where the customer can sell) and an offer price (the price where the customer can buy). The difference between those two prices – the spread – is the dealer’s profit. Dealers at large banks build the interbank market in the FX markets. A dealer has the task to handle the clients‘ orders and manage his market exposure. As he takes the opposite side of the client’s trade, he can either look to quickly get rid of the exposure in the interbank market or, he can hold on if he thinks he might profit by sticking to this position. Dealers can hold short-term speculative positions, but almost all of them finish the trading day flat (no open positions at the end of the day). Dealers participate quite often in stop hunting, but they are vulnerable too. If orders ahead of the stop loss level prove to be too large, they will have to cover quickly.

DNT Option - a type of exotic option that gives an investor an agreed upon payout if the price of the underlying asset does not reach or surpass one of two predetermined barrier levels. For example, if Trader A buys a 1.25/1.30 EUR/USD DNT option, he will receive the payout if the currency pair does not reach or surpass any of those barrier levels within the specified timeframe. An investor using this type of option pays a premium to his or her broker and in turn receives the right to choose the position of the barriers, the time to expiration, and the payout to be received if the price fails to breach either barrier. With this type of option, the maximum possible loss is just the cost of setting up the option. The buyer of the DNT option will try to prevent price of reaching either level by placing orders ahead of it.

Dovish - refers to an economic outlook which generally supports lower interest rates. Doves take the position that lower interest rates are preferable with specific regard to inflation.

ECB – European Central Bank (current President: Mario Draghi)

Fast Money - market term for short term traders/scalpers who only hold a position for a very short period of time.

FED – Federal Reserve (current Chairman: Jerome Powell)

Fiber – nickname for EUR/USD

Flat - a trader has not traded in that currency or where an earlier deal is reversed, thereby creating a neutral (flat) position.

FOMC - a committee within the Federal Reserve System, is charged under United States law with overseeing the nation's open market operations. It is the Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply.

G7 - the G7, or G-7, is a group consisting of the finance ministers of seven industrialized nations: the U.S., U.K., France, Germany, Italy, Canada and Japan.

G20 - a group of finance ministers and central bank governors from 20 major economies: 19 countries plus the European Union, which is represented by the President of the European Council and by the European Central Bank.

Hawkish - refers to an economic outlook which generally supports higher interest rates. Hawks take the position that higher interest rates are preferable with specific regard to inflation.

Hedge funds - they trade both for short-term and long-term. HFs trade aggressively and are usually quick to unload their positions if they got caught on the wrong side. Their goal is often to ride trends as long as possible, but there are also some funds focusing on short-term predatory trading, such as stop hunting. HFs tend to be well-informed players.

Interbank Market - the top-level foreign exchange market where banks exchange different currencies. The banks can either deal with one another directly, or through electronic brokering platforms.

Knock-Out Option - An option with a built in mechanism to expire worthless, should a specified price level be exceeded. A knock-out option sets a cap to the level an option can reach, in favor of the holder. As knock-out options limit the profit potential for the option buyer, they can be purchased for a smaller premium than an equivalent option without a knock-out stipulation.

Leveraged players – market participants that trade with leverage, i.e. hedge funds.

Long - the position which is in a buy direction.

Macro funds – Global macro is the strategy of investing on a large scale around the world using economic theory to justify the decision making process. The strategy is typically based on forecasts and analysis about interest rates trends, the general flow of funds, political changes, government policies, inter-government relations, and other broad systemic factors.

Major pairs - pairs that involve the US Dollar.

Middle East accounts – can refer to large Mid-East banks, but also to sovereign wealth funds like the Kuwait Investment Authority or Qatar Investment Authority.

Mid Figure – e.g. 1.3050, 1.3150, 1.3250, 1.3350

Momentum/model funds - Automated trading systems which use quantitative algorithms to buy/sell and are generally used by top end Hedge funds and large institutions.They follow the short-term trend and enter mostly near levels of large stops looking to benefit from the momentum created by those stops getting triggered.

NY Cut – options that expire at 10:00 EST

Offers – cluster of sell limit orders (offers) in the market, which will usually dampen upside price momentum for a bit and act as resistance.

PBOC – People’s Bank of China (current Governor: Zhou Xiaochuan)

Predator – A trader with an exploitable edge.

Profit Taking - closing a position to realize profits.

RBA – Reserve Bank of Australia (current Governor: Philip Lowe)

RBNZ – Reserve Bank of New Zealand (current Governor: Adrian Orr)

Real Money – unleveraged market participants, i.e. pension funds, mutual funds and money market funds.

Sell Stops – stop loss orders located below the current market price.

Short - the position which is in a sell direction.

SNB – Swiss National Bank (current Chairman: Thomas Jordan)

Sovereign accounts – sovereign wealth funds and central banks. They can have a large impact and professional traders pay much attention to flows from sovereign accounts.

Stop Loss Orders – an order to buy or sell an asset at a worse price than the current one. This order is mostly used to limit losses; for example, a trader who bought EUR/USD at 1.30 might issue a stop loss order to sell at 1.2950 in order to cover his position before he realizes even larger losses. Some traders might use those orders to enter a position, for example, if a trader expects a sharp up move once GBP/USD breaks above the 1.55 price level, he could issue a buy stop order at e.g. 1.5510.

Toshin - Japanese investment funds which focus on investing in non-domestic assets and are active in the Forex markets.

Yard – term for one billion.

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