EURO.uz -The Forex quick guide for beginners and private traders

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The Forex quick guide for beginners and private traders

Back Office Settlement and related processes.

Back to Back

(1) Transaction where all the obligations and liabilities in

one transaction are mirrored in a second transaction. (2)

Transaction where a loan is made in one currency in one

country against a loan in another country in another

currency.

Balance of Payments

A systematic record of the economic transactions during a

given period for a country. (1) The term is often used to

mean either: (i) balance of payments on "current account";

or (ii) the current account plus certain long term capital

movements. (2) The combination of the trade balance,

current balance, capital account and invisible balance,

which together make up the balance of payments total.

Prolonged balance of payment deficits tend to lead to

restrictions in capital transfers, and or decline in currency

values.

Balance of Trade

The value of exports less imports. Invisibles are normally

excluded, which is why balance of trade is also referred to

as mercantile or physical trade. Figures can be quoted as

FoB/FaS , customs cleared, or FoB export.

Band The range in which a currency is permitted to move. A

system used in the ERM.

Bank Line Line of credit granted by a bank to a customer, also known

as a "line".

Bank Notes

Bank notes are paper issued by the central or issuing bank.

They are legal tender, but are not usually considered to be

part of the FX market. However bank notes can be

converted, in some counties, into FX. Bank notes are

normally priced at a premium to the current spot rate for a

currency.

Bank Rate The rate at which a central bank is prepared to lend money

to its domestic banking system.

Banking Day See trading day and value date.

page 75 of 110

Value Definition

Barrier Option

A family of path dependent options whose pay-off pattern

and survival to the expiration date depend not only on the

final price of the underlying currency, but also on whether

or not the underlying currency breaks a predetermined

price level at any time during the life of the option. See

Down and Out call/put, Down and in call/put, Up and out

call/put, Up and in call/put.

Base Currency The currency in which the operating results of the bank or

institution are reported.

Base Rate

A term used in the UK for the rate used by banks to

calculate the interest rate to borrowers. Top quality

borrowers will pay a small amount over base.

Basis The difference between the cash price and futures price.

Basis Convergence The process whereby the basis tends towards zero as the

contract expiry approaches.

Basis Point One per cent of one per cent.

Basis Price The price expressed in terns of yield maturity or annual rate

of return.

Basis Trading

Taking opposite positions in the cash and futures market

with the intention of profiting from favorable movements in

the basis.

Basket

A group of currencies normally used to manage the

exchange rate of another currency, sometimes referred to

as a unit of account.

Bear A person (investor) who believes that prices will decline.

Bear Market

A market in which prices decline sharply against a

background of widespread pessimism (opposite of Bull

Market).

Bear Put Spread

A spread designed to exploit falling exchange rates by

purchasing a put option with a high exercise price and

selling one with a low exercise price.

Bid Price

The price at which a buyer has offered to purchase the

currency or instrument. Bid is the highest price that the

buyer is offering for the particular currency at the moment;

the difference between the ask price and the bid price is

the spread. Together, the two prices constitute a quotation.

The bid-ask spread is stated as a percentage cost of

transacting in the foreign.(???? sentence incomplete)

Big Figure

Refers normally to the first three digits of an exchange rate

that dealers treat as understood in quoting. For example, a

quote of "30/40" on dollar mark could indicate a price of

1.5530/40BIS: Bank of International Settlement.

Bilateral Clearing

A system used where foreign currency is limited. In such a

system, payments are usually routed through the central

banks, and sometimes require that the trade balance is

equaled every year.

page 76 of 110

Value Definition

Binary Options

A binary "call" (or "step up") is like a standard European

call option except that the pay off at expiry is fixed at one

unit of the counter currency when the call expires in the

money.

Black-Scholes Model

An option pricing formula initially derived by Fisher Black

and Myron Scholes for securities options and later refined by

Black for options on futures. It is widely used in the

currency markets.

Booked The recording of a transaction outside the country where

the transaction is itself negotiated.

Boris Slang for Russian trading.

Break Even Point

The price of a financial instrument at which the option

buyer recovers the premium, meaning that either a loss or

gain is made. In the case of a call option, the break even

point is the exercise price plus the premium.

Break Out In the options market, undoing a conversion or a reversal to

restore the option buyer's original position.

Bretton-Woods

The site of the 1944 conference which led to the

establishment of the post war foreign exchange system that

remained intact until the early 1970s. The conference also

resulted in the formation of the IMF. The fixed exchange

rate system established at Bretton-Woods allowed 1%

fluctuations of a given currency to gold or the dollar.

Broken Dates or Period

Deals that are undertaken for value dates that are not

standard periods e.g. 1 month. The standard periods are 1

week, 2 weeks, 1, 2, 3, 6 and 12 months. Terms also used

are odd dates, or cock dates, broken dates or broken

period.

Broker

An agent, who executes orders to buy and sell currencies

and related instruments either for a commission or on a

spread. Brokers are agents working on commission and not

principals or agents acting on their own account. In the

foreign exchange market, brokers tend to act as

intermediaries between banks bringing buyers and sellers

together for a commission paid by the initiator or by both

parties. There are four or five major global brokers

operating through subsidiaries, affiliates and partners in

many countries.

Brokerage Commission charged by a broker.

Broker-Dealer See Dealer.

BUBA Bundesbank, the central bank of Germany.

Bull A person (investor) who believes that prices will rise.

Bull (call or put) Spread

An option position composed of both long and short options

of the same type, either calls or puts, designed to be

profitable in a declining market. An option with a lower

strike price is bought and one with a higher strike price is

sold.

Bull Market A market characterized by rising prices.

page 77 of 110

Value Definition

Bulldogs Sterling bonds issued in the UK by foreign institutions.

Bullion A term for gold bars, not coin.

Bundesbank Central bank of Germany.

Butterfly Spread

(1) A futures butterfly spread is a spread trade in which

multiple futures months are traded simultaneously at a

differential. The trade basically consists of two futures

spread transactions with either three or four different

futures months at one differential. (2) An options butterfly

spread is a combination of a bear and bull spread trade in

which multiple options months and strike prices are traded

simultaneously at a differential. The trade basically consists

of two options spread transactions with either three or four

different options months and strikes at one differential.

Buyer/Taker

The purchaser of an option, whether a call or put option.

The buyer may also be referred to as the option holder.

Option buyers receive the right, but not the obligation, to

enter a futures/securities market position.

Buying Rate Rate at which the market and a market maker in particular

are willing to buy the currency. Sometimes called bid rate.

Buying The Spread To buy the nearby contract and simultaneously sell the

deferred contract. Also referred to as a bull spread.

 


 

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