A
At the money
At the money
At the money is a term used in options trading. Options are contracts that allow you to buy or sell an asset at a pre-agreed price.
Arbitrage
Arbitrage
Arbitrage means exploiting price variations across different markets. In FX trading, this typically entails buying foreign currency — or a derivative such as an option or forward — in one market, and selling it at a profit in another market.
B
Base currency
Base currency
The base currency is the first currency shown in a foreign exchange quotation. The second currency in the quotation is called the quote currency, or counter currency.
Barrier
Barrier
Barriers are a feature of some options, where the option is activated or deactivated if the price of the underlying asset reaches or breaches a specific level – the “barrier.
C
Cable
Cable
When FX traders talk about ‘trading the cable’, they are talking about trading US dollars and pounds sterling.
Collar
Collar
A collar is a hedging strategy that helps you manage your foreign exchange risk by limiting your exposure to currency fluctuations to within a certain range.
D
Deposit Rate
Deposit Rate
A deposit rate is the interest rate that a financial institution pays you for depositing your cash with them.
Derivative
Derivative
A derivative is a type of financial contract that gets its value from an underlying asset. In foreign exchange transactions, the underlying asset is typically a currency’s exchange rate.
E
Exposure
Exposure
In foreign exchange transactions, exposure is the risk that you could lose money due to the exchange rate evolving in a way that is unfavourable to you.
F
Forward contract
Forward contract
Forward contracts are a type of derivative – a financial contract that gets its value from an underlying asset such as a company share or a loan or coffee beans.
G
Greeks
Greeks
On the options markets, the so-called “Greeks” are the numerical indicators that traders use to measure the risks a particular type of trade entails.
H
Hedge
Hedge
A hedge is an investment that you make in order to manage your risk. When you hedge, you’re minimising or offsetting the possibility you’ll lose money should things go wrong.
I
Initial Margin
Initial Margin
Initial margin is the amount you have to pay a broker to open a trade on the forex market. It’s worked out as a percentage of the total value of your trade.
J
Japanese Yen Carry Trade
Japanese Yen Carry Trade
A carry trade is a type of foreign exchange trade in which you borrow money in one currency at low interest and use it to make high-interest investments in another currency (Yen — Japan’s currency).
L
Leverage
Leverage
Leverage means investing using money you’ve borrowed, usually from a broker. When you trade on leverage, you pay your broker a sum of money called initial margin.
M
Mark-to-market
Mark-to-market
Mark-to-market is the accounting process that measures the real-world value of foreign exchange trades. It shows whether you’ve made a profit or a loss on a trade and whether your broker should credit your trading account or make a margin call.
N
Non-deliverable forward
Non-deliverable forward
A non-deliverable forward is a forward contract which is settled in your local currency. Like standard forward contracts, non-deliverable forwards are agreements to buy or sell X amount of a certain currency at a predetermined exchange rate on X date in the future.
O
Out of the money
Out of the money
‘Out of the money’ is one of three terms used to describe an option’s value, or ‘moneyness’. The other two terms are ‘at the money ‘ and ‘in the money’. When an option is out of the money, its strike price — that is, the price at which you’d exercise the option — is lower than the market price.
P
Participating Forward
Participating forward
A participating forward is a Hybrid FX Forward and Option instrument. The amount you want to protect — or hedge — is split into two parts. One part works like a standard forward contract. In other words, you enter a legal obligation to exchange a specified amount of foreign currency on a certain date at a specified rate.
Q
Quarterly roll
Quarterly roll
The quarterly roll is a period of heightened market activity that happens every quarter, when forex traders roll their trades.
R
Ratio forward
Ratio forward
A ratio forward is a type of structured, or ‘exotic’ option. Exotic options are derivative contracts in which two or more options are combined to create a more complex arrangement.
S
Straddle
Straddle
A straddle is a strategy that traders typically use when they want to bet on the price of an asset but aren’t sure if it’s likely to go up or down — if they are buying the straddle, or have a high conviction that the price will remain stable — if they sell the straddle.
U
US Dollar Index
US Dollar Index
The US Dollar Index measures the US Dollar’s value relative to a basket of six currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, Swiss Franc.
Volatility
Volatility
Volatility is a measure of how much the price of an instrument moves. It is usually expressed as an annualised %. It is often calculated as the standard deviation of the daily moves in price of an asset from its average.
W
Warrant
Warrant
A warrant is a type of derivative : a financial instrument that gets its value from an underlying commodity. In foreign exchange transactions, the underlying commodity is a currency pair.
X
Xenocurrency
Xenocurrency
Xenocurrency is another name for foreign currency — a currency that is traded, invested, deposited, or used outside the country where it’s issued.
Y
Yield
Yield
Yield is how much you’ve earned or can expect to earn from an investment over a specific period of time, expressed as a percentage of the amount you originally invested or your investment’s current market value.
Z
Zero-cost hedge
Zero-cost hedge
A zero-cost hedge is a hedging strategy that doesn’t have upfront costs. The hedge is constructed in such a way that any premium you have to pay to set up the hedge cancels itself out.
High Risk Investment Notice
Trading in leveraged financial instruments such as Options or other financial derivatives, carries a high level of risk and may not be suitable for all investors. Investors who make use of these financial products run the risk of substantial capital losses which may exceed your initial deposit. Assure Hedge (UK) Limited makes no claim or warranty regarding either the appropriateness or suitability of these instruments for your purposes whether commercial or otherwise. Assure Hedge (UK) Limited may provide general commentary or educational material available on its website or otherwise, which is not intended as investment advice. You should carefully consider your financial situation and needs and seek independent advice from a duly authorised financial adviser. Assure Hedge (UK) Limited assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. You should read and understand Assure Hedge (UK) Limited’s Terms and Conditions prior to taking any further action.