Glossary And Foreign Exchange Terms part four

tags:Wedge ,Vostro account,Volume,V-formation,Vertical spread,Vertical bull put spread ,Vertical bear put spreadWedge ,Vostro account,Volume,V-formation,Vertical spread,Vertical bull put spread ,Vertical bear put spread,Vega,Velocity of money,Value at risk,USDX,Upside gap tasuki,Upward breakout of a bearish resistance line,Upward breakout of a bullish resistance line,Upside gap tasuki,Tunnel,TRIX Index,Triple bottom,Translation exposure,Trend,Transaction exposure,Time decay,Theory of elasticities,Synthetic call option,Swing Index (SI),Strike price,Speedlines,Shitakage,Sangu (three gaps)

S

Sangu (three gaps) A reversal candlestick signal applicable in either

a steeply rising or falling market, when the daily limits will break the

trading. The theory holds that after the third gap, the market will

reverse at least to the second gap.

Sanpei (three parallel bars) A reversal candlestick combination. It

refers to the similarity in direction and velocity of three consecutive

bars, as otherwise all the entries are parallel. They generate a

reversal formation after an extended rally. When bullish, the

formation is known as the three soldiers. When bearish, the name is

the three crows.

Sanpo (three methods) A candlestick combination that advises that

retracements are in order before the market will reach new highs

and new lows.

Sansen (three rivers) method A reversal candlestick combination. It

consists of three daily entries. The first day is a long blank bar (a

bullish move), followed by a bullish but short-range one-day island.

The third entry is a bearish long black line.

Sanzan (three mountains) A reversal candlestick combination. It

consists of a triple-top formation.

Sashikomi A bearish two-day candlestick combination. It consists of a

modified irikubi bar. The difference is that the opening of the second

day's blank bar is much lower than that of the irikubi bars. Despite

the wider gap thus formed, the blank candlestick closes only slightly

above the previous day's low.

Settlement risk A form of credit risk that may occur due to the time

zones separating the nations. Payment may be made to a party who

will declare insolvency (or be declared insolvent) immediately after

receipt, but prior to executing its own payments.

Shitakage Lower shadow of the candlestick. (See Candlestick chart.)

Short straddle A compound option that consists of a short call and a

short put on the same currency, at the same strike price, and with

the same expiration dates. The maximum profit consists of the

combined premium of the two individual options. The loss occurs

when the level of the premium is overpassed by the currency swing,

and the loss is unlimited.

Short strangle A compound option that consists of a short call and a

short put on the same currency, with the same expiration dates, but

with different strike prices. The maximum profit consists of the

combined premium of the two individual options. The loss is

unlimited.

Simple moving average or arithmetic mean An average of a

predetermined number of prices over a number of days, divided by

the number of entries.

Slow stochastics A version of the original stochastic oscillator. The new,

slow %K line consists of the original %D line. The new, slow %D line

formula is calculated from the new %K line.

Snake The nickname of the European Joint Float Agreement's 2.25

percent fluctuation band for the European currencies against each

other, derived from its curvaceous movement.

Speedlines Support or resistance lines that divide the range of the trend

into thirds on a vertical line. The two resulting speedlines are plotted

by using as coordinates the origin and the 1/3 and 2/3 prices

respectively.

Spot deal A foreign exchange deal that consists of a bilateral contract

between a party delivering a certain amount of a currency against

receiving a certain amount of another currency from a second

counterparty, based on an agreed exchange rate, within two

business days of the deal date. The exception is the Canadian dollar,

in which the spot delivery is executed within one business day.

Spot next (S/N) A foreign exchange deal that matures one business

day past the spot date, or three business days.

Sterilized intervention A central bank intervention in the foreign

exchange market that consists of a sale of government securities

that offsets the reserve injection which occurs due to the foreign

exchange intervention. The money market activity sterilizes the

impact of the foreign exchange intervention on the money supply.

Sterilized interventions have a short- to medium-term effect.

Stochastics Oscillators that consist of two lines called %K and %D.

Visualize %K as the plotted instrument and %D as its moving

average. The resulting lines are plotted on a 1 to 100 scale. Just as

in the case of the RSI, the 70 percent and 30 percent values are

used as warning signals. The buying (bullish reversal) signals occur

at under 10 percent and the selling (bearish reversal) signals come

into play at above 90 percent.

Strike price See Exercise price.

Support level The troughs representing the level at which demand

exceeds supply.

Swap deal A foreign exchange deal that consists of a spot deal and a

forward outright deal. A party simultaneously buys and sells (or sells

and buys) the same amount of a currency with another counterparty;

the two legs of the transaction mature on different dates (one of the

dates being the spot date) and are traded at different exchange rates

(one of the exchange rates being the spot rate). Exceptions may be

made with regard to the value dates (forward-forward) and amount

(different amounts).

SWIFT (Society of Worldwide Interbank Financial Telecommunications)

An automated system set up to send standardized payment

instructions for foreign currencies among international banks.

Swing Index (SI) A momentum oscillator that is plotted on a scale

of -100 to +100. The spikes reaching the extremes suggest reversal.

Symmetrical triangle A triangle continuation formation in which the

support and resistance lines are symmetrical. (See Triangle.)

Synthetic call option A combination of a long currency and a long

currency put. Synthetic put option A combination of a short currency

and a long currency call.

T

Tan Book An economic report prepared by the Federal Reserve for

FOMC meetings.

Tankan Economic Survey The Japanese equivalent of the American

Tan Book, which is released by the Federal Reserve. The survey is

released on a quarterly basis.

Technical analysis The chart study of past behavior of commodity

prices for purposes of forecasting their future performance.

Theory of elasticities A model of exchange rate determination stating

that the exchange rate is simply the price of foreign exchange that

maintains the BOP in equilibrium. The degree to which the exchange

rate responds to a change in the trade balance depends entirely on

the elasticity of demand to a change in price.

Theta (T) or time decay Occurs as the very slow or nonexistent

movement of the currency triggers losses in the option's theoretical

value.

Three Buddha top formation A reversal candlestick combination. It

consists of a head-and-shoulders formation, or three consecutive

rallies in which the first and the third are of approximately the same

height, and the second is the highest.

Threshold of divergence A safety feature for the EMS that creates

an emergency exit for currencies that become the singular focus of

various adverse forces. The threshold of divergence indicates when

the specific country with the pressured currency should take

additional steps other than simple central bank intervention in the

foreign exchange markets.

Time decay See Theta.

Time value (time premium or extrinsic value) The difference between

the option premium and its intrinsic value.

Tohbu (gravestone doji) A reversal candlestick formation.

Tomorrow/next (T/N) deal A foreign exchange deal that matures the next

business day, or one day prior to the spot date.

Tonbo (dragonfly) A reversal candlestick formation.

Traditional (Charles Dow) percentage retracements Occur at 33

percent, 50 percent, and 66 percent.

Transaction exposure Potential profit and loss generated by current

foreign exchange transactions.

Translation exposure The risk of change of the consolidated corporate

earnings as a result of past volatility in the base currency.

Trend The general direction of the market, as shown by the

significant peaks and troughs of the currency fluctuations.

Trendline A straight line connecting the significant highs (peaks) in a

downtrend, and the significant lows (troughs) in an uptrend.

Triangle A continuation formation that resembles the outline of a

pennant, but without the pole. It consists of a brief consolidation

period within a solid and steep upward trend or downward trend. The

consolidation itself tends to be sloped in the opposite direction from

the slope of the original trend, or simply flat. The consolidation is

bordered by converging support and resistance lines, making it look

like a triangle. When the currency resumes its original trend by

breaking out of the consolidation, the price objective is the height of

the triangle, measured from the breakout price level.

Triple bottom A bullish reversal pattern that consists of three bottoms of

approximately equal heights. A parallel—resistance—line is drawn

against a support line, which connects these tops. The break of the

resistance line generates a move equal in size to the price difference

between the average height of the bottoms and the resistance line.

Triple top A bearish reversal pattern that consists of three tops of

approximately equal heights. A parallel—support—line is drawn

against a resistance line, which connects these tops. The break of

the support line generates a moveequal in size to the price difference

between the average height of the topsand the support line. |

TRIX Index An oscillator that consists of a one-day ROC calculation of a

triple exponentially smoothed moving average of the closing price.

Tunnel The nickname of the European Joint Float Agreement's total

fluctuation band of the European currencies.

U

Unemployment Rate An economic indicator released as a percentage

that is calculated as the ratio of the difference between the total

labor force and the employed labor force, divided by the total labor

force.

Upside gap tasuki Bullish two-day candlestick combination. It

consists of a second-day black bar that closes an overnight gap

opened on the previous day by a blank bar.

Upward breakout of a bearish resistance line Bullish point-and-figure

chart formation that confirms the currency's breakout of a resistance

line the third time it reaches it. The resistance line is sloped

downward.

Upward breakout of a bullish resistance line Bullish point-and-figure

chart formation that confirms the currency's breakout of a resistance

line the third time it reaches it.

Upward breakout from a consolidation formation Bullish point-and-figure

chart formation that resembles the flag formation. A valid upside

breakout from the consolidation formation has a price target equal in

size to the length of the previous uptrend.

USDX Currency index that consists of the weighted average of the

prices of ten foreign currencies against the U.S. dollar: deutsche

mark, Japanese yen, French franc, British pound, Canadian dollar,

Italian lira, Dutch guilder, Belgian franc, Swedish krona, and Swiss

franc.

Uwakage Upper shadow of the candlestick. (See Candlestick chart.)

V

Value at risk The expected loss from an adverse market movement, with

a specified probability over a particular period of time.

Variation (maintenance) margin Margin paid by the trading party in

order to fully cover any unrealized loss. Any trader holding an

overnight position with a negative P&L must post it in cash. It must

be kept on deposit at all times.

Vega The sensitivity of the theoretical value of an option to a change in

volatility.

Velocity of money The rate at which money is turning over on an annual

basis to facilitate income transactions.

Vertical bear call spread A compound option strategy of buying two

options with a common expiration date; one option is a short call

with a lower strike price and the other is a long call with a higher

strike price. The seller's maximum profit is limited to the premium

paid for the two options. The break-even point is calculated as the

sum of the lower strike price and the total premium. The maximum

loss consists of the dollar difference between the two strike prices,

minus the total premium received.

Vertical bear put spread A compound option strategy of buying two

options with a common expiration date; one option is a long put with

a higher strike price and the other is a short put with a lower strike

price. The buyer's maximum profit consists of the dollar difference

between the two strike prices, minus the total premium paid. The

break-even point is calculated as the difference between the higher

strike price and the total premium. The maximum loss is limited to

the premium paid for the two options.

Vertical bear spread An option combination whose theoretical value

will decline to a predetermined maximum profit if the price of the

underlying currency declines and whose maximum loss is also

predetermined.

Vertical bull call spread A compound option strategy of buying two

options with a common expiration date; one option is a long call with

a lower strike price and the other is a short call with a higher strike

price. The buyer's maximum profit consists of the dollar difference

between the two strike prices, minus the total premium paid. The

break-even point is calculated as the sum of the lower strike price

and the total premium. The maximum loss is limited to the premium

paid for the two options.

Vertical bull put spread A compound option strategy of buying two

options with a common expiration date; one option is a long put with

a lower strike price and the other is a short put with a higher strike

price. The buyer's maximum profit consists of the net premium paid

for the two options (one paid, the other received). The break-even

point is calculated as the difference between the higher strike price

and the total premium received. The maximum loss is limited to the

dollar difference between the two strike prices, minus the total

premium received.

Vertical bull spread An option combination whose theoretical value

will rise to a predetermined maximum profit if the price of underlying

currency rises, and whose maximum loss is also predetermined.

Vertical spread A compound option that consists of two similar options

(i.e., calls or puts), one being bought and the other sold, on the

same currency and with the same expiration date, but with different

strike prices.

V-formation (spike) Reversal formation that shows sudden trend

changes and is accompanied by heavy trading volume. This pattern

may include a key reversal day, or an island reversal and an

exhaustion gap.

Volatility The degree to which the price of currency tends to fluctuate

within a certain period of time.

Volume The total amount of currency traded within a period of time,

usually one day.

Vostro account A vostro account from the point of view of the

counterparty.

W

Wedge A continuation formation that resembles the outline of a

pennant, but without the pole. It consists of a brief consolidation period

within a solid and steep upward trend or downward trend. The consolidation

is sharply angled in the opposite direction from the slope of the original trend.

The consolidation is bordered by a support line and a resistance line that

converge, making it look like a sharply angled triangle. When the currency

resumes its original trend by breaking out of the consolidation, the price

objective is the height of the wedge, measured from the breakout price level.

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Glossary And Foreign Exchange Terms part one

tags:consolidation formation,forex,Durable Goods Orders,a bearish support line,Downside tasuki gap,Double tops,Double bottoms,Discount rate,Discount forward spread,Directional Movement Index,Direct dealing,Diamond ,Diagonal spread,Currency put,Council of Ministers,Continuation patterns,Condor spread,Classes of options,Chaos theory,Box spread,Ascending triangle,

A

Accumulation swing index (ASI) An oscillator based on the swing index

(SI.) A buying signal is generated when the daily high exceeds the

previous SI significant high, and a selling signal occurs when the

daily low dips under the significant SI low.

American style currency option An option that may be exercised at any

valid business date throughout the life of the option.

Arbitrage A risk-free type of trading in which the same instrument is

bought and sold simultaneously in two different markets in order to

cash in on the divergence between the two markets.

Ascending triangle A triangle continuation formation with a flat upper

trendline and a bottom sloping upward trendline. (See Triangle.)

Ascending triple top A bullish point-and-figure chart formation that

suggests that the currency is likely to break a resistance line the

third time it reaches it. Each new top is higher than the previous

one.

Atekubi A bearish two-day candlestick combination. It consists of a

blank bar that closes at the daily high; the current closing price

equals the previous day's low. The original day's range is a long

black bar.

At par forward spread Forward price is zero; therefore, the spot price is

similar to the forward price. It reflects the fact that the foreign

interest rate is similar to the U.S. interest rate for that particular

period.

At-the-money (ATM) option An option whose present currency price is

approximately equal to the strike price.

At the price stop-loss order A stop-loss order that must be executed at

the precise requested level, regardless of market conditions.

Average options Options that refer to the average rate of the

underlying currency that existed during the life of the option. This

rate becomes the strike in the case of the average strike options; or

it becomes the underlying, determining the intrinsic value when

compared to a predetermined fixed strike in the case of average rate

options. Average options can be based on the spot rate (spot style)

or on the forward underlying the option (forward style.) The average

can be calculated arithmetically or geometrically, and the rates can

be tabulated with a variety of frequencies.

B

Balance-of-payments All the international commercial and financial

transactions of the residents of one country.

Bank of Canada (BOC) The central bank of Canada.

Bank of England (BOE) The central bank of the United Kingdom. It is a

less independent central bank. The government may overwrite its

decision.

Bank of France (BOF) The central bank of France.

Bank of Italy (BOI) The central bank of Italy.

Bank of Japan (BOJ) The Japanese central bank. Although its Policy Board

is still fully in charge of the monetary policy, changes are still subject

to the approval of the Ministry of Finance (MOF). The BOJ targets

the M2 aggregate.

Bar chart A type of chart that consists of four significant points: the

high and the low prices, which form the vertical bar; the opening

price, which is marked with a little horizontal line to the left of the

bar; and the closing price, which is marked with a little horizontal line

to the right of the bar.

Barrier options (trigger options, cutoff options, cutout options, stop options,

down/up-and-outs/ins, knockups) Options very similar to

European style vanilla options, except that a second strike price (the

trigger) is specified that, when reached in the market, automatically

causes the option to be expired (knockout options) or "inspired"

(knockin options).

Bearish tasuki A bearish two-day candlestick combination. It consists

of a long blank bar that has a low above 50 percent of the previous

day's long black body, and closes marginally above the previous

day's high. The second day's rally is temporary, as it is caused only

by profit-taking. The sell-off is likely to continue the next day.

Bearish tsutsumi (the engulfing pattern) A bearish two-day candlestick

combination. It consists of a second-day bearish candlestick whose

body "engulfs" the previous day's small bullish body.

Bilateral grid An exchange rate system that links all the central

rates of the EMS currencies in terms of the ECU.

Black closing bozu A bearish candlestick formation that consists of a

long black bar (upper shadow).

Black marubozu (shaven head) A bearish candlestick formation that

consists of a long black bar (no shadow).

Black opening bozu A bearish candlestick formation that consists of a

long black bar (lower shadow).

Black-Scholes fair value model The original option pricing model, which

holds that a stock and the call option on the stock are comparable

investments and thus a risk less portfolio may be created by buying

the stock and selling the option on the stock, as a hedge. The

movement of the price of the stock is reflected by the movement of

the price of the option, but not necessarily by the same amplitude.

Therefore, it is necessary to hold only the amount of the stock

necessary to duplicate the movement of the price of the option.

Blank closing bozu A bullish candlestick formation that consists of a

long blank bar (lower shadow).

Blank marubozu (shaven head) A bullish candlestick formation that

consists of a long blank bar (no shadows).

Blank opening bozu A bullish candlestick formation that consists of a

long blank bar (upper shadow).

Bollinger bands A quantitative method that combines a moving

average with the instrument's volatility. The bands were designed to

gauge whether the prices are high or low on a relative basis. They

are plotted two standard deviations above and below a simple

moving average. The bands look like an expanding and contracting

envelope model. When the band contracts drastically, the signal is

that volatility will expand sharply in the near future. An additional

signal is a succession of two top formations, one outside the band

followed by one inside. If it occurs above the band, it is a selling

signal. When it occurs below the band, it is a buying signal.

Book method Point-and-figure chart's original name.

Box spread A compound option strategy that consists of four options with a

common expiration date: a long call and a short put at one strike

price, and a long put and a short call at a different strike price.

Breakaway gap A price gap that occurs in the beginning of a new

trend, many times at the end of a long consolidation period. It may

also appear after the completion of major chart formations.

Breakout of a spread triple bottom A bearish point-and-figure chart

formation that suggests that the currency is likely to break a support

line the third time it reaches it. The currency failed to reach the

support line once.

Breakout of a spread triple top A bullish point-and-figure chart

formation that suggests that the currency is likely to break a

resistance line the third time it reaches it. The currency failed to

reach the resistance line once.

Breakout of a triple bottom A bearish point-and-figure chart formation

that suggests that the currency is likely to break a support line the

third time it reaches it.

Breakout of a triple top A bullish point-and-figure chart formation that

suggests that the currency is likely to break a resistance line the third

time it reaches it.

Bullish tasuki A bullish two-day candlestick combination. It consists

of a long black bar that has a high above 50 percent of the previous

day's long blank body, and closes marginally below the previous

day's low.

Bullish tsutsumi (the engulfing bar) A bullish two-day candlestick

combination. It consists of a second bullish candlestick whose body

"engulfs" the previous day's small bearish body.

Bundesbank The German central bank. In addition to its domestic

obligations, the Bundesbank has had international obligations since

1979 as the front player of the European Monetary System. The

Bundesbank is a very independent central bank.

Business firms (establishment) survey Survey of the payroll, workweek,

hourly earnings, and total hours of employment in the non farm

sector.

Business Inventories An economic indicator that consists of the items

produced and held for future sale.

Butterfly spread A compound option strategy that consists of a combination

of a bull spread and a bear spread, using either calls or puts.

C

Calendar combination A compound option strategy that consists of the

simultaneous call calendar spread and put calendar spread, in which

the strike price of the calls is higher than the strike price of the puts.

Calendar spread A combination option of two similar types of options,

either calls or puts, with the same strike price but different expiration

dates. The dissimilarity between the expiration dates allows this type

of spread to capitalize on both the impact of the time decay and the

interest rate differentials.

Calendar straddle A compound option strategy that consists of

simultaneous buying of a longer-term straddle and a near-term

straddle with a common strike price.

Call ratio backspread A compound option strategy that consists of

short calls with a lower strike price and more long calls with a higher

strike price. The profit is twofold. The maximum upside profit

potential is unlimited. The downside profit potential consists of the

total premium received. The maximum loss potential occurs when

the currency price reaches the higher strike price at expiration.

Candlestick chart A type of chart that consists of four major prices: high,

low, open, and close. The body (jittai) of the candlestick bar is

formed by the opening and closing prices. To indicate that the

opening was lower than the closing, the body of the bar is left blank.

If the currency closes below its opening, the body is filled. The rest

of the range is marked by two "shadows": the upper shadow

(uwakage) and the lower shadow (shitakage).

Capacity utilization An economic indicator that consists of total industrial

output divided by total production capability. The term refers to the

maximum level of output a plant can generate under normal

business conditions.

Cardinal square A Gann technique for forecasting future significant

chart points by counting from the all-time low price of the currency.

It consists of a square divided by a cross into four quadrants. The

all-time low price is housed in the center of the cross. All of the

following higher prices are entered in clockwise order. The numbers

positioned in the cardinal cross are the most significant chart points.

Channel line A parallel line that can be traced against the trendline,

connecting the significant peaks in an uptrend, and the significant

troughs in a downtrend.

Chaos theory A theory that holds that statistically noisy behavior may

occur randomly, even in simple environments. This seemingly

random behavior may be predicted with decreasing accuracy if the

source is known.

CHIPS (Clearing House Interbank Payments System) A computerized

system used for foreign exchange dollar settlements.

Christmas tree spread A compound option strategy that consists of

several short options at two or more strike prices.

Classes of options The types of options: calls and puts.

Combination spread (synthetic future) A compound option strategy

that consists of a long call and a short put, or a long put and a short

call, with a common expiration date.

Commodity Channel Index (CCI) An oscillator that consists of the

difference between the mean price of the currency and the average

of the mean price over a predetermined period of time. A buying

signal is generated when the price exceeds the upper (+100) line,

and a selling signal occurs when the price dips under the lower (-

100) line.

Commodity Futures Trading Commission (CFTC) An independent agency

created by Congress in 1974 with a mandate to regulate commodity

futures and options markets in the United States. The CFTC's

responsibilities are to ensure the economic utility of futures markets,

via competitiveness and efficiency; ensure the integrity of these

markets; and protect the participants against manipulation, fraud,

and abusive practices. The Commission, based in Washington, D.C.,

regulates the activities of 285 commodity brokerage firms; 48,211

salespeople; 8017 floor brokers; 1325 commodity pool operators

(CPOs); 2733 commodity trading advisers (CTAs); and 1486

introducing brokers (IBs).

Commodity Research Bureau's (CRB) Futures Index Index formed from

the equally weighted futures prices of 21 commodities. The

preponderance of food commodities makes the CRB Index less

reliable in terms of general inflation.

Common gap A price gap that occurs in relatively quiet periods or in

illiquid markets. It has limited technical significance.

Condor spread A compound option strategy that consists of either

four same-type options with a common expiration date—two long

options with consecutive strike prices, one short option with an

immediately lower strike price, and one short option with an

immediately higher strike price; or four same-type options with a

common expiration date—two short options with consecutive strike

prices, one long option with an immediately lower strike price, and

one long option with an immediately higher strike price.

Consumer Price Index (CPI) An economic indicator that gauges the

average change in retail prices for a fixed market basket of goods

and services.

Consumer sentiment A survey of households designed to gauge the

individual propensity for spending. There are two studies conducted

in this area, one survey by the University of Michigan, and the other

by the National Family Opinion for the Conference Board. The

confidence index measured by the Conference Board is sensitive to

the job market, whereas the index generated by the University of

Michigan is not.

Continuation patterns Technical signals that reinforce the current trends.

Cost of carry The interest rate parity, whereby the forward price is

determined by the cost of borrowing money in order to hold the

position.

Council of Ministers The legislative body of the European Economic

Community in charge of making the major policy decisions. It is composed of ministers from all the 12 member nations. The
presidency rotates every six months by all the 12 members, in
alphabetical order. The meetings take place in Brussels or in the
capital of the nation holding the presidency.
Country (sovereign) risk A trading risk emerging from a
government's interference in the foreign exchange markets.
Covered interest rate arbitrage An arbitrage approach that consists of
borrowing currency A, exchanging it for currency B, investing
currency B for the duration of the loan, and, after taking off the
forward cover on maturity, showing a profit on the entire set of
deals.
Covered long A compound option strategy that consists of selling a
call against a long currency position. A covered long is synonymous
with a short put.
Covered short A compound option strategy that consists of shorting a
put against a short currency position. A covered short is synonymous
with a short call.
Cox, Ross, and Rubinstein pricing model An option pricing model that
takes into consideration the early exercise provision of the American
style options. As it assumes that early exercise will occur only if the
advantage of holding the currency exceeds the time value of the
option, their binomial method evaluated the call premium by
estimating the probability of early exercise for each successive day.
The theoretical premium is compared to the holding cost of the cash
hedge position, until the option's time value is worth less than the
forward points of the currency hedge and the option should be
exercised.
Credit risk The possibility that an outstanding currency position may
not be repaid as agreed, due to a voluntary or involuntary action by
a counterparty.
Cross rates Currencies traded against currencies other than the U.S.
dollar. A cross rate is a non-dollar currency.
Currency call A contract between the buyer and seller that holds that the
buyer has the right, but not the obligation, to buy a specific quantity
of a currency at a predetermined price and within a predetermined
period of time, regardless of the market price of the currency. The
writer assumes the obligation of delivering the specific quantity of a
currency at a predetermined price and within a predetermined period
of time, regardless of the market price of the currency, if the buyer
wants to exercise the call option.
Currency fixings An open auction executed in Europe on a daily basis in
which all players, regardless of size, are welcome to participate with
any amount.
Currency futures A specific type of forward outright deal with
standardized expiration date and size of the amount.
Currency option A contract between a buyer and a seller, also known
as writer, that gives the buyer the right, but not the obligation, to

trade a specific quantity of a currency at a predetermined price and

within a predetermined period of time, regardless of the market price

of the currency; and gives the seller the obligation to deliver or buy

the currency under the predetermined terms, if and when the buyer

wants to exercise the option.

Currency put A contract between the buyer and the seller that holds

that the buyer has the right, but not the obligation, to sell a specific

quantity of a currency at a predetermined price and within a

predetermined period of time, regardless of the market price of the

currency. The writer assumes the obligation to buy the specific

quantity of a currency at a predetermined price and within a

predetermined period of time, regardless of the market price of the

currency, if the buyer wants to exercise the call option.

Current account balance The broadest current dollar measure of U.S.

trade, which incorporates services and unilateral transfers into the

merchandise trade data.

 

D

Daylight position limit The maximum amount of a certain currency a

trader is allowed to carry at any single time, between the regular

trading hours.

Dead cross An intersection of two consecutive moving averages that

move in opposite directions and should technically be disregarded.

Dealing systems On-line computers that link the contributing banks

around the world on a one-on-one basis.

Delta (A) (1) The change of the currency option price relative to a change

in the currency price; (2) the hedge ratio between the option

contracts and the currency futures contracts necessary to establish a

neutral hedge; (3) the theoretical or equivalent share position. In the

third case, delta is the number of currency futures contracts a call

buyer is long or a put buyer is short. Delta ranges between 0 and 1.

Descending triangle A triangle continuation formation with a flat

lower trendline and a downward-sloping upper trendline. (See

Triangle.)

Descending triple bottom Bearish point-and-figure chart formation

that suggests that the currency is likely to break a support line the

third time it reaches it. Each new bottom is lower than the previous

one.

Diagonal spread A compound option strategy that consists of several

same-type options, in which the long side and the short side have

different strike prices and different expirations.

Diamond A minor reversal pattern that resembles a diamond shape.

Direct dealing An aggressive approach in which banks contact each

other outside the brokers' market.

Directional Movement Index A signal of trend presence in the market.

The line simply rates the price directional movement on a scale of 0

to 100. The higher the number, the better the trend potential of a

movement, and vice versa.

Discount forward spread A forward price that is deducted from a

spot price to calculate a forward price. It reflects the fact that the

foreign interest rate is lower than the U.S. interest rate for that

particular period.

Discount rate The interest rate at which eligible depository

institutions may borrow funds directly from the Federal Reserve

Banks. The rate is controlled by the Federal Reserve and is not

subject to trading.

Discretion for range to trader stop-loss order A stop-loss order that

gives the trader a number of discretionary pips within which the

order has to be filled.

Double bottoms A bullish reversal pattern that consists of two bottoms

of approximately equal heights. A parallel (resistance) line is drawn

against a line that connects the two bottoms. The break of the

resistance line generates a move equal in size to the price difference

between the average height of the bottoms and the resistance line.

Double tops A bearish reversal pattern that consists of two tops of

approximately equal heights. A parallel (support) line is drawn

against a resistance line that connects the two tops. The break of the

support line generates a move equal in size to the price difference

between the average height of the tops and the support line.

Downside tasuki gap A bearish two-day candlestick combination. It

consists of a second-day blank bar that closes an overnight gap

opened on the previous day by a black bar.

Downward breakout of a bearish support line A bearish point-andfigure

chart formation that confirms the currency's breakout of a

support line the third time it reaches it.

Downward breakout of a bullish support line A bearish point-andfigure

chart formation that confirms the currency's breakout of a

support line the third time it reaches it. The support line is sloped

upward.

Downward breakout from a consolidation formation A bearish pointand-

figure chart formation that resembles the inverse flag formation.

A valid downside breakout from the consolidation formation has a

price target equal in size to the length of the previous downtrend.

Durable Goods Orders An economic indicator that measures the

changes in sales of products with a life span in excess of three years.

 to check out  the second  part of  Glossary And Foreign Exchange Terms  click  here and for third  part  click here  and for fourth part click here

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