Trading jargon and terms
Markets have a language all their own and within that language, FOREX has its own dialect. Here are some of the terms and jargon words that are used daily in different communication and commentaries.
Another way of referring to easy or easier monetary policy, often used as a code word by central bankers
An Australian stock index
Asset Purchase Program: It’s not just something you find on your phone, it’s a BOJ initiative introduced in 2010 as a monetary easing tool where it buys government bonds with up to three years until maturity (and also corporate debt, ETFs and REITs) and trust funds investing in stocks and property.
The main Australian stock index
The Australian Dollar - (or a person that speaks with an interesting accent)
Bank for International Settlements (BIS)
An international organization which fosters monetary and financial cooperation and serves as a bank for central banks. The BIS often acts as an agent in the forex market, allowing central banks to mask their identity in an attempt to dampen market impact.
A type of option whose payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price. A barrier option can be a knock-out, meaning it can expire worthless if the underlying exceeds a certain price, limiting profits for the holder but limiting losses for the writer. It can also be a knock-in, meaning it has no value until the underlying reaches a certain price.
A buy order placed at or below the market.
Bank of Canada
Bank of England
Bank of Japan
Buy the f****** dip!
Italian government bonds
The market nickname for the Bundesbank, Germany’s inflation-obsessed central bank
German 10-year government bonds. The Bobl is the 5 year and Schatz the 2-year.
Nickname for GBP/USD. Originates from the use of transatlantic cables to transact currency deals years ago. Anyone who uses terms like “Cable-yen” or “euro-cable” is to be dismissed as an amateur.
The French stock index, the CAC 40
Candle / Candlestick
A method of charting price action. The subject of multitudes of books and the preferred method of charting at ForexLive.
The treasury departments of large multinational corporations. They are responsible for hedging the forex exposures of their firms, which can have dramatic impacts on earnings for firms with large overseas sales. For example, a company like Airbus has massive revenues in dollars but has most of its cost base in euros. They must hedge their currency exposures to try and offset this mis-match.
An entry in the comprehensive income section of a translated balance sheet summarizing the gains/losses resulting from varying exchange rates over the years. A CTA entry is required under the Financial Accounting Standards Board (FASB) No.52 rule as a means of helping investors differentiate between actual operating gains/losses and those generated via translation.
A bank which holds securities in custody for other financial institutions, does their bookkeeping and settles their trading activity. Examples include Bank of New York Mellon, State Street and Northern Trust Co. Also know as custodians.
German stock index, the DAX 30
The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative. Sometimes referred to as the “hedge ratio”.
A statement related to monetary policy which implies looser policy (lower rates).
Refers to monetary policy tending towards lower interest rates. Monetary authorities (a central bank) will want easy monetary policies (lower interest rates and even perhaps a program like quantitative easing, in order to encourage economic growth).
EBS (Electronic Broking Services)
A wholesale electronic trading platform used to trade between interbank dealers. It's like an ECN for banks.
European Central Bank
A council consisting of the economy and finance ministers of the European Union. They meet once a month.
Emergency Liquidity Assistance (ELA)
The provision of liquidity by member national banks of the European System of Central Banks (Eurosystem) to individual banks. The provision of liquidity is made under exceptional circumstances to illiquid institutions unable to obtain liquidity either in the market or from participation in monetary policy operations (shut out by the ECB). Loans are made against collateral and are at the risk of the national central bank.
An Exchange Traded Fund (the BOJ has bought ETFs as part of its APP easing program).
Not the Euro; a pet peeve of many old FX traders is to hear the euro currency referred to as ‘eurodollar’. A eurodollar refers to a US dollar on deposit at banks outside the US. Similarly, eurodollar futures are a very popular interest-rate futures contract.
A group of finance ministers of countries who are members of the euro. Its spokesman is Jean-Claude Junckers, the finance minister of Luxembourg.
European Financial Stability Facility (ESFS)
Is a legal instrument agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing financial assistance to eurozone states in difficulty. Colloquially known as ‘euro SPV’ or ‘euro TARP’.
To trade counter to. For instance, to “fade a trend” is to counter the trend. To fade a rumor is to believe it to be untrue and do the opposite of what the rumor would suggest.
The Federal Reserve Bank, the central bank for the United States.
A useful tool for traders as markets correct during trends. Technicians look for support on pullbacks at 38.2% of the uptrend or rebounds in an downtrend, 50% and 61.8%. Derived from the “golden ratio” of Italian mathematician Fibonacci.
UK stock index, the FTSE100
Forward guidance can take many forms, but, in essence, all of them involve a central bank saying, or at least hinting at, what its going to do with monetary policy do before they do it.
There is a more detailed explanation at this post.
Federal Open Market Committee, the monetary policy-setting group within the Federal Reserve Bank of the USA. It consists of 12 members, the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents 9selected on a rotating basis for one-year terms).
Market nickname for the USD/CAD currency pair.
Concepts in the options markets are expressed in terms of the Greek alphabet. Gamma refers to the rate of change in an option’s delta relative to the price of the underlying asset. A short gamma position will become shorter as the price of the underlying asset increases. As the market rallies, you are effectively selling more and more of the underlying asset as the delta becomes more negative.
UK government bonds
To transact a deal on the bid price, i.e. to sell at the bid price, to whoever is bidding.
Past tense of give, what has happened if you’ve crossed the spread and sold at the bid.
A cultural tradition in Japan of settling accounts on the 5th day of the month (and on dates that are multiples of 5, so 5, 10, 15, 20, 25 and 30). In FX markets it relates to importer demand for USD/JPY, said to occur on the 5th of each month. Needs to be taken with a grain of salt, markets are not that simple: but at least now when you see commentators referring to Gotobi demand, you’ll know what they mean.
Governing Council (of the ECB)
The Governing Council is the 23-member monetary policy-setting group within the European Central Bank. Generally, anyone who is referred to as part of the ECB on ForexLive is a member of the Governing Council.
When bondholders are forced or voluntarily take a worse deal than the one outlined in the bond covenant.
A statement regarding monetary policy which implies tighter policy (higher rates).
A stock market technical indicator when two trading days within 30 days of each other where, on the same day, 10-week moving average is rising, new highs are greater than 2.2% of total issues traded, new lows are greater than 2.2% of total issues traded, and the McClellan Oscillator is negative.
Hong Kong Monetary Authority, the central bank of Hong Kong.
(Ichimoku Kinko Hyo)A series of technical indicators packaged together and overlaid on a candlestick or bar chart to form the Ichimoku chart. Popularly used for yen crosses.
The International Monetary Market division of the Chicago Mercantile Exchange. This is the exchange where the bulk of the currency futures trading takes place worldwide. Net positions on the exchange are compiled each week and reported in the Commitments of Traders report on Friday afternoons.
The bank-to-bank market in foreign exchange. Banks can deal directly with each other in currencies, most often over the phone, or through EBS or Reuters Dealing. ‘Interbank’ dealing usually refers to the direct dealing between banks with no broker intervening (classing EBS and Reuters as brokers in this context as they serve to match up buyers and sellers). Bank ‘A’ contacts Bank ‘B’ and asks for a price in (for example) USD/JPY, in an amount (20 million USD, for example). Bank ‘B’ ‘makes’ (in this way banks are market makers to each other) a price, showing a bid and an offer: Bank A is then free to transact a deal on the shown bid or offer, or to pass and not deal.
A major Japanese news agency (like Reuters).
Japanese government bonds.
A trader who buys and sells, often frequently, to seize short-term market opportunity. Can be intraday or over a couple of days. This doesn’t exclude him/her from having a longer term view, and will often trade in the short term contra to that core view
Korean Central News Agency, the state news agency of North Korea
The New Zealand dollar, from the flightless kiwi bird, found only in New Zealand.
The South Korean stock index.
Nickname for the Canadian dollar. Derives from the picture of a Loon on the $1 coin. What is a $2 coin called? A twonie, of course!
Being long is when you’ve bought with the intention of selling at a higher price in order to profit. For example, being long EUR/USD is have bought euro against USD, with the plan being to sell the euro at a higher price in order to profit.
LTRO - Long-term refinancing operations
Long-term collateralized loans extended by the ECB to member banks. Terms have ranged from 3 months up to 3-years.
A foreign company bond that is sold in Canadian dollars.
A rarely-seen type of charting pioneered and patented by Peter Steidlmayer.
The Monetary Auuthority of Singapore, Singapore’s central bank.
What an interbank dealer will say to a counterparty or voice broker when he (or she) wants to buy.
Hedge fund which uses some form of quantitative model to initiate and liquidate trades. The most familiar type of funds are trend-followers like J.W. Henry and Co. Many of these funds trade at set times during the day, often at 10 am New York time.
Monetary Policy Committee of the Bank of England, which meets once a month to decide on the official interest rate in the UK.
A collective term that originally applied to Japanese housewife speculators, but is now used to refer to Japanese retail margin FX traders. They can be a powerful force.
A major Japanese newspaper.
The main Japanese stock index.
French government bonds.
The ECB program introduced in August 2012 to directly buy government bonds in the secondary market. Can only be used after a government asks for financial assistance.
A sell order places at or above the market price.
A monetary policy operation last used in the early 1960s in which the Fed sold shorter-dated Treasuries from their portfolio and purchased longer-dated maturities in order to drive down long-term interest rates. The overall size of the Fed’s balance sheet is not impacted by the move.
The standard expiry time is 10 am New York. Mostly vanilla contracts ( see vanilla options ) but also some barrier option interest too ( see barrier options)
For info on how to trade the orderboard.
Want to know how to trade the order board? See this post!
Outside day key reversal
Key reversals are outside days at either trend highs or trend lows. A key reversal occurs when a market makes a new high, then reverses down, takes out the previous day’s low and closes lower than the previous day’s close.
Past tense of pay, what has just happened if you’ve crossed the spread an bought at the offer
On equal footing, in Latin. Refers to bond holders having equal rights in the event of a debt restructuring.
To transact a deal on the offered price, i.e. to buy at the offered price, to whoever is offering.
The People’s Bank of China, China’s central bank
Plain Vanilla Option
The most basic option type with a simple expiration date and strike price with no additional features.
Point and Figure
A method of charting price action.
Firms which allow clients like hedge funds to use their credit facilities to access financial markets. For example, a hedge fund client of Bank X can trade in the interbank FX market using Bank X’s name in return for a fee.
A strategy used by central banks once targeting short-term interest rates becomes ineffective because rates have reached zero (or close to it). The central bank buys assets, typically government bonds, in an effort to inject money into the economy.
Reserve Bank of Australia (central bank)
The Reserve Bank of New Zealand, New Zealand’s central bank
The purchase of asset classes that investors expect to do well in an economic recovery. Commodities, equities and emerging markets are examples. Asset classes to be avoided in a reflationary atmosphere include bonds and low-yielding currencies.
Generally refers to non-leveraged funds (mutuals, for example).
Real Estate Investment Trust (the BOJ has recently been buying Japan REITs as part of its APP easing program).
Refers to BOJ buying government bonds from the market in regular market operations (the other BOJ bond-buying program is the APP: Asset Purchase Program. The two were recently merged into one by the BOJ).
Securities Market Program
The program in which the ECB purchases government bonds of members states where the market has pushed yields up beyond what the ECB sees as fundamentally justifiable. The ECB sterilizes the euros added to the monetary system on a weekly basis so as not to impact overall money supply. It is a method of monetary policy transmission.
In financial markets being short refers to selling something you don’t own (with the intention of buying it back at a lower price in order to profit). Its the same in the FX market. For example, to be short USD/JPY means you have sold USD against yen, with the intention of buying back USD/JPY when the rate has fallen in order to profit.
Australian Share Price index futures contract (based on the ASX200).
In interbank FX the spot market is the market for currencies to be deleivered within a two-day period (or oneday in the case of the USD/CAD and some others).
The space between a bid an offer, eg. if the price is 35 bid and 36.5 offered, the spread is said to be one and a half points. In order to get set in a position with no waiting (when you simply must be on board NOW) it is necessary to cross the spread to pay the offer (i.e. if you want to be long and dont want to place a bid but just want in right now) or give the bid (i.e.if you want to be short and dont want to place an offer but just want to be short right now).
An order which closes out a market position once a certain price level trades in the market. For example, a sell order placed below the market price to protect against accelerating losses.
Sovereign wealth fund (SWF)
A fund set up by a country with large foreign exchange reserves to help manage those reserves. Typically SWFs purchase long-term securities to try and enhance investment returns beyond what central banks typically earn holding government debt. Examples include the Government of Singapore Investment Company and the Abu Dhabi Investment Authority.
Used interchangeably for sovereign wealth funds or central banks.
Swiss National Bank, the central bank of Switzerland
There is a Bank of Japan Tankan Survey and a Reuters Tankan Survey. Both are surveys of manufacturing and service companies designed to assess business conditions in Japan. The BOJ Tankan is conducted quarterly, the Reuters Tankan is monthly.
Taper / Tapering
It is thought that the Federal Reserve will begin to slow down its asset purchasing in response to an improving US economy not requiring so much monetary accommodation. This slowing down (not stopping) of purchases is referred to as tapering
a market condition where prices are not as liquid as would normally be expected.
Those things we always seem to be fighting. Just kidding. A tendency of a currency pair to move in a consistent direction. For example, USD/JPY had an uptrend from October 2012 to April 2013 (from around 78 to 99 as of writing).
A Toshin fund is a Japanese investment trusts which invest in non-yen denominated assets, for example, foreign bonds or stocks. In brief, Japanese funds invested abroad.
A financial instrument that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price, within a given time frame. A vanilla option is a normal call or put option that has standardized terms and no special or unusual features. It is generally traded on an exchange such as the Chicago Board Options Exchange.
On interbank dealing desks broking is conducted via screens but also via ‘voice brokers’, where dealers listen to brokers speaking/yelling out prices (eg. 35/38, i.e. 35 bid and 38 offered) and transact with the brokers by speaking/yelling back. It sort of like a permanently open telephone line on speaker. Voice broking persists, but electronic, screen-based trading has taken much of the volume.
When a price heads off in one direction only to be followed very quickly by a move in the opposite direction. For example, EUR/USD may break technical resistance at a price, trade 10 or so points higher than a few minutes later have fallen 30 or more points. Longs have been ‘whipsawed’.
Xinhua News Agency
Ministry level - official press agency of China (PROC).
Market slang for “billion”.
What an interbank dealer will say to a counterparty or voice broker when he (or she) wants to sell.
it's important to understand forex jargon to know what traders are thinking. To take advantage of changes in forex trading sentiment, you need to understand ‘trader talk’ to quickly comprehend what FX traders may be doing next based on what they are saying and the language they are using most often. it’s a good idea to breakdown common foreign exchange commentary so my readers can understand exactly what I am trying to convey.