Forex Terms

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Cable - Trader jargon for the British Pound Sterling referring to the Sterling/US Dollar exchange rate. Term began due to the fact that the rate was originally transmitted via a transatlantic cable starting in the mid 1800`s.

Candlestick Charts - A chart that indicates the trading ranges for the day as well as the opening and closing price. If the close price is lower than the open price, the rectangle is shaded or filled. If the open price is higher than the close price, the rectangle is not filled.

Capital Markets - Markets for medium to long term investment (usually over 1 year). These tradable instruments are more international than the ‘money market’ (i.e. Government Bonds and Eurobonds).

Central Bank - A government or quasi-governmental organization that manages a country`s monetary policy a prints a nation’s currency. For example, the US central bank is the Federal Reserve, others include the ECB, BOE, BOJ.

Chartist - An individual who uses charts and graphs and interprets historical data to find trends and predict future movements, as well as, aid in technical analysis.

Clearing - The process of settling a trade.

Close a Position (Position Squaring) - To eliminate an investment from one’s portfolio by either buying back a short position or selling a long position.

Commission - Fee broker charges for a transaction.

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

Contagion - The tendency of an economic crisis to spread from one market to another. In 1997, financial instability in Thailand caused high volatility in its domestic currency, the Baht, which triggered a contagion into other East Asian emerging currencies, and then to Latin America. It is now referred to as the Asian Contagion.

Contract (Unit or Lot) - The standard unit of trading on certain exchanges.

Convertible Currency - A currency which can be exchanged freely for other currencies at market rates, or gold.

Cost of Carry - The cost associated with borrowing money in order to maintain a position. It is based on the interest parity, which determines the forward price.

Counter party - The participant, either a bank or customer, with whom the financial transaction is made.

Country Risk - The risk associated with government intervention (does not include central bank intervention). Examples are legal and political events such as war, or civil unrest.

Credit Checking - Due to the large size of certain financial transactions that change hands, it is essential to check that that the counter parties have room for the trade. Once the price has been agreed the credit is checked. If the credit is bad then no trade takes place. Credit is very important when trading, both in the Inter-bank market and between banks and their customers.

Credit Netting - Arrangements that exist to maximize free credit and speed the dealing process by reducing the need to constantly re-check credit. Large banks and trading institutions may have agreements to net outstanding deals.

Cross Rates - An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded

Currency - A country’s unit of exchange issued by their government or central bank whose value is the basis for trade.

Currency Risk - The risk of incurring losses resulting from an adverse change in exchange rates.