Learn Forex
July 15th, 2008 at 03:49pm
Under Forex Glossary
Larry Williams %R A version of the stochastics oscillator. It consists of the difference between the high price of a predetermined number of days and the current closing price; that difference in turn is divided by the total range. This oscillator is plotted on a reversed 0 to 100 scale. Therefore, the bullish reversal signals occur at under 80 percent and the bearish signals appear at above 20 percent. The interpretations are similar to those discussed under stochastics.
Leading Indicators Index An economic indicator designed to offer a six- to nine-month future outlook of economic performance. It consists of the following economic indicators: average workweek of production workers in manufacturing; average weekly claims for state unemployment; new orders for consumer goods and materials (adjusted for inflation); vendor performance (companies receiving slower deliveries from suppliers); contracts and orders for plant and equipment (adjusted for inflation); new building permits issued; change in manufacturers’ unfilled orders for durable goods; change in sensitive materials prices; index of stock prices; money supply, adjusted for inflation; and the index of consumer expectations.
Line chart The line connecting single prices for each of the time periods selected.
Linearly weighted moving average A moving average that assigns more weight to the more recent closings.
Long legged shadows’ doji A reversal candlestick formation that consists of a bar in which the opening and closing prices are equal.
Long straddle A compound option that consists of a long call and a long put on the same currency, at the same strike price, and with the same expiration dates. The maximum loss for the buyer is the sum of the premiums. The upside break-even point is the sum of the strike price and the premium on the straddle. The downside break-even point is the difference between the strike price and the premium on the straddle. The profit is unlimited.
Long strangle A compound option that consists of a long call and a long put on the same currency, at different strike prices, but with the same expiration dates. The profit is unlimited.
By admin
July 15th, 2008 at 03:46pm
Under Forex Glossary
Kabuse (dark cloud cover) A bearish two-day candlestick combination. It consists of a second-day long black bar that opens above the high of the previous day’s blank bar and closes within the previous day’s range (in an uptrend).
Karakasa (hangman at the top, hammer at the bottom) A bearish candlestick at the top of the trend, bullish at the bottom of the trend. The candlestick can be either blank or black. The body of the candlestick is very small and only half the length of the shadow.
Kenuki (tweezers) A “wait-and-see” two-day candlestick combination. It consists of consecutive bars that have matching highs or lows. In a rising market, a tweezers top occurs when the highs match. The opposite is true for a tweezers bottom.
Key reversal day The daily price range on the bar chart of the reversal day fully engulfs the previous day’s range; also, the close is outside the preceding day’s range.
Kirikomi A bullish two-day candlestick combination. It consists of a blank marubozu bar that opens the second day lower (than the previous low of a long black line) and closes above the 50 percent level of the previous day’s range.
Knockin A plain vanilla option that does not exist until the trigger is reached. Knockout a plain vanilla option that goes away if the trigger is reached.
Koma (spinning tops) A reversal candlestick formation that consists of a short bar, either blank or black. This candlestick may also suggest lack of direction.
By admin
July 15th, 2008 at 03:45pm
Under Forex Glossary
J-Curve theory Devaluation of a currency will trigger export gains in the long term, rather than the short term, because of previous contracts, existing inventories, and behavior modification.
Jittai Body of the candlestick (See Candlestick charts.)
Journal of Commerce Index Index that consists of the prices of 18 industrial materials and supplies used in the initial stages of manufacturing, building, and energy production. It is more sensitive than other indexes, as it was designed to signal changes in inflation prior to the other price indexes.
By admin
July 15th, 2008 at 03:43pm
Under Forex Glossary
Implied volatility Method of measuring volatility by considering the premiums currently trading in the market and calculating the figure based on the level of the option premium.
In-the-money (ITM) call A call whose present currency price is higher than the strike price.
In-the-money (ITM) put A put whose present currency price is lower than the strike price.
Industrial Production An economic indicator that consists of the total output of a nation’s plants, utilities, and mines.
Initiation margin A margin paid by the trading party in order to trade currency futures. A trader’s daily loss cannot exceed the size of this margin.
Interest rate risk Amount of mismatches and maturity gaps among
transactions in the foreign exchange book.
International Fisher effect Theory holding that investors will hold assets denominated in depreciating currencies only to the extent that interest rates are sufficiently high to balance the expected currency losses.
International Monetary Market The major currency futures and options on currency futures market in the world. It is a division of the Chicago Mercantile Exchange in Chicago. Intrinsic value The amount by which an option is in-the-money. In he case of a call, the intrinsic value equals the difference between the underlying currency price and the strike price. In the case of the put, the intrinsic value equals the difference between the strike price and the present currency price, when beneficial.
Inverse head-and-shoulders A bullish reversal pattern that consists of a series of three consecutive sell-offs. Among the three consecutive sell-offs, the shoulders have approximately the same amplitude, and the head is the lowest. The formation is based on a resistance line called the neckline. After the neckline is penetrated, the target is approximately equal in amplitude to the distance between the top of the head and the neckline.
Irikubi A bearish two-day candlestick combination. It consists of a modified atekubi bar. All the characteristics are the same, except that the second day’s closing high is marginally higher than the original day’s low.
Island reversal An isolated range or ranges that occur at the tip of a V-formation.
ISO codes Standardized currency codes developed by the International Organization for Standardization (ISO).
By admin
July 15th, 2008 at 03:40pm
Under Forex Glossary
Harami bar A “wait-and-see” two-day candlestick combination. It consists of two consecutive ranges having opposite directions, but it does not matter which one is first. The second day’s range results fall within the previous day’s body.
Head-and-shoulders A bearish reversal pattern that consists of a series of three consecutive rallies, such that the first and third rallies (the shoulders) have about the same height and the middle one (the head) is the highest. The rallies are based on the same support line, known as the neckline. When the neckline is broken, the price target is approximately equal in amplitude to the distance between the top of the head and the neckline.
Hedging A method used to minimize or eliminate the risk of exchange rate fluctuations.
High-low band A band created by two winding parallel lines above and below a short-term moving average that borders most price fluctuations. The moving average is based on the high and low prices. The resulting two moving averages define the edges of the band. A close above the upper band suggests a buying signal and a close below the lower band gives a selling signal.
Hoshi (star) A “wait-and see” two-day candlestick combination. It consists of a tiny body that appears the following day outside the original body. It is not important whether the star reaches the previous day’s shadows. The direction of the two consecutive ranges is also irrelevant.
Households survey Consists of the unemployment rate, the overall labor force, and the number of people employed.
By admin
July 15th, 2008 at 03:33pm
Under Forex Glossary
Gamma The rate of change of an option’s delta, or the sensitivity of the delta.
Gann percentage retracements The Gann theory focuses mostly on the eighths, along with retracements in thirds.
Gap The price gap between consecutive trading ranges (i.e., the low of the current range is higher than the high of the previous range).
Genetic algorithms Method used to optimize a neural network. Trial and error are applied to an evolutionlike system, which mimics natural selection for financial forecasting purposes.
GLOBEX An electronic trading system conceived in 1987 as an after-hours trading system and geared toward global futures trading; created through a joint venture of the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBT), and Reuters PLC.
Golden cross An intersection of two consecutive moving averages that move in the same direction and suggest that the currency will move in the same direction.
Gross Domestic Product The sum of all goods and services produced in the United States.
Gross National Product The sum of government expenditure, private investment, and personal consumption.
Gross National Product Implicit Deflator Deflator tool designed to adjust the Gross National Product for inflation. It is calculated by dividing the current dollar GNP figure by the constant dollar GNP figure.
By admin
July 15th, 2008 at 03:31pm
Under Forex Glossary
Factory Orders An economic indicator that refers to total orders for durable and nondurable goods. The nondurable goods orders consist of food, clothing, light industrial products, and products designed for the maintenance of the durable goods.
FASB # 8 (Financial Accounting Standards Board’s Statement Number 8) The original accounting rules regarding foreign exchange were standardized in 1975, which set the procedures for foreign currency translations into U.S. dollars in the consolidated balance sheets of U.S. multinational corporations.
FASB # 52 (Financial Accounting Standards Board’s Statement Number 52) A complex set of rules designed in 1981, whose main objective is to move the foreign exchange P&L from current income into shareholders’ equity.
Federal funds (Fed funds) Immediately available reserve balances at the federal reserves. The Fed funds are widely used by commercial banks or large corporations to lend to each other on an overnight basis. Although their level is established by the Fed, the prices fluctuate because they are traded in the market.
Federal Open Market Committee (FOMC) A committee established in 1935, through the Banking Act, to replace the Open Market Policy Conference (OMPC.) Currently active.
Federal Reserve The central bank of the United States. It was established in 1913 when Congress passed the Federal Reserve Act.The Act held that role of the Federal Reserve was “to furnish an elastic currency, to afford the means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.”
Federal Reserve Board The board consists of a Governor and four other regular members. The Secretary of the Treasury and the Comptroller of the Currency are closely consulted. The 12 regional Federal Reserve Banks around the country have sufficient autonomy to manage financial conditions in their districts. They are also managed by governors.
Fedwire An automated communications and settlement system linking the Federal Reserve banks with other banks and with depository institutions.
Fence A compound option strategy that consists of either a long currency position—a long out-of-money put and a short out-of-the-money call, where the options have the same expiration date (risk conversion); or a short currency position—a short out-of-the-money put and a long out-of-the-money call, where the options have the same expiration date (risk reversal).
Fibonacci percentage retracements Price retracements of 0.382 and 0.618, or approximately 38 percent and 62 percent.
Fibonacci ratio 0.618 and 0.312.
Fibonacci sequence Takes a sequence of numbers that begins with 1 and adds 1 to it, then takes the sum of this operation (2) and adds it to the previous term in the sequence (1). Next it takes the sum of the second operation (3) and adds it to the previous term in the sequence (the sum of the first operation, i.e., 2). The Fibonacci sequence continues iterating in this manner, adding the most recent sum to the previous term, which is itself the sum of the two previous terms, etc. This yields the following series of numbers: 1 1 2 3 5 8 13 21 34 55 89 144 233 377 610 987 1597 2584 4181 (etc.).
FINEX A currency market that is part of the New York Cotton Exchange (NYCE), the oldest futures exchange in New York. The exchange lists futures on the European Currency Unit and the USDX, a basket of ten currencies: deutsche mark, Japanese yen, French franc, British pound, Canadian dollar, Italian lira, Dutch guilder, Belgian franc, Swedish krona, and Swiss franc. Fisher effect A theory holding that die nominal interest rate consists of the real interest rate plus the expected rate of inflation.
Flag A continuation formation that resembles the outline of a flag. It consists of a brief consolidation period within a solid and steep upward trend or downward trend. The consolidation itself tends to be sloped in the opposite direction from the slope of the original trend, or simply flat. The consolidation is bordered by a support line and a resistance line, which are parallel to each other or very mildly converging, making it look like a flag (parallelogram). The previous sharp trend is known as the flagpole. When the currency resumes its original trend by breaking out of the consolidation, the price objective is the total length of the flagpole, measured from the breakout price level.
Floor brokers Any individuals on the exchange floor engaged in executing orders for another person. They may also trade for their own accounts, with the primary responsibility of executing the customers’ orders first. Brokers are licensed by the federal government.
Floor traders (locals) Exchange members who execute their own trades by being physically present in the pit, or place for futures trading.
Foreign exchange The mechanism that values foreign currencies in terms of another currency.
Foreign exchange brokers Intermediaries among banks who bring together buyers and sellers to the market, optimize the prices they show to their customers, and do not take positions for themselves.
Foreign exchange exposure The potential effect of currency fluctuations on shareholders’ equity.
Foreign exchange rate The price of one currency in terms of another.
Forward outright Foreign exchange deal that matures at a day past the spot delivery date (generally two business days).
Forward spread (forward points or forward pips) Forward price used to adjust a spot price to calculate a forward price. It is based on the current spot exchange rate, the interest rate differential, and the number of days to delivery.
Fractal geometry Geometry theory that refers to the fact that certain irregular objects have a fractal number of dimensions. In other words, an object cannot fill an integer number of dimensions.
French-West German Treaty of Cooperation A treaty signed in 1963 by President Charles de Gaulle and Chancellor Konrad Adenauer, which established that West Germany would lead economically through the cold war and France, the former diplomatic powerhouse, would provide the political leadership.
Fuzzy logic Method that attempts to weigh the quality of the patterns recognized by neural networks. Because not all patterns have equal financial significance for foreign currency forecasting, this method qualifies the degree of certainty of the results.
By admin
July 15th, 2008 at 05:40am
Under Forex Glossary
Economic exposure Reflects the impact of foreign exchange changes on the future competitive position of a company. Elliott Wave Principle A system of empirically derived rules for interpreting action in the markets. It refers to a five-wave/three-wave pattern that forms one complete bull market/bear market cycle of eight waves.
Envelope model A band created by two winding parallel lines above and below a short-term moving average that borders most price fluctuations. When the upper band is penetrated, a selling signal occurs; when the lower band is penetrated, a buying signal is generated. Because the signals generated by the envelope model are very short-term and occur many times against the ongoing direction of the market, speed of execution is paramount.
Eurocurrency Currency deposit outside the country of origin.
Eurodollars U.S. dollar deposits placed in commercial banks outside the United States.
European Coal and Steel Community European entity established in 1951 by the Treaty of Paris, with the purpose of promoting inter-European trade in general, and eliminating restrictions on the trade of coal and raw steel in particular. West Germany, France, Italy, the Netherlands, Belgium, Luxembourg, and Great Britain formed this community.
European Commission The executive body of the European Economic Community in charge of making and observing the enforcement of policy. It consists of 23 departments, such as foreign affairs, competition policy and agriculture. Each country selects its own representatives for four-year terms, but the commissioners may only act for the benefit of the community. The commission is based in Brussels and consists of 17 members.
European Court of Justice The European Economic Community body in charge of settling disputes between the EC and member nations. It consists of 13 members and is based in Luxembourg.
European currency unit A basket of the member currencies. As a composite unit, the ECU consists of all the European Community currencies, which are individually weighted. It was created by the European Monetary System with the eventual goal of replacing the individual European member currencies.
European Economic Community A community established by the Treaty of Rome in 1951, with the goal of eliminating customs duties and any barriers against the transit of capital, services, and people among the member nations. The signatories were West Germany, France, Italy, the Netherlands, Belgium, and Luxembourg.
European Joint Float Agreement European monetary system established in April 1972 by the EC members: West Germany, France, Italy, the Netherlands, Belgium, and Luxembourg. Great Britain, Ireland, and Denmark were admitted by January 1973. The agreement allowed the member currencies to move within a 2.25 percent fluctuation band (nicknamed the snake). As a joint group, the agreement allowed these currencies to gyrate within a 4.5 percent band (nicknamed the tunnel). The entire agreement was known as the snake in the tunnel.
European Monetary Cooperation Fund EMS fund established to manage the EMS credit arrangements.
European Monetary Institute (EMI) The new European Central Bank created to govern the EMS. As of March 1994, it did not have any power over inter-EMS monetary policy.
European Monetary System European monetary system established in March 1979 by seven full members: West Germany, France, the Netherlands, Belgium, Luxembourg, Denmark, and Ireland. Great Britain did not participate in all of the arrangements and Italy joined under special conditions. New members: Greece in 1981, Spain and Portugal in 1986. Great Britain joined the Exchange Rate Mechanism in 1990. Also in 1990, West Germany became Germany as a result of its political unification with East Germany.
European Parliament The European Economic Community body in charge of reviewing and amending legislative proposals. It has the power to reject the budget proposals. It consists of 518 members who are elected. It is based in Luxembourg, but the sessions take place in Strasbourg or Brussels.
European Payment Union European entity instituted in 1950 to facilitate the inter-European settlements of international trade transactions.
European-style currency option An option that may only be exercised on the expiration date.
European Union Treaty Treaty signed by the 12 EMS members in February 1992 in the Dutch city of Maastricht, with the stated goal of forming a “closer union among the peoples of Europe.”
Exchange for physical (EFP) Consists of deals executed in the cash market, outside the exchanges, for amounts equivalent to the currency futures amount, on forward outright prices valued for the futures’ expiration. EFPs are generally quoted by commercial and investment banks, even during regular trading hours.
Exchange rate risk (1) Foreign exchange risk that is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. (2) Trading risk pertinent to market fluctuation.
Exercise (strike) price The price at which the underlying currency will be delivered upon exercise.
Exhaustion gap Price gap that occurs at the top or the bottom of a V-reversal formation. The trend changes direction in a rather uncharacteristically quick manner.
Expanding (broadening) triangle A triangle continuation formation that looks like a horizontal mirror image of a triangle; the tip of the triangle is next to the original trend, rather than its base. (See Triangle.)
Expiration date The delivery date.
Exponentially smoothed moving average A moving average that also takes into account the previous price information of the underlying currency.
By admin
July 15th, 2008 at 05:35am
Under Forex Glossary
Daylight position limit The maximum amount of a certain currency a trader is allowed to carry at any single time, between the regular trading hours.
Dead cross An intersection of two consecutive moving averages that move in opposite directions and should technically be disregarded. Dealing systems On-line computers that link the contributing banks around the world on a one-on-one basis.
Delta (A) (1) The change of the currency option price relative to a change in the currency price; (2) the hedge ratio between the option contracts and the currency futures contracts necessary to establish a neutral hedge; (3) the theoretical or equivalent share position. In the third case, delta is the number of currency futures contracts a call buyer is long or a put buyer is short. Delta ranges between 0 and 1.
Descending triangle A triangle continuation formation with a flat lower trendline and a downward-sloping upper trendline. (See Triangle.)
Descending triple bottom Bearish point-and-figure chart formation that suggests that the currency is likely to break a support line the third time it reaches it. Each new bottom is lower than the previous one.
Diagonal spread A compound option strategy that consists of several same-type options, in which the long side and the short side have different strike prices and different expirations.
Diamond A minor reversal pattern that resembles a diamond shape.
Direct dealing An aggressive approach in which banks contact each other outside the brokers’ market.
Directional Movement Index A signal of trend presence in the market. The line simply rates the price directional movement on a scale of 0 to 100. The higher the number, the better the trend potential of a movement, and vice versa.
Discount forward spread A forward price that is deducted from a spot price to calculate a forward price. It reflects the fact that the foreign interest rate is lower than the U.S. interest rate for that particular period.
Discount rate The interest rate at which eligible depository institutions may borrow funds directly from the Federal Reserve Banks. The rate is controlled by the Federal Reserve and is not subject to trading.
Discretion for range to trader stop-loss order A stop-loss order that gives the trader a number of discretionary pips within which the order has to be filled.
Double bottoms A bullish reversal pattern that consists of two bottoms f approximately equal heights. A parallel (resistance) line is drawn against a line that connects the two bottoms. The break of the resistance line generates a move equal in size to the price difference between the average height of the bottoms and the resistance line.
Double tops A bearish reversal pattern that consists of two tops of approximately equal heights. A parallel (support) line is drawn against a resistance line that connects the two tops. The break of the support line generates a move equal in size to the price difference between the average height of the tops and the support line.
Downside tasuki gap A bearish two-day candlestick combination. It consists of a second-day blank bar that closes an overnight gap opened on the previous day by a black bar.
Downward breakout of a bearish support line A bearish point-and-figure chart formation that confirms the currency’s breakout of a support line the third time it reaches it.
Downward breakout of a bullish support line A bearish point-and-figure chart formation that confirms the currency’s breakout of a support line the third time it reaches it. The support line is sloped upward.
Downward breakout from a consolidation formation A bearish point-and-figure chart formation that resembles the inverse flag formation. A valid downside breakout from the consolidation formation has a price target equal in size to the length of the previous downtrend.
Durable Goods Orders An economic indicator that measures the changes in sales of products with a life span in excess of three years.
By admin
July 15th, 2008 at 05:30am
Under Forex Glossary
Calendar combination A compound option strategy that consists of the simultaneous call calendar spread and put calendar spread, in which the strike price of the calls is higher than the strike price of the puts.
Calendar spread A combination option of two similar types of options, either calls or puts, with the same strike price but different expiration dates. The dissimilarity between the expiration dates allows this type of spread to capitalize on both the impact of the time decay and the interest rate differentials.
Calendar straddle A compound option strategy that consists of simultaneous buying of a longer-term straddle and a near-term straddle with a common strike price.
Call ratio backspread A compound option strategy that consists of short calls with a lower strike price and more long calls with a higher strike price. The profit is twofold. The maximum upside profit potential is unlimited. The downside profit potential consists of the total premium received. The maximum loss potential occurs when the currency price reaches the higher strike price at expiration.
Candlestick chart A type of chart that consists of four major prices: high, low, open, and close. The body (jittai) of the candlestick bar is formed by the opening and closing prices. To indicate that the opening was lower than the closing, the body of the bar is left blank. If the currency closes below its opening, the body is filled. The rest of the range is marked by two “shadows”: the upper shadow (uwakage) and the lower shadow (shitakage).
Capacity utilization An economic indicator that consists of total industrial output divided by total production capability. The term refers to the maximum level of output a plant can generate under normal business conditions.
Cardinal square A Gann technique for forecasting future significant chart points by counting from the all-time low price of the currency. It consists of a square divided by a cross into four quadrants. The all-time low price is housed in the center of the cross. All of the following higher prices are entered in clockwise order. The numbers positioned in the cardinal cross are the most significant chart points.
Channel line A parallel line that can be traced against the trendline, connecting the significant peaks in an uptrend, and the significant troughs in a downtrend.
Chaos theory A theory that holds that statistically noisy behavior may occur randomly, even in simple environments. This seemingly random behavior may be predicted with decreasing accuracy if the source is known.
CHIPS (Clearing House Interbank Payments System) A computerized system used for foreign exchange dollar settlements.
Christmas tree spread A compound option strategy that consists of several short options at two or more strike prices.
Classes of options The types of options: calls and puts.
Combination spread (synthetic future) A compound option strategy that consists of a long call and a short put, or a long put and a short call, with a common expiration date.
Commodity Channel Index (CCI) An oscillator that consists of the difference between the mean price of the currency and the average of the mean price over a predetermined period of time. A buying signal is generated when the price exceeds the upper (+100) line, and a selling signal occurs when the price dips under the lower (-100) line.
Commodity Futures Trading Commission (CFTC) An independent agency created by Congress in 1974 with a mandate to regulate commodity futures and options markets in the United States. The CFTC’s responsibilities are to ensure the economic utility of futures markets, via competitiveness and efficiency; ensure the integrity of these markets; and protect the participants against manipulation, fraud, and abusive practices. The Commission, based in Washington, D.C., regulates the activities of 285 commodity brokerage firms; 48,211 salespeople; 8017 floor brokers; 1325 commodity pool operators (CPOs); 2733 commodity trading advisers (CTAs); and 1486 introducing brokers (IBs).
Commodity Research Bureau’s (CRB) Futures Index Index formed from the equally weighted futures prices of 21 commodities. The preponderance of food commodities makes the CRB Index less reliable in terms of general inflation.
Common gap A price gap that occurs in relatively quiet periods or in illiquid markets. It has limited technical significance.
Condor spread A compound option strategy that consists of either four same-type options with a common expiration date—two long options with consecutive strike prices, one short option with an immediately lower strike price, and one short option with an immediately higher strike price; or four same-type options with a common expiration date—two short options with consecutive strike prices, one long option with an immediately lower strike price, and one long option with an immediately higher strike price.
Consumer Price Index (CPI) An economic indicator that gauges the average change in retail prices for a fixed market basket of goods and services.
Consumer sentiment A survey of households designed to gauge the individual propensity for spending. There are two studies conducted in this area, one survey by the University of Michigan, and the other by the National Family Opinion for the Conference Board. The confidence index measured by the Conference Board is sensitive to the job market, whereas the index generated by the University of Michigan is not.
Continuation patterns Technical signals that reinforce the current trends.
Cost of carry The interest rate parity, whereby the forward price is determined by the cost of borrowing money in order to hold the position.
Council of Ministers The legislative body of the European Economic Community in charge of making the major policy decisions. It is FOREX. On-line Manual For Successful Trading 115 composed of ministers from all the 12 member nations. The presidency rotates every six months by all the 12 members, in alphabetical order. The meetings take place in Brussels or in the capital of the nation holding the presidency.
Country (sovereign) risk A trading risk emerging from a government’s interference in the foreign exchange markets.
Covered interest rate arbitrage An arbitrage approach that consists of borrowing currency A, exchanging it for currency B, investing currency B for the duration of the loan, and, after taking off the forward cover on maturity, showing a profit on the entire set of deals.
Covered long A compound option strategy that consists of selling a call against a long currency position. A covered long is synonymous with a short put.
Covered short A compound option strategy that consists of shorting a put against a short currency position. A covered short is synonymous with a short call.
Cox, Ross, and Rubinstein pricing model An option pricing model that takes into consideration the early exercise provision of the American style options. As it assumes that early exercise will occur only if the advantage of holding the currency exceeds the time value of the option, their binomial method evaluated the call premium by estimating the probability of early exercise for each successive day. The theoretical premium is compared to the holding cost of the cash hedge position, until the option’s time value is worth less than the forward points of the currency hedge and the option should be exercised.
Credit risk The possibility that an outstanding currency position maynot be repaid as agreed, due to a voluntary or involuntary action bya counterparty.
Cross rates Currencies traded against currencies other than the U.S. dollar. A cross rate is a non-dollar currency.
Currency call A contract between the buyer and seller that holds that the buyer has the right, but not the obligation, to buy a specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency. The writer assumes the obligation of delivering the specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency, if the buyer wants to exercise the call option.
Currency fixings An open auction executed in Europe on a daily basis in which all players, regardless of size, are welcome to participate with any amount.
Currency futures A specific type of forward outright deal with standardized expiration date and size of the amount.
Currency option A contract between a buyer and a seller, also known as writer, that gives the buyer the right, but not the obligation, to FOREX. On-line Manual For Successful Trading 116 trade a specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency; and gives the seller the obligation to deliver or buy the currency under the predetermined terms, if and when the buyer ants to exercise the option.
Currency put A contract between the buyer and the seller that holds that the buyer has the right, but not the obligation, to sell a specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency. The writer assumes the obligation to buy the specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency, if the buyer wants to exercise the call option.
Current account balance The broadest current dollar measure of U.S. trade, which incorporates services and unilateral transfers into the merchandise trade data.
By admin
Next Posts
Previous Posts
