Glossary [C-D]

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Cable: Trader slang referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800s.

Candlestick Chart: A chart indicating the trading range for the period as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.

Central Bank: A government or quasi-governmental organization that manages a country’s monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.

Chartist: Someone who uses charts and graphs and interprets historical data to find trends to predict future movements. Also referred to as Technical Trader.

Clearing: The process of settling a trade.

Closed Position: Exposures in Foreign Currencies that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will 'square' the postion.

Contagion: The tendency of an economic situation to spread from one market to another.

Collateral: Something given to secure a loan or as a guarantee of performance.

Commission: A transaction fee charged by a broker.

Confirmation: A document exchanged by the parties to a transaction that states the terms of said transaction.

Contract: The standard unit of trading.

Convertible Currency: A currency which can be exchanged freely for other currencies at market rates, or gold.

Counterparty: A participant in a financial transaction.

Country Risk: Risk associated with an international transaction, including but not limited to legal and political conditions.

Credit Checking: Due to the large size of certain financial transactions that change hands, it is essential to check that the counter parties have room for the trade. Once the price has been agreed the credit is checked. If the credit is bad then no trade takes place.

Cross Rate: The exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/JPY quote would be considered a cross rate, whereas in UK or Japan it would be one of the primary currency pairs traded.

Currency: Any form of money issued by a government or central bank and used as legal tender and a basis for trade.

Currency Risk: the likelihood of an adverse change in exchange rates.

Currency Symbols: AUD - Australian Dollar, CAD - Canadian Dollar, EUR – Euro, JPY - Japanese Yen, GBP - British Pound, CHF - Swiss Franc.

Day Trading: Refers to taking positions which are opened and closed on the same trading day.

Dealer: Someone who acts as a principal or counterparty to a transaction, hoping to earn a spread (profit) by closing out the position in a subsequent trade. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

Delivery: An FX trade where both sides make and take actual delivery of the currencies traded.

Deposit: The borrowing and lending of cash. The rate that money is borrowed/lent at is known as the deposit rate. Certificates of Deposit are also tradable instruments.

Depreciation: A fall in the value of a currency against another currency or group of currencies.

Derivative: A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument.

Devaluation: The deliberate downward adjustment of a currency’s price, normally by official announcement.