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FX Trading A

The following offers brief explanation of the most popular terms used in the currency market today.

Aggregate (Risk) : Total exposure a bank has with a customer for both spot and forward contracts. Aggregate Demand Total demand for goods and services in the economy.

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Aggregate demand : includes private and public sector demand for goods and services within the country, and the demand of consumers and firms in other countries for goods and services.

Aggregate Supply : Total supply of goods and services in the economy (including imports) available to meet aggregate demand.

Agio : Difference in the value between currencies. Also used to describe percentage charges for conversion from paper money into cash, or from a weak into a strong currency.

American Option : An option which may be exercised on any valid business date throughout the life of the option. A European option can only be exercised on a specific date.

Appreciation : Describes : a currency strengthening in response to market demand as opposed to increasing in value as a result of official action.

Arbitrage : A risk-free type of trading where the same instrument is bought and sold simultaneously in two different markets in order to cash in on the difference between the markets. Around Used in quoting forward “premium/discount”.

Ask Price : The price at which the currency or instrument is offered. Ask is the lowest price acceptable to the buyer. Asset The right to receive from a counterparty an amount of currency either in regards to a balance sheet asset (e.g. a loan), or at a specified future date in regards to an unmatched Forward or spot deal.

Association Cambiste International : The international society of foreign exchange dealers consisting of national “Forex clubs” affiliated on a worldwide basis.

At Best : An instruction given to a dealer to buy or sell at the best rate that is currently available in the market. At or Better An order to deal at a specific rate or better.

At Par : Forward Spread When the forward price is equivalent to the spot price. At the Price Stop-Loss Order A stop-loss order that must be executed at the requested level regardless of market conditions.

At-the-Money : An option whose strike/exercise price is equal to or near the current market price of the underlying instrument.

Auction : Sale of an item to the highest bidder. (1) A method commonly used in exchange control regimes for the allocation of foreign exchange. (2) A method for allocating government paper, such as US Treasury Bills. Small investors are given preferential access to the bills. The average issuing price is then computed on the basis of the competitive bids accepted. In some circumstances, such as government auctions, it is the yield rather than the price which is bid.

Average Rate Option : A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an “Asian option”.

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