Forex Terms

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GTC - Good-Till-Cancelled. An order left with a Dealer to buy or sell at a fixed price. The GTC will remain in place until executed or cancelled.

Hedge - An investment position or combination of positions that reduces the volatility of your portfolio value. One can take an offsetting position in a related security. Instruments used are varied and include forwards, futures, options, and combinations of all of them.

High/Low - Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.

Inflation - An economic condition where there is an increase in the price of consumer goods, thereby eroding purchasing power.

Initial Margin - The required initial deposit of collateral to enter into a position as a guarantee on future performance

Interbank Rates - The Foreign Exchange rates at which large international banks quote other large international banks

Interest Rate Swaps (IRS) - An exchange of two debt obligations that have different payment streams. The transaction usually exchanges two parallel loans; one fixed the other floating.

Interest Rate Swap Points - Interest rates may be determined by a simple rule using the bid and offer spread on an fx rate. If the rate quoted is in foreign (non US) terms and the offered price is higher than the bid, then the interest rate in that nation is higher than the rate in the base nation for the particular time in question. If quoted in American terms, the opposite is true. Example – USD/ JPY quoted 105.75 to 105.65. Because the offered price is lower than the bid, then you know that rates are lower in Japan than in the US.

ISDA - The body that sets terms and conditions for derivative trades is The International Swaps and Derivatives Association.

Leading Indicators - Economic variables that are considered to predict future economic activity (i.e. Unemployment, Consumer Price Index, Producer Price Index, Retail Sales, Personal Income, Prime Rate, Discount Rate, and Federal Funds Rate).

LIBOR - Stands for London Interbank Offer Rate. The interest rate that the largest international banks will lend to each other.

LIFFE - The London International Financial Futures Exchange. Consists of the three largest UK futures markets.

Limit Order - An order to buy at or below a specified price or to sell at or above a specified price.

Liquid and Illiquid Markets - The ability of a market to buy and sell at ease with no impact on price stability. A market is described as liquid if the spread between the bid and the offer is small. Another measure of liquidity is the presence of buyers and seller, with more players creating tighter spreads. Illiquid markets have few players, hence, wider dealing spreads.

Liquidation - To close an open position throgh the execution of an offsetting transaction.

Liquid Assets - Assets that can be easily converted into cash. Examples: money market fund shares, US Treasury Bills, bank deposits, etc.

Long - A position to purchase more of an instrument than is sold, hence, an appreciation in value if market prices increase.