Glossary

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ACCOUNT

An account is a strictly evidence of all transactions made by a person in a certain period of time.

 

ACCOUNT BALANCE

It is the amount of money that a person/firm must to receive/to pay. In other words, the account balance reflects debts or expenses.

 

APPRECIATION

Appreciation refers to exchange rate evolution. If we speak about national currency ratio change, it appreciates when the currency is stronger, being equal (in present) with more unities of foreign currency than in a previous period.

 

ARBITRAGE

It is a popular method of trading that is risk-less. A person just benefits of the different markets valuation for the same currency, commodity or asset and assumes an immediately purchasing on one market and selling on another one. Of course, in such case, the individual must to buy the product form the market where is cheaper and sell it where its value is higher.

 

ASK RATE

The ask rate is the sell price from the bank/financial institution point of view. If the price between USD/EUR is 0.7536-0.7623, then the ask rate is 0.7623 and the bid rate is 0.7536. Always, the ask rate is higher than the bid rate.

 

ASSET ALLOCATION

Today, a person/firm can invest in many forms of financial instruments (stocks, currencies, bonds or even commodities) from almost every international financial market. This distribution of his/its financial investments represents the asset allocation and is made using customized financial projections and strategies and depends of the risk that a person/firm is willing to accept.

 

AUSSIE

It is a nickname specific to bloggers/common article writers for the exchange rate between the Australian Dollar and the American Dollar (AUD/USD).

 

BACK OFFICE

The back office is that part of a company that deals with management issues, issuance of documents and human resources development. As such, it refers to financial settlements, accounting keeping or other different regulatory documents.

 

BALANCE OF TRADE

The balance of trade is a macroeconomic variable that is quantified as the difference between the total values of exports and imports. As such, it is the net position of a state regarding the amount of goods and services to other countries.

 

BAR CHART

The bar chart is a useful graphical instrument, created with special software programs like Excel, SPSS or EViews in order to reflect evolutions of time series through vertical bars and horizontal lines. Such graphs are extremely important for the investors that are seeking to be informed in order to take decisions using a technical analysis.

 

BASE CURRENCY

It is the base currency form an exchange rate. If we have the exchange rate between the Euro and the American dollar (EUR/USD), the Euro is the base currency and it is reflected in units of USD.

 

BASIS POINT

It is a concept used on the financial market (FOREX especially) to illustrate the smallest price amount that is calculating in a trading operation.

 

BEAR INVESTOR

The bear investor thinks that the market increased enough and it will be followed by a fall of the prices. In such a pessimistic approach the investor has a conservative manner of trading.

 

BEAR MARKET

The bear market is related to the trading manner of the bear investor. Therefore, on a bear market the investor expects a general decline of the prices on a certain financial market. As we previously highlighted, an individual has a pessimistic behavior when he is trading.

 

BID RATE

The concept refers to exchange rate and it is the price level that a broker is willing to pay. If the exchange rate between the Euro and the American Dollar is 1.3323/1.3466 a trader can receive 1.3323 for 1 Euro sold.

 

BIG FIGURE

The big figure is a concept specific on the FOREX market and shows the price that is situated in the left part of the decimal point in an exchange rate.

 

BONDS

A bond is a financial instrument used by companies or governments that are in need of obtaining resources without resorting to a commercial bank. The bonds are issued by a country or a company and assume certain payments made by lender at a specific rate on the total sum form the total amount. Therefore, a government or a company obtains a “loan” that is characterized by a significant amount of money, a long-horizon for payments and reduced risk.

 

BRETTON WOODS AGREEMENT OF 1944

The Breton Woods system refers to an international monetary order that was established in 1944. In a difficult period, it was a first example of international cooperation relations among the world’s major industrial states. Among many issues discussed in 1944 in the American city it was a framework for exchange rate determination. As such, it was settled a fixed foreign exchange rate for the most currencies and pegged the price of gold for $35 per one ounce. The system was valid until 1971, when the floating exchange regimes were instituted as a consequence for many monetary problems in a new globalized world.

BROKER

A broker is a participant on the financial market that acts as an intermediary between the person with a selling offer and the investors that intends to buy. Their profit results a they are charging a fee for their implication in the trading.

 

BULL MARKET

The bull market is the opposite concept for the bear market. As such, the bull market refers to the situation when the market prices are increasing during a certain period of time. On a bull market, traders are optimistic as they anticipate a increasing in prices.

 

BUNDESBANK

The Bundesbank is the monetary authority from Germany. In some articles, the central banks is known as “Buba”

 

CABLE

In some articles the “cable” is used to reflect the exchange rate between the British Pound Sterling and the Dollar American (GBP/USD)..

 

CANDLESTICK CHART

A candlestick char is a useful graphic instrument that helps an investor to observe in a synthetic manner the trading range of an asset price. Also, the candlestick chart shows the opening and the closing price and it is essential in a technical analysis made to observe prices evolutions on the financial markets.

 

CENTRAL BANK

The central bank is the main monetary institution of a country. Its main objectives are: the national currency issuance, the banking system surveillance and regulation, the inflation prevention and the exchange monitoring. Usually, a central bank has an independent activity form any governmental interference. In the United State of America, the Federal Reserve acts as a central bank, while in the Euro Area, the European Central Bank is the monetary authority.

 

CHARTIST

A chartist is a professional that tries to forecast the market behavior using historical charts and financial data. He is known as a Technical Trader.

 

CHOICE MARKET

The concept refers to that event when the bid equalize the ask price. This is a rare situation and it is extremely advantageous for traders.

 

CLEARING

The clearing is a general concept used on the financial markets. In particular, it may be used to refer to describe the case when the settlement between a buyer and a seller finished successfully.

 

COLLATERAL

The collateral is a mandatory element in a loan contract. When a person take a loan form a bank, he must to guarantee with an asset in the event of a loan default.

 

COMMISSION

A commission is the fee charged by a broker when a financial trading is successfully finished. Its value differs and it is set up by every by every broker or brokerage firm.

 

CONFIRMATION

A confirmation is a document that is written within a few days from the closure moment of a trading operation that is containing information about it and confirms that the trade successfully finished.

 

CONTAGION

The contagion concept is related to the system risk and refers to the situation when a firm falling influences all other companies. The contagion it is a specific phenomenon in our days as the world is globalized and the economies and the financial market are strongly integrated.

 

CONTRACT

It is a document that attests rights and obligations between two parts. Also, the contract concept is used for the unit of trading in options and futures.

COUNTER PARTY

A counter party is any person involved in financial trading or who participated when a contract was signed. In this posture may be the financial intermediaries, brokers, banks and financial institutions.

 

COUNTRY RISK

A country risk is a framework for the investors that intend to buy a financial asset issued by a foreign country that reflects financial and political risks.

 

CROSS RATE

The cross rate is computed exchange rate that is used to determine the ratio between two currencies which expressed in a common currency. For example, if a French wants to buy USD in Romania, first of all he must to buy the local currency (using Euro) and then sell it to buy unit of American dollars (every investor must to buy the local currency – it is a general rule). Therefore, if he calculated the exchange rate EUR/USD using the Romanian leu, he obtains the cross rate.

 

CURRENCY

Reflects the coins and notes that are issued by a country or monetary union.

 

CURRENCY RISK

Using currencies than the national money implies an assumed risk of financial losses when the exchange rate modifies. When a national currency depreciates, the importers must to pay a larger amount of money and the debtors with loans in currencies will pay bigger rates.

 

DAY TRADING

A day of trading is a certain period of time (hours) when investors can buy and sell financial assets or commodities. The concept is strictly related with the active period on the exchange markets.

 

DEPRECIATION

A currency depreciates when it loose its initial value. The concept may be used to show the loss in the value of a commodity or asset.

 

DERIVATIVE

A derivative is a financial instrument with a value that depends on certain events or conditions and that involves a legal contract between two or more parties.

 

DEVALUATION

The devaluation refers to the depreciation of a currency when it is compared wit another one. Such a loss can be influenced by certain economic, financial and governmental decisions.

 

ECONOMIC INDICATOR

An economic indicator is a statistic variable that reflects evolution from the financial market and the real economy as the employment rate, the consumer price index, the gross domestic product etc. It are known also as macroeconomic variable and are useful in technical analyses of financial performance.

 

END OF DAY ORDER

It is order to buy or sell in certain conditions. If the price doesn’t meet the investor expectation it is cancelled at the end of a trading day.

 

EURO

The Euro is the currency issued in the Euro Area under the European Central Bank surveillance.

 

EUROPEAN CENTRAL BANK (ECB)

The ECB is the central bank in the European Area that regulates the countries that adopted the Euro. Is is located in Germany (Frankfurt).

 

EUROPEAN MONETARY UNION (EMU)

It is the European Union of the European countries that adopted the Euro currency. Initiated on January 1st, 1999, in our days the European Monetary Union includes countries as Ireland, Portugal, Spain, France, Italy, Greece, Slovenia, Austria, the Czech Republic, Germany, Belgium, the Netherlands, and Finland.

 

FEDERAL DEPOSIT INSURANCE CORPORATION

It is the American institution that provides deposit insurance for account holders. The guarantee for the people with deposits is limited to $250,000.

 

FEDERAL OPEN MARKET COMMITTEE

 

The Federal Open Market Committee is a component of the Federal Reserve with tasks regarding the evolution of the short-term interest rates using several money supply decisions.

 

FEDERAL RESERVE

The Federal Reserve is a complex of central banks that forms the American Central Banks. Around the world, it is know as the “FED”.

 

FLAT

The flat is the situation of no existing position on the FOREX market.

 

FOREIGN EXCHANGE MARKET

The Foreign Exchange market is the largest financial market where the currencies are traded. It is known as FX or FOREX market.

 

FORWARD

The forward is an exchange rate level established in this moment for a future date.

 

FORWARD POINTS

The pips added to or subtracted from the current spot rate in order to calculate a forward price for a future certain date.

 

FUNDAMENTAL ANALYSIS

It is a method that assist an investor in taking a decision through a review applied to the financial statements, historical charts, and economic conditions related to a stock or security.

 

FUTURES CONTRACT

A futures contract is specific for the derivate markets and illustrates an agreement to but or to sell an asset in a specified quantity, at a pre-assigned date and for a certain price. Therefore, the futures contracts are agreements with several uniform conditions, valid for every similar contract.

 

GIL CANCELLED (GTC)

It is an order that is given to buy or sell an asset when it reaches a desired price. A gill cancelled can be active more that 1 day, until the desired price is reached.

 

HEDGE

 

It is a financial strategy used to cover a potential loss. If a investor believes that he can loose money due to the market condition they can secure their position, usually by taking an apposite decision of investment.

 

INFLATION

It is a monetary issued that reflects a general increase in the prices of goods and services. The inflation is measured through several indices like the consumer price index (for the general economy) or industrial price index (measures prices changes in the industrial area). The inflation is useful in explaining the purchasing power parity paradigm.

 

INITIAL MARGIN

It is a minimum guarantee that a person must to have in order to purchase a security on margin.

 

INTER-BANK RATES

The inter-bank rates used by the main commercial banks when they are converting their currencies. Usually, the interbank rates are characterized by small bid-ask spreads as the inter-bank market involves high volume and liquidity.

 

LEADING INDICATORS

The leading indicators are several variables that are used by investors to forecast future economic performance.

 

LIBOR (London Inter-Bank Offer Rate)

The LIBOR rate is a reference interest rate from the biggest financial center used for interbank loans and other financial instruments.

 

LIMIT ORDER

A limit order is a specific order to buy or to sell a specific number of financial assets at a certain price

 

LIQUIDITY

It is a specific characteristic of the financial assets that are characterized by limited price volatility and a quick convert into cash at any time of the year.

 

LONG POSITION

A long position determines a investor to buy an asset due the expectations that share price will increase.

 

MARGIN

A margin is a mandatory collateral that must be presented by an investor when is trying to make financial transaction that implies risks.

 

MARGIN BUYING

A margin buying is a purchase made without having the money. Therefore, an individual use the funds from a broker or financial institution. Such investment needs a collateral for the risks taken by the broker or the financial institution.

 

MARGIN CALL

The margin call is related to the collateral that an individual must to present in a margin buying. If the the amount of money in a margin account is below the required level, the broker is allowed sell financial assets of the individual to meet the minimum margin requirement.

 

MARKED-TO-MARKET

The marked-to-market is a specific accounting method that records a financial asset on its market value.

 

MARKET MAKER

A market maker has a significant influence on market conditions and prices as it buy and sell high volumes of assets.

 

MARKET RISK

The market risk refers to the poor performance that determines a lower investment value.

 

ONE CANCELS THE OTHER ORDER (OCO)

OCO is a specific order that has multiple parts. As such, if one part is completed, another part is automatically cancelled.

 

OPEN ORDER

An open order is active until a purchase or sell is finished or cancelled.

 

OPEN POSITION

It is a financial asset that can be liquidated into cash holdings by a trader.

 

OVERNIGHT TRADE

The overnight trade refers to the buying and selling of currencies during night, when the national markets are closed.

 

OVER THE COUNTER (OTC)

Over the counter is a market where the participants make the trade directly, without resorting to a regulated market. The over the counter market is known as the market of unlisted stocks. The lack of regulation implies higher risk for the participants.

 

PIPS

It a specific term for the FOREX market and shows the smallest rate amount for the valuation of currency pair prices.

 

POLITICAL RISK

It is a risk met especially in the emerging countries and refers to the possibility that investors experience losses as a consequence for the government decisions.

 

POSITION

A position is a term that illustrates the current value amount of a financial asset or commodity which is actively traded.

 

PREMIUM

On the FOREX markets, the premium is the difference between the futures price and the spot price.

 

PRICE TRANSPARENCY

The price transparency is a characteristic of the financial markets that implies a general public information for everybody in the same conditions.

 

QUOTE

A quote is a price for a financial asset at a certain time. On the FOREX market is the current bid-offer prices.

 

RATE

It is the exchange ratio between the values of two currencies.

 

RESISTANCE

It is a concept that is specific for the technical analyses and refers to a price level that implies important sells. As a result, the prices for commodities and securities decrease due to an offer bigger than the demand.

 

REVALUATION

A revaluation is an appreciation in the relative value of a currency. It is a term that was used in the gold-standard period, when the value of an exchange rate equalized their ratio of the gold parities for 2 currencies.

 

RISK

The risk represents the probability of loosing after making an investment. Some voices considers that the profit is correlated with the risk assumed – more risk, more opportunities in getting bigger amounts of money.

 

RISK MANAGEMENT

The risk management contains all the actions that are taken to limit the possibility of financial loss in an investment.

 

ROLL-OVER

A roll over is a concept that is specific for that agreements rolled forward to another value date. As such, the costs depend on the different interest rates that are specific for the 2 currencies.

 

SETTLEMENT

A settlement is an agreement that was finished after a delivery was made according with the contractual obligations.

 

SHORT POSITION

An investor in a short position sells its financial assets due to the expectations regarding the price decrease in a future period.

 

SPREAD

The spread in an exchange rate is the difference between the bid and ask prices.

 

STERLING

It is a term used for the British sterling pound, the currency that is used in the United Kingdom.

 

STOP LOSS ORDER

A stop loss order is automatically executed when the prices of the financial assets decrease to a level pre-assigned. It is an order that is specific for that investors without sufficient time to watch the market and who want to limit their potential losses.

 

SUPPORT LEVELS

The support levels concept refers to that price level for a financial asset or commodity when the traders intend to buy. Therefore, in such moments the prices increase due to a demand that is superior to the available offer.

 

SWAP

A swap is an agreement between two parties to exchange two currencies in amounts with the same value.

 

TECHNICAL ANALYSIS

The technical analysis is an important part of the financial decision. It assumes the study of the financial historical evolution in order to forecast the future.

 

TRANSACTION COST

It is a fee that is paid by a trader when is trading, no matter if it is buying or selling decision.

 

TRANSACTION DATE

Refers to the time when a transaction is taking place.

 

TURNOVER

The turnover is the total amount of money for all executing trading transaction during a certain period of time.

 

TWO-WAY PRICE

The bid price and ask price that traders pay brokers when purchasing or selling a specific currency on the Foreign Exchange Market.

 

UPTICK

An uptick is a sign that shows an increase in the price of an asset in a transaction.

 

UPTICK RULE

The uptick rule was adopted in 1938 in order to prevent the participants from short-selling anasset unless it is on an uptick.

 

US PRIME RATE

The US prime rate is the most used interest rate in the American banking system when lending to credit worthy institutions.

 

VALUE DATE

Refers to the time when two participants agree to make a transaction.

 

VARIATION MARGIN

The variation margin is a requirement for investors to pay their brokers when the market conditions are frequently changing in order to cover the potential losses for the market volatility and significant prices fluctuations.

 

VOLATILITY

Asset price volatility expresses its unpredictable and changing value on the market.

 

WHIPSAW

The whipsaw is term used for that periods when the prices have a significant volatility.

A term used for markets with extreme price fluctuations.

 

YARD

It is a term that is used for 1 billion units of a currency.