SKY Forex Glossary

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Accrual - The distribution of premiums and discounts on forward exchange transactions that relate directly to depositswap (interest arbitrage) deals, over the period of each deal.

Adjustment - A government action normally followed by a change domestic economic policy usually to correctpayment imbalances or to announce a change in a nation’s official rate.

Analyst - A financial professional who has expertise in evaluating investments, financial markets, industries, andsectors. An analyst is able to aggregate market data in order to issue buy, sell and hold recommendations for clients.

Appreciation - A financial product is said to have 'appreciated' when it has strengthened in price from market demands.

Arbitrage - The simultaneous purchase or sale of a financial product with the intention of taking advantage of minorprice differences that occur when comparing different markets.

ADP Nonfarm Employment Change - Measures the change in number of employed people during the previousmonth, excluding the farming industry. ADP, a leading provider of employment solutions for businesses, releases thisindicator two days before the official Bureau of Labor Statistics (BLS) employment report. While the indicator has onlybeen in existence since early 2007, it's shown some predictive value in regard to the BLS report.

Auction - Sale of an item to the highest bidder. (1) A method commonly used in exchange control regimes for theallocation of foreign exchange. (2) A method for allocating government paper, such as US Treasury Bills. Smallinvestors are given preferential access to the bills. The average issuing price is then computed on the basis of thecompetitive bids accepted. In some circumstances for government auctions it is the yield rather than the price which is bid.

Average Rate Option - A contract where the exercise price is based on the difference between the strike price andthe average spot rate over the contract period. Sometimes called an “Asian option”.

Asian central banks - Is a reference to the collective central banks from the leading Asian “Tiger” economies. Asthese countries economies have grown these banks have become increasingly active in major currency exchangethrough management of growing pools of foreign currency reserves via trade surpluses. Their market share issubstantial, and has been known to influence short-term currency prices .

Asian session - 23:00 – 08:00 (Tokyo).

Ask (Offer) price - The price which a market is prepared to sell a product. Prices are quoted two-way as Bid/Ask.The Ask price is also known as the Offer.

In FX trading, the Ask price represents the price a trader can buy the base currency, shown to the right in a currency pair. For example, in the quote USD/CHF 1.4527/32, the base currency is USD, and the Ask price is 1.4532, meaning you can buy one US dollar for 1.4532 Swiss francs.

In CFD trading, the Ask also represents the price at which a trader can buy the product. For example, in the quotefor UK OIL 111.13/111.16, the product quoted is UK OIL and the Ask price is £111.16 for one unit of the underlyingmarket.

AUS 200 - the Australian Securities Exchange (ASX 200) is an index of the top 200 companies (by marketcapitalization) listed on the Australian stock exchange.

At best - An instruction given to a dealer to buy or sell at the best rate that can be obtained.

At or better - An order to deal for a specific price or better.

Aussie - refers to the AUD/USD pair.

Balance of trade - The value of a nation's exports minus its imports.

Bar chart - A chart which consists of four significant points: the high and the low prices, which form a vertical bar, anopening price, which is marked with a horizontal line to the left of the bar and the closing price, which is marked with a horizontal line to the right of the bar.

Barrier level - A certain price of great importance included in the structure of a Barrier Option. If a Barrier Level priceis reached, the terms of a specific Barrier Option call for a series of events to occur.

Barrier option - Any number of different option structures (such as knock-in, knock-out, no touch, double-no-touch-DNT) that attaches great importance to a specific price trading. In a no-touch barrier, a large defined payoutis awarded to the buyer of the option by the seller if the strike price is not 'touched' before expiry. This creates an incentive for the option seller to drive prices through the strike level and creates an incentive for the option buyer todefend the strike level.

Base currency - The first currency in a currency pair. It shows how much the base currency is worth as measuredagainst the second currency. For example, if the USD/CHF rate equals 1.6215 then one USD is worth CHF 1.6215. In the FX market, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes areexpressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are theBritish Pound, the Euro and the Australian Dollar.

Base rate - The lending rate of the central bank of a given country.

Basing - A method used in technical analysis – a chart pattern that shows when demand and supply of a product arealmost equal. It results in a narrow trading range and the merging of support and resistance levels.

Basis point - A unit of measurement used to describe the minimum change in the price of a product.

Bearish / Bear market - Negative for price direction; favoring a declining market. For example, "We are bearishEUR/USD" means that we think the Euro will weaken against the dollar.

Bears - Traders who expect prices to decline and may be holding short positions.

Bid price - The price at which the market is prepared to buy a product. Prices are quoted two-way as Bid/Ask.

In FX trading, the Bid represents the price at which a trader can sell the base currency, shown to the left in a currencypair. For example, in the quote USD/CHF 1.4527/32, the base currency is USD, and the Bid price is 1.4527, meaning you can sell one US Dollar for 1.4527 Swiss francs.

In CFD trading, the Bid also represents the price at which a trader can sell the product. For example, in the quote forUK OIL 111.13/111.16, the Bid price is £111.13 for one unit of the underlying market.*

Bid/ask spread - The difference between the Bid and the Ask (Offer) price.

Big figure - Refers to the first 3 digits of a currency quote, such as 117 USD/JPY or 1.26 in EUR/USD. If the pricemoves by 1.5 big figures, it has moved 150 pips.

BIS - Bank for International Settlements located in Basel, Switzerland, is literally the central bank for central banks.The BIS frequently acts as the market intermediary between national central banks and the market. The BIS has become increasingly active as central banks have increased their currency reserve management. When the BIS isreported to be buying or selling at a level, it is usually for a central bank and thus the amounts can be large. The BISis used to avoid market error when buying or selling interest for official government intervention.

Black box - The term used for systematic, model-based or technical traders.

Blow off - The upside equivalent of capitulation. When shorts throw in the towel and cover any remaining shortpositions.

BOC - Bank of Canada, the central bank of Canada.

BOE - Bank of England, the central bank of the UK.

BOJ - Bank of Japan, the central bank of the Japan.

Bollinger bands - A tool used by technical analysts. A band plotted two standard deviations on either side of asimple moving average, which often indicates support and resistance levels.

Bond - A name for debt which is issued for a specified period of time.

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

British Retail Consortium (BRC) shop price index - A British measure of the rate of inflation at various surveyedretailers. This index only looks at price changes in goods purchased in retail outlets.

Broker - An individual or firm that acts as an intermediary, bringing buyers and sellers together for a fee orcommission. In contrast, a 'dealer' commits capital and takes one side of a position, hoping to earn a spread (profit)by closing out the position in a subsequent trade with another party.

Buck - Market slang for 1 million units of a dollar-based currency pair or for the US dollar in general.

Bullish / Bull market - Favoring a strengthening market and rising prices. For example, "We are bullish EUR/USD”means that we think the Euro will strengthen against the dollar.

Bulls - Traders who expect prices to rise and who may be holding long positions.

Bundesbank - Germany's central bank.

Buy - Taking a long position on a product.

Buy dips - Looking to buy 20-30-pip/point pullbacks in the course of an intra-day trend.

Cable - The GBP/USD pair. the rate was originally transmitted to the US via a transatlantic cable during the mid1800's when the GBP was the currency of international trade.

CAD - The Canadian dollar, also known as Loonie.

Call option - A currency trade which exploits the interest rate difference between two countries. By selling a currencywith a low rate of interest and buying a currency with a high rate of interest, the trader will receive the interestdifference between the two countries while this trade is open.

Canadian Ivey Purchasing Managers (CIPM) index - A monthly gauge of Canadian business sentiment issued bythe Richard Ivey Business School.

Candlestick chart - A chart that indicates the trading range for the day as well as the opening and closing price. Ifthe open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.

Capitulation - A point at the end of an extreme trend when traders who are holding losing positions exit thosepositions. This usually signals that the expected reversal is just around the corner.

Carry trade - A trade strategy that captures the difference in the interest rates earned from being long a currency thatpays a relatively high interest rate and short another currency that pays a lower interest rate. For example: NZD/JPYhas been a famous carry trade for some time. NZD is the high yielder and JPY is the low yielder. Traders looking totake advantage of this interest rate differential would buy NZD and sell JPY, or be long NZD/JPY. When NZD/JPYbegins to downtrend for an extended period of time, most likely due to a change in interest rates, the carry trade issaid to be ‘unwinding’.

Cash market - The market in the actual underlying markets on which a derivatives contract is based.

Cash price - The price of a product for instant delivery; i.e. the price of a product at that moment in time.

CBs - Abbreviation referring to central banks.

Central bank - A government or quasi-governmental organization that manages a country's monetary policy. Forexample, the US central bank is the Federal Reserve and the German central bank is the Bundesbank.

CFDs - A Contract for Difference (or CFD) is a type of derivative that gives exposure to the change in value ofan underlying asset (such as an index or equity). It allows traders to leverage their capital (by trading notional amounts far higher than the money in their account) and provides all the benefits of trading securities, withoutactually owning the product. In practical terms, if you buy a CFD at $10 then sell it at $11, you will receive the $1 difference. Conversely, if you went short on the trade and sold at $10 before buying back at $11, you would pay the$1 difference.

Chartist - An individual, also known as a technical trader, who uses charts and graphs and interprets historical datato find trends and predict future movements.

Choppy - Short-lived price moves with limited follow-through that are not conducive to aggressive trading.

Cleared funds - Funds that are freely available, sent in to settle a trade.

Clearing - The process of settling a trade.

Closed position - Exposure to a financial contract, such as currency, that no longer exists. A position is closed byplacing an equal and opposite deal to offset the open position. Once closed, a position is ‘squared’.

Closing - The process of stopping (closing) a live trade by executing a trade that is the exact opposite of the opentrade.

Closing price - The price at which a product was traded to close a position. It can also refer to the price of the lasttransaction in a day trading session.

Collateral - An asset given to secure a loan or as a guarantee of performance.

Commission - A fee that is charged for buying or selling a product.

Commodity currencies - Currencies from economies whose exports are heavily based in natural resources, oftenspecifically referring to Canada, New Zealand, Australia and Russia.

Components - The dollar pairs that make up the crosses (i.e. EUR/USD + USD/JPY are the components of EUR/JPY). Selling the cross through the components refers to selling the dollar pairs in alternating fashion to create a cross position.

COMPX - Symbol for NASDAQ Composite Index.

Confirmation - A document exchanged by counterparts to a transaction that states the terms of said transaction.

Consolidation - A period of range-bound activity after an extended price move.

Construction spending - Measures the amount of spending towards new construction, released monthly by the U.S.Department of Commerce's Census Bureau.

Contagion - The tendency of an economic crisis to spread from one market to another.

Contract - The standard unit of forex trading.

Contract note - A confirmation sent that outlines the exact details of the trade.

Contract size - The notional number of shares one CFD represents.

Controlled risk - A position which has a limited risk because of a Guaranteed Stop.*

Convergence of MAs - A technical observation that describes moving averages of different periods moving towardseach other, which generally forecasts a price consolidation.

Corporate action - An event that changes the equity structure (and usually share price) of a stock. For example,acquisitions, dividends, mergers, splits and spin offs are all corporate actions.

Corporates - Refers to corporations in the market for hedging or financial management purposes. Corporates are notalways as price-sensitive as speculative funds and their interest can be very long-term in nature, making corporateinterest less valuable to short-term trading.

Counter currency - The second listed currency in a currency pair.

Counterparty - One of the participants in a financial transaction.

Country risk - Risk associated with a cross-border transaction, including but not limited to legal and politicalconditions.

CPI - A measure of inflation – short for Consumer Price Index.

Crater - The market is ready to sell-off hard.

Cross (e.g. Yen cross) - A pair of currencies that does not include the US Dollar.

Crown currencies - Refers to CAD (Canadian Dollar), Aussie (Australian Dollar), Sterling (British Pound) and Kiwi (New Zealand Dollar) – countries of the Commonwealth.

CTAs - Refers to commodity trading advisors, speculative traders whose activity can resemble that of short-term hedge funds; frequently refers to the Chicago-based or futures-oriented traders.

Currency - Any form of money issued by a government or central bank and used as legal tender and a basis for trade.

Currency pair - The two currencies that make up a foreign exchange rate, for example EUR/USD.

Currency risk - The probability of an adverse change in exchange rates.

Currency symbols - A three-letter symbol that represents a specific currency, for example USD (US Dollar).

Current account - The sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). The balance of trade is typically the key component to the current account.

Day trading - Making an open and close trade in the same product in one day.

Deal - A term that denotes a trade done at the current market price. It is a live trade as opposed to an order.

Dealer - An individual or firm that acts as a principal or counterpart to a transaction. Principals take 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.

Dealing spread - The difference between the buying and selling price of a contract.

Defending a level - Action taken by a trader, or group of traders, to prevent a product from trading at a certain price or price zone, usually because they hold a vested interest in doing so, such as a barrier option.

Deficit - A negative balance of trade or payments.

Delisting - Removing a stock’s listing on an exchange.

Delivery - A trade where both sides make and take actual delivery of the product traded.

Delta - The ratio between the change in price of a product and the change in price of its underlying market.

Department of Communities and Local Government (DCLG) UK house prices - A monthly survey produced by the DCLG that uses a very large sample of all completed house sales to measure the price trends in the UK real estate market.

Depreciation - The decrease in value of an asset over time.

Derivative - A financial contract whose value is based on the value of an underlying asset. Some of the most common underlying assets for derivative contracts are indices, equities, commodities and currencies.

Devaluation - When a pegged currency is allowed to weaken or depreciate based on official actions; the opposite of a revaluation.

Discount rate - Interest rate that an eligible depository institution is charged to borrow short-term funds directly from the Federal Reserve Bank.

Divergence - In technical analysis, a situation where price and momentum move in opposite directions, such as prices rising while momentum is falling. Divergence is considered either positive (bullish) or negative (bearish); both kinds of divergence signal major shifts in price direction. Positive/bullish divergence occurs when the price of a security makes a new low while the momentum indicator starts to climb upward. Negative/bearish divergence happens when the price of the security makes a new high, but the indicator fails to do the same and instead moves lower. Divergences frequently occur in extended price moves and frequently resolve with the price reversing direction to follow the momentum indicator.

Divergence of MAs - A technical observation that describes moving averages of different periods moving away from each other, which generally forecasts a price trend.

Dividend - The amount of a company’s earning distributed to its shareholders – usually described as a value per share.

DJIA or Dow - Abbreviation for the Dow Jones Industrial Average or US30.

Dove - Dovish refers to data or a policy view that suggests easier monetary policy or lower interest rates. The opposite of hawkish.

Downtrend - Price action consisting of lower-lows and lower-highs.

DXY$Y - Symbol for US Dollar Index.

ECB - European Central Bank, the central bank for the countries using the Euro.

Economic indicator - A government-issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.

End of Day Order (EOD) - An order to buy or sell at a specified price that remains open until the end of the trading day, typically at 5pm / 17:00 New York.

EST/EDT - The timezone of New York City, which stands for United States Eastern Standard Time/Eastern Daylight time.

ESTX50 - A name for the Euronext 50 index.

EURO - The currency of the Eurozone.

European Monetary Union (EMU) - An umbrella name for the group of policies that aims to coordinate economic and fiscal policies across EU Member States.

European session - 07:00 – 16:00 (London).

Eurozone labor cost index - Measures the annualized rate of inflation in the compensation and benefits paid to civilian workers and is seen as a primary driver of overall inflation.

Eurozone Organization for Economic Co-operation and Development (OECD) leading indicator - A monthly index produced by the OECD. It measures overall economic health by combining ten leading indicators including average weekly hours, new orders, consumer expectations, housing permits, stock prices and interest rate spreads.

EX-dividend - A share bought where the buyer forgoes the right to receive the next dividend and instead it is given to the seller.

Expiry date / price - The precise date and time when an option will expire. The two most common option expiries are 10:00am ET (also referred to as 10:00 NY time or NY cut) and 3:00pm Tokyo time (also referred to as 15:00 Tokyo time or Tokyo cut). These time periods frequently see an increase in activity as option hedges unwind in the spot market.

Exporters - Corporations who sell goods internationally, which in turn makes them sellers of foreign currency and buyers of their domestic currency. Frequently refers to major Japanese corporations such as Sony and Toyota, who will be natural sellers of USD/JPY, exchanging dollars received from commercial sales abroad.

Extended - A market that is thought to have traveled too far, too fast.

Factory orders - The dollar level of new orders for both durable and nondurable goods. This report is more in depth than the durable goods report which is released earlier in the month.

Fair value - The difference between the price of a derivative contract and the underlying cash market price. Fair value means there are no arbitrage opportunities between the two prices.

Fed - The Federal Reserve Bank, the central bank of the United States, or the FOMC (Federal Open Market Committee), the policy-setting committee of the Federal Reserve.

Fed officials - Refers to members of the Board of Governors of the Federal Reserve or regional Federal Reserve Bank Presidents.

Figure / The figure - Refers to the price quotation of '00' in a price such as 00-03 (1.2600-03) and would be read as 'figure-three.' If someone sells at 1.2600, traders would say 'the figure was given' or 'the figure was hit.'

Fill - When an order has been fully executed.

Fill or kill - An order that, if it cannot be filled in its entirety, will be cancelled.

First In First Out (FIFO) - All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.

Fix - One of approximately 5 times during the FX trading day when a large amount of currency must be bought or sold to fill a commercial customer’s orders. Typically these times are associated with market volatility. The regular fixes are as follows (all times NY):

5:00am - Frankfurt

6:00am - London

10:00am - WMHCO (World Market House Company)

11:00am - WMHCO (World Market House Company) - more important

8:20am - IMM

8:15am - ECB

Flat or flat reading - Economic data readings matching the previous period's levels that are unchanged.

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

Follow-through - Fresh buying or selling interest after a directional break of a particular price level. The lack of follow-through usually indicates a directional move will not be sustained and may reverse.

FOMC - Federal Open Market Committee, the policy-setting committee of the US Federal Reserve.

FOMC minutes - Written record of FOMC policy-setting meetings are released 3 weeks following a meeting. The minutes provide more insight into the FOMC's deliberations and can generate significant market reactions.

Foreign exchange (forex, fx) - The simultaneous buying of one currency and selling of another. The global market for such transactions is referred to as the “forex” or “FX” market.

Foreign Position - means a position under which one party agrees to purchase from or sell to the other party an agreed amount of foreign currency.

Forex Deal - The purchase or sale of a currency against sale or purchase of another currency. The maximum time for a deal is defined when the deal opens, the deal can be closed at any moment until the expiry date and time. A deal cannot be closed on its first 3 minutes, due to technical reasons.

Forward Cover Taking - Forward contracts to protect against movements in the exchange rate.

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

Forward Points - The interest rate differential between two currencies expressed in exchange rate points. The forward points are added to or subtracted from the spot rate to give the forward or outright rate depending on whether the currency is at a forward premium or discount.

Forward Rate - The rate at which a foreign exchange contract is struck today for settlement at a specified future date which is decided at the time of entering into the contract. 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.

Free Reserves - Total reserves held by a bank less the reserves required by the authority.

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

Fundamental Analysis - Analysis of the market based on economic and political factors.

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.

Funds - A term for USD/CAD/Fungibles Instruments that are equivalent, substitutable and interchangeable in law. May apply to certain exchange traded currency contracts offered on a number of exchanges.

Forward - The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.

Forward points - The pips added to or subtracted from the current exchange rate to calculate a forward price.