Frequently Used Terms in FX and Financial Markets

There is much to learn in the language of financial markets and foreign currency trading, some terms dating back decades. Use this complete glossary of FX terms as a handy guide to get you up to speed.

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Frequently Used Terms

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The active return on an investment, gauging the performance of said investment compared to a benchmark.
Australian dollar (AUD).
The central bank of the UK, monetary policy decisions are made by the Monetary Policy Committee (MPC). Also known as 'The Old Lady of Threadneedle Street' or 'The Old Lady'.
A market where the spot price of a commodity is higher than the futures price.
One hundreth of one percentage point, 100bps = 1%.
Belief that the price of an asset will decline.
A market which has fallen more than 20% from its peak.
A measure of an asset's volatility compared to the overall market.
A technical indicator combining moving averages with an asset's volatility.
A benchmark oil blend found in the North Sea. Brent contracts are cash settled, and typically trade at a premium to WTI.
Belief that the price of an asset will rise.
A market which has risen more than 20% from its trough.
GBP/USD, the pound-dollar exchange rate.
The return obtained by holding an asset (positive carry), or the cost of holding it (negative carry).
Short-term, unsecured, debt issued by companies, with a maturity of less than 270 days.
A commonly used measure of inflation measuring the average price paid for a basket of goods.
A market where the spot price of a commodity is lower than the futures price.
A situation when a government spends more than it receives in income.
A decrease in the general level of prices for goods and services in an economy.
A sustained, long-term, downturn in economic activity, more severe than a recession.
A decline in the rate of inflation.
An index tracking the value of the dollar against a basket of currencies (57.6% EUR, 13.6% JPY, 11.9% GBP, 9.1% CAD, 4.2% SEK and 3.6% CHF)
What does it mean to be dovish? Doves tend to believe in looser monetary policy by keeping interest rates low in a hope to stimulate growth in the economy. The idea is to increase spending, grow the economy and reduce unemployment, however, this can lead to inflation. Demand for a currency typically decreases in dovish monetary policy.
The central bank of the eurozone, with monetary policy decisions made by the Governing Council (GC)
An investment fund traded on an exchange, involving a collection of securities, generally designed to track an underlying index
The central bank of the USA, monetary policy decisions are made by the Federal Open Market Committee (FOMC). Shortened to 'The Fed'.
Horizontal levels, based on Fibonacci numbers, where strong support and resistance levels are often found
Government policy on taxation and spending
Market analysis focused on the economic forces of supply and demand
The total value of goods and services produced by an economy over a specific time period
What does it mean to be hawkish? Hawks tend to believe in tighter monetary policy and believe in higher interest rates to keep inflation low. However, it is often understood that higher interest rates can damage economic growth as there is less borrowing and more saving. Demand for a currency tends to increase in hawkish monetary policy.
A strategy used to offset risk, where one position is used to offset another
The daily setting of benchmark FX rates, at 4pm London time
A general increase in the prices for goods and services, and a fall in the purchasing power of money
The benchmark rate set by a central bank from which lending/saving rates are set
New Zealand dollar (NZD)
A backward looking indicator that follows changes in economic activity, e.g GDP growth
A forward looking indicator that precedes changes in economic activity, e.g goods orders
The maximum price advance/decline from the previous day's settlement price in a trading session, exact thresholds are determined by the individual exchange
Canadian dollar (CAD)
Month-on-month change, data compared to corresponding data from the previous month
Actions taken by a central bank to control money supply, commonly through the setting of interest rates and/or asset purchases
A common way of 'smoothing' a set of data, common MAs in technical analysis include the 20-, 50- and 200-days
The Organization of the Petroleum Exporting Countries
The total number of outstanding contracts on a specified future that have not yet been closed or fulfilled
A measure of economic activity derived from monthly surveys of public sector companies. A reading above 50.0 indicates improving conditions, while a reading below 50.0 indicates worsening conditions
Quarter-on-quarter change, data compared to corresponding data from the previous quarter
The purchase of securities in the secondary market by a central bank to increase money supply and loosen financial conditions
Commonly defined as two consecutive quarters of negative GDP growth
A form of short-term borrowing involving the exchange of collateral (usually government debt) for cash
A level at which any upward move is likely to be halted; but if broken through is likely to result in significant further upside momentum
An environment where investors' appetite for risk is higher, generally resulting in inflows to equities and higher-yielding currencies
An environment where appetite for risk is lower, generally resulting in flows into safer assets such as the US dollar, Treasuries and gold
Low, or no, growth combined with high inflation
A level at which any downward move is likely to be halted; but if broken through is likely to result in significant further downside momentum
Refinancing operations conducted by the ECB to stimulate bank lending to the real economy
Analysis of an asset class using patterns and trends in price action to predict future movements
Bonds issues by the US Government
The broad direction of the market
The benchmark large-cap US equity index
The CBOE Volatility Index, an index measuring the market's expectation of 30-day forward volatility on the S&P 500
A simple measure of price fluctuations
The total amount of trading activity, on both sides of the market, in a particular asset class
The most commonly traded blend of US crude oil. WTI futures contracts are physically settled at Cushing, Oklahoma; and usually trade as a discount to Brent
A plot of bonds, most commonly Treasuries, of equal credit quality but differing maturities. Usually upward sloping, an inverted yield curve is a historically reliable indicator of an upcoming recession
A type of monetary policy action involving targeting a specific rate on a specific maturity of government debt, and buying/selling as many bonds as necessary to meet that target
Year-on-year change, data compared to corresponding data exactly one year ago

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Did we miss something?

If you would like to ask about a term that is not on this list, or have any other questions or feedback, please contact David Stritch, Head of Market Intelligence.

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