FX Glossary

As with any stock market, you must understand the lingo and know what the numerous terms mean. This will prove invaluable not only when you approach the market to invest, but also when you make professional connections and wish to “talk shop”. Making sure you understand the inside Forex market vocabulary will help you engage in the market more fully and feel comfortable when making decisions when creating your account. Below are some of the terms in which you should know when working with the Forex market.

Accommodation/Accommodative: Reference to easy monetary policy. This is a word used often by central brokers.

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APP: Asset Purchase Program- First introduced in 2010 as a monetary easing tool to help in the purchase of government bonds (up to 3 years). An initiative started by the BOJ, its bonds is “Until Maturity” investments in stocks and properties with additional corporate debts, REITs, and ETFs, as well as trust funds.

Bank for International Settlements (BIS): For central banks, this organization handles and facilitates monetary and financial services. It is essentially a bank within a bank, an attempt to mask the movements of central banks and disturb the market as little as possible.

Barrier Option: There are two types of barrier options: the knock-out, which is beneficial to the writer but limits the profits of the holder. There is also the knock-in, which means the option lacks value unless the asset can reach a predetermined price.

Buba: The affectionate nickname for the Bundesbank: the Bundesbank is Germany’s central bank and it is obsessed with inflation.

Bunds: German government bonds come in varying yearly limits. The Bund is the 10 year bond. The Bobl is the 5 year bond, and the Schatz is the 2 year bond.

Cable: In Forex circles, when someone refers to “the cable”, they’re talking about the currency pair of the GBP/USD. This quaint nickname derives from the use of the transatlantic cables that ran between the UK and the USA years ago to conduct currency trades. Be forewarned against throwing any old nickname around: if you start chatting about the “Cable-yen” or “euro-cable”, you’ll be regarded immediately as an amateur in the Forex market and hardly worth the time to give advice to.

Candle / Candlestick: This is one of the major ways of charting price action and a major way of establishing market trends. Preferred over every other method of charting, the candlestick is featured prominently on ForexLive.

Corporates: These are the hedges of the Forex market. If an international company earns most of its revenue in one currency but bases its costs in another currency, it will want to hedge their currency exposure. It’s all about limiting their losses.

CTA Accounts: The CTA Accounts are a section or entry on the Income Sheet/ balance sheet which summarizes gains vs. losses of exchanges over the past years. It can be up to 3-5 years. It is a requirement of the FASB or Financial Accounting Standards Board.

Custody Bank: A custody bank is the Bank of Banks where the custody bank holds securities for other financial institutions. It also does bookkeeping for the financial institutions, and closes trade activities.

Delta: Also known as the “hedge ratio”, the delta compares the price of the asset to the price of the derivative.

Dovish: A poetic term used to imply a monetary policy offers lower rates.

Easy (Easing): A central bank wants easy money policies, like lower interest rates. This stimulates economic growth in an “easy” way.

EBS (Electronic Braking System): Like an electronic communications network (ECN), an EBS is a platform used by interbank dealers to trade electronically.

ECB: Shorthand for the European Central Bank.

Ecofin: When the economic and financial ministers of the European Union meet once a month, they call this gathering the Ecofin.

Emergency Liquidity Assistance: Emergency Liquidity Assistance helps those who are illiquid Institutions obtain loans for their exchange activities. The loans come from the National Central Bank by way of loans vs. Collateral. These institutions are shut out by the ECB. The program is called the “Provision of Liquidity”. And it is enacted by the members of National Banks in the Eurosystem or European System of Central banks.

ETF: Shorthand for exchange traded fund.

Eurodollar: Another faux-pas to avoid when dealing with seasoned Forex traders. The Eurodollar has nothing to do with the euro. Rather, it is a US dollar deposited in a bank located outside of the US.

Eurogroup: The finance minister of Luxembourg, Jean-Claude Junckers, is the spokesman for this cadre of financial wizards dealing in the euro.

European Financial Stability Facility (EFSF): The European Financial Stability Facility, also known as the EFSF, was started in May of 2010. It was created by 27 member of the European Union to preserve stability in Europe. This group provides financial assistance to Eurozone States. Recognized as Euro SPV or Euro TARP.

Fade: When trading according to a trend, “fading” the trend means to trade against it. Trader does this when they think a market rumor is false, so they do the opposite, or “fade”.

Fibonacci retracements: Derived from the work of Italian mathematician Fibonacci and his financial “golden ratio”, this tool is used during corrective periods in the market. Fibonacci techs examine the trendline and use the Fibonacci golden ratios of 23.6%, 38.2%, 50%, 61.8%, and 100% to find areas of support or resistance.

Forward guidance: Another financial look into the future, forward guidance is when a central bank states what a monetary policy will do before it actually does anything.

Federal Open Market Committee (FOMC): This is a big one. All you need to know is the FOMC sets the monetary policy of the Federal Reserve Bank of the USA.

Gamma: Remember the definition of delta from above (many of the options markets concepts are expressed in the Greek alphabet so get used to it) and you will better understand what gamma refers to. When an option’s delta changes in price from the asset, that change is called the gamma.

Give: Shorthand for selling an asset at the bid price, a friendly transaction between a seller and whoever happens to be bidding.

Given: Simply is the past tense of “give”.

Gotobi: Japanese culture is filled with fascinating traditions, and the financial sector is no different. Gotobi refers to the tradition of settling all financial accounts on the 5th day of the month or any multiple of 5: 5, 10, 15, 20, 25, and 30. Of course, Japanese investors know the Forex market does not cater to their traditions, so don’t take it too seriously. But when someone brings up “Gotobi demand” you’ll be able to nod knowledgeably.

Governing Council of the European Central Bank: This is another big one. Not to be confused with the EFSF, the Governing Council of the European Central Bank (ECB) is a group of 23 people who set monetary policies.

Haircut: When a bond covenant is broken, whether forcefully or voluntarily, and the bondholder loses on the deal, it is known as getting a haircut.

Hawkish: A very common financial terms. Even those not interested in finance have probably heard of it. It simply refers to keeping a monetary policies tight and rates high.

Hindenburg Omen: The Hindenburg omen is an indicator to the Forex market participants that there may be a financial crash or that they are unsure what direction the market’s future is headed in. The Hindenburg Omen has been very accurate in the past.

Interbank: The Interbank is a bank to bank market that is used without brokers strictly from on bank to another or financial institution. The Interbank works within the foreign exchange and bids are made on the phone, through EBS, or by Reuters dialing. The interbank are different because they don’t work with individuals and don’t have a need for brokers.

HKMA: Shorthand for Hong Kong Monetary Authority, Hong Kong’s central bank.

Ichimoku: Another Japanese custom. In order to create an Ichimoku chart, one must have a candlestick chart and a number of market indicators. When overlaid on a candlestick chart, an Ichimoku chart is created. Traditionally, the Ichimoku chart is only used for the Japanese yen (JPY).

IMM: Shorthand for the International Monetary Market that resides in Chicago. Each week, the Forex exchanges are organized here.

Interbank: Despite its rather ominous sounding name, interbank dealing is simply one bank dealing directly with another bank without a broker. These dealings – as far as the Forex market is concerned – deal exclusively with currencies. And as if it couldn’t get any simpler, these deals are usually made over the phone.

Jobber: When traders have a short-term market plan, they are referred to as jobbers. This is actually a wise plan. By trading in the short-term, they are limiting their financial risk. A long-term plan might be formulating in the mind of the jobber, and their short-term deals often work towards that goal.

KCNA: Shorthand for the Korean Central News Agency, the state news agency of North Korea. This is a notoriously unreliable news source, especially for Forex market traders.

Loonie: Who says that Canadians don’t have fun? The loonie is the affectionate nickname for the Canadian dollar (CAD). And the twonie is? Well, that’s the nickname of the 2 dollar coin.

Long: In financial terms, going “long” means a Forex market trader has bought a currency, such as the EUR, at a low price with the intention of selling it at a higher price and making a quick and easy profit.

Long-term refinancing operations (LTRO): These are loans given by the ECB to other banks that are members of the ECB. They can range from 3 months to 3 years.

Maple bonds: When Canadian dollars (CAD) are used to issue a bond to a foreign company.

Market Profile: Patented by Peter Steidlmayer, this is a seldom-used method of charting the Forex market.

Mine: The term used by an interbank when they wish to buy.

Model Fund: Usually traded at 10am EST (New York Stock Exchange time) these are hedge funds used to buy and sell trades.

Mrs. Watanabe: Another uniquely Japanese term, Mrs. Watanabe once upon a time referred to housewives interested in Forex speculation. These days, however, it refers to retail traders in the Forex market. They are a force to be reckoned with, despite their warm, motherly name.

Outright Monetary Transactions (OMT): In 2012, the ECB proposed and passed a measure that would allow it to buy bonds directly from governments, should that government seek assistance financially.

Offer: Selling an asset at the Forex market price or above it.

Operation Twist: Used in the early 1960s, Operation Twist involved the Fed purchasing maturities and selling treasuries. However, this little operation of theirs did not impact their balance sheet one tick.

Option Expires: An option doesn’t sit around forever. Most all options expire at 10am EST.

Reflation Trade: Reflation trading is the purchasing of assets that trader or investors hope to gain a return with. I.E Commodities, emerging markets, and equities. The type of assets to avoid during the reflation trade area is bonds, and low-yielding currencies.

Yours: Yours is a term that is used by voice brokers to signal they want to sell their assets or currencies.

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