Glossary

A

Account Executive (AE)

An account executive (AE) is a person engaged in futures trading solicitation and commission of customers’ futures trades. As a representative of customers, an account executive must be a staff member of a stock exchange’s member organization, and meet requirements of the exchange on background knowledge about securities trading. Such a customer representative is also called an “account manager” or a “customer agent”.

Account Statement

An account statement is a generalized list of all transactions in an account which shows status of the account, including overbought and oversold conditions.

Adjustment

Adjustment is an official act to amend the balance of international payment or exchange rates by adjusting internal economic policy.

All-Ordinaries Index

All-Ordinaries Index is an index on the Australian Stock Exchange. It is based on the aggregate market value and turnover.

American Stock Exchange﹝AMEX﹞

The American Stock Exchange, also called AMEX, is the third largest stock market in the US, next to NYSE and NASDAQ. The exchange was founded in Manhattan in 1842. Most stocks traded at this exchange belong to small and medium-sized companies. The exchange launched stock option trading in 1975.

Amex Commodities Exchange﹝ACE﹞

The Amex Commodities Exchange (ACE), founded by AMEX in 1977, provides a relatively wide range of commodities to its member companies. As an independent organization, the exchange shares its facilities and place with AMEX. In 1980, it was merged into the New York Board of Trade.

Appreciation

When prices rise in response to market demands, a currency is appreciated and the asset value increases

Arbitrage

Arbitrate is a special trading technique. Both speculators and hedgers may use. The basic form of arbitrate is to buy a particular commodity from a futures or spot market and sell a particular or a similar commodity in another market at the same time in an attempt to earn profits when the price difference of the two commodities fluctuate as expected in the future.

Arbitrage Fund

When prices of two highly relative products show an unreasonable relation, the arbitrage fund would buy the cheaper product and sell the more expensive product at the same time to lock profits from price difference so that when the relation between the two products return normal, it will gain profits. Therefore, the arbitrage fund can buy and sell short. Its investment tools include stock and various derivatives like futures and options. Most common arbitrage objects include interest rate, exchange rate, transferable bond, and enterprises in M&A.

Ascending Bottoms

Ascending bottoms is a technical analysis term for a chart pattern in which each successive low price is higher than the previous one; generally considered a bullish indicator.

Ascending Tops

Ascending tops is a technical analysis term for a chart patter in which each peak is higher than the previous one; generally considered a bullish indicator.

Ascending Triangle

An ascending triangle is a continuation pattern after which there are chances to break upward while the chance to break downward is normally small. The bottom support line slants upward to the right, meaning long positions in the market get the upper hand but the outlook isn’t bullish so the price falls back whenever ascending to a certain level, and thus a horizontal resistance forms, but each low is higher than the previous one (because long positions stand in advantage), so an ascending triangle takes shape.

Ask (Offer) Price

Bid (offer) price is the price at which an appointed currency in an FX trading contract or a cross currency trading contract is sold. You can buy the base currency at this price. In a quote, it is usually on the right. For example, USD/CHF 1.4527/32, the bid (offer) price is 1.4532, meaning you can buy 1 US Dollar with 1.4532 Swiss Frank.

Association of International Bond Dealers [AIBD]

The Association of International Bond Dealers (AIBD) is a professional organization of bond dealers founded on February 7, 1969 in order to standardize issuance and acceptance in the bond market and minimize chaos. To achieve this goal, the association establishes rules and guidelines on operations and examinations for its members to comply with.

Average

Average is a statistical tool used to measure the stock market or economic performance. It is calculated according to stock performance by dividing the total price of stocks covered in the average by a common divisor. The ratio of each stock in the average mainly depends on its stock price rather than its market value. A well-known example of average is the Dow Jones Industrial Average.

Average Propensity to Export [APX]

The average propensity to export (APX) is the percentage of export in gross national product (GNP).

Average Propensity to Import [APM]

The average propensity to import (AMP) refers to the percentage of import in gross national product. The sum of APX and APM is called trade dependence, which can be used to measure a country’s dependence on foreign trade.

B

Balance of Payments

The balance of payments is a systematic record of all foreign transactions of a country within a certain period of time (normally a year). It indicates a country’s overall status and balance level of foreign trades. The balance of payments mainly consists of two parts (1) account of commodities and labor services, or current account and (2) capital account.

Balance of Trade

The balance of trade is the difference between a countrys imports and its exports.

Bank for International Settlement [BIS]

The Bank for International Settlements (BIS) is an international organization established in 1930 in Basal, Switzerland by central banks of the UK, France, Italy, Belgium and Japan and a consortium of the US. The original purpose of BIS is to liquidate claims on Germany after WWI. It mainly collects and transfer reparations from Germany and carries out general banking operations as a sideline. Members of BIS now include central banks of 30 countries. It holds regular meetings on a monthly basis, which helps central banks of its member countries to manage and liquidate their international reserves.

Base building

Basebuilding is a common situation in the stock market or the exchange market when the price hovers and neither goes up or down in a certain period of time. It refers to the situation when the price fluctuating slightly after rapid increase or decrease because of resistance or support.

Basis point

Base point is the minimum unit of measurement for exchange rate. A base point is equal to 0.01%. Therefore, if the yield to maturity rises 10 base points, it means the increase rate is 0.1%. As the minimum unit of exchange rate, 0.01% is a base point. When it is used to represent the exchange rate, base point is the minimum unit of quote for the currency. For example, the base point is 0.01 in USD against JPY and 0.001 in USD against HKD.

Basket Of Currencies

A basket of currencies refers to a selected group of foreign currencies according to a certain ratio. The ratio is based on the specific weight of trade turnover with other countries in one country’s total volume of imports and exports.

Bear Covering

Bear covering is a condition when short sellers buy stocks, commodities or currencies they have sold

Bear Market

Bear market is a market condition in which the foreign exchange market and the stock market are expected to fall because bear in the Wall Street stands for pessimist and there is a speculation that the market or part of the securities are going to fall. Bear market is opposite to bull market. It is said that when a bear intends to attack someone, its eyes would look down, so bull market is used to mean decline. It is called a bear market when sellers are more than buyers in the foreign exchange market and the price tends to go down. Factors triggering a bear market are similar to factors causing a bull market, just in opposite directions.

Bid

Bid is an intention to buy a particular amount of commodities at a certain price.

Big Board

Big Board refers to the New York Stock Exchange.

Big Figure

Big figure refers to the first three figures used to represent the exchange rate in FX trading.

Big Four

Big Four refers to the four largest commercial banks and commercial settlement banks in the UK, namely Barclays Bank, Lloyds Bank, Midland Bank and the National Westminster Bank.

Bollinger Bands

Bollinger bands, developed by technical analyzer John Bollinger, provide upper and lower paths of stock price. In shape, Bollinger bands are two curves above and below the price trend line, each being two standard deviations away from the simple moving average. The standard deviation is a measure of volatility, so Bollinger bands adjust themselves to market conditions. When the markets become more volatile, the bands widen, and during less volatile periods, the bands contract. Bollinger Bands consist of three lines, the upper band, the lower band and the central axis, which is the simple moving average. The upper band and the lower band are the central axis plus/less two standard deviations.

Breakout

Breakout means the price of a currency rises above a strong level of resistance, or drops below a strong level of support. Breakout indicates that the exchange rate will continue to move in the same direction. It is an indicator technical analysts often use in currency trading.

Broker

A broker is someone that particularly matches or arranges FX trading or fund acceptance between two or more counterparties and charges commission from the trading parties.

Brokerage or brokers fee

Brokerage or brokers fee is paid by trading parties to the broker in reward of his matching or brokerage.

Bullish Market

Bull means an investor looks good on a currency and speculates the exchange rate will rise, so he buys the currency at a low price and waits till the exchange rate of the currency increases to a certain level and then sell it to gain profits from difference. Generally, an FX market in which the exchange rate maintains a growing momentum is called a bullish market. Exchange rate fluctuation in a bullish market is characterized by a series of jumps and minor declines.

Business day

Business day is the day at financial centers when transactions can be settled. Deposit trading only involves one market; in FX trading, settlement can only be done on business days for markets of both currencies.

Buy Limit Order

Buy limit order is a buy order with certain limit on price.

Buy Stop-Limit Order

Buy stop order is an order to be held till market price rise to the limit price. Only by then can it be registered as a market order and be executed at the best possible price.

Buy Stop Order

Buy stop order is an order to be held till market price rise to the limit price. Only by then can it be registered as a market order and be executed at the best possible price.

C

Candlestick Chart

Candlestick chart is a chart that presents the trading range for the day, the open price and the close price. If the close price is lower than the open price, the rectangle will become dark or be filled; if the open price is higher than the close price, the rectangle will not be filled.

Cash Market

Cash market, also called spot market, is opposed to futures market and options market.

Central Bank

A central bank is a government or quasi-government organization that manages a country’s currency policy and prints the country’s currency. For example, the central bank of the US is the Federal Reserve Board. Other examples of central bank include the European Central Bank (ECB), the Bank of England (BOE) and the Bank of Japan (BOJ).Functions of a central bank include: (1) issue currency and hold exclusive right of issue; (2) serve as the bank of banks, and maintain deposit reserves of commercial banks in a country; (3) serve as the bank of the government, manage national treasury for the government, and take care of deposited taxes; (4) rediscount bills and liquidate final transactions of banks; (5) execute the country’s financial policies and FX liquidation; (6) supervise and examine operations of banks and financial institutions; (7) manage currency circulation using various currency management tools; (8) take care of and properly dispatch international reserve assets; (9) participate in international currency cooperation on behalf of the government; (10) manage the level of FX reserves, domestic value of currency (price level) and foreign value of currency (foreign exchange rate).

Chicago Mercantile Exchange [CME]

The Chicago Mercantile Exchange (CME) is a nationwide spot and futures contract trading market founded in 1919. It provides trading on butter, egg, potato, brisket pork, pig, cattle, grain sorghum, turkey and wood, etc. The CME is the most important currency forward and futures exchange in the US.

Clearing

Clearing is the procedure in which one buys a short position or sells a long position to clear an investment from the portfolio.

Closing Price

Closing price is the execute price of the last transaction of stocks or bonds for the day at an exchange.

Coincident Indicators

Coincident indicators consist of fluctuation ratio of industrial production index, fluctuation ratio of manufacturing production index, market sales, fluctuation ratio of average income, rate of dishonored bills, fluctuation rate of clearance value, and domestic freight traffic. It is a measure of overall economic activities. The peaks and troughs the coincident indicators show occur roughly the same time with the economic situation. Therefore, the coincident indicators can show changes of the economic situation.

Collateral

Collateral is something valuable that can be used to secure a loan or execute a guarantee.

Commission

Commission is what a broker charges from a transaction.

Commodity Futures Trading Commission [CFTC]

The Commodity Futures Trading Commission (CFTC) is an independent organization of the US Congress (operation since April 1, 1975). It is in charge of standards and supervision over futures market.

Common Gap

Common gap, as the name implies, is very common. It is generally a continuation pattern and is not much significant in short-term technique. Common gaps often occur in triangular and rectangular patterns. Common gaps generally get filled in the future. In other words, gaps in an uptrend will get filled in future decline while gaps in a downtrend will get filled in future rise.

Consumer Price Index [CPI]

Consumer Price Index (CPI) is calculated with the currency fluctuation index that measures cost changes of a basket of fixed products and services and the weighted index of prices of consumer goods. It is an index used by the government to measure people’s living standard. When the CPI is too high, the government must adjust it. If the CPI is maintained below 2.5%, it means prices are stable and there is little likelihood of interest rate promotion.

Contagion

Contagion is the trend when an economic crisis spreads from one market to another market. The 1997 financial shock in Thailand results in extreme instability of Thai Baht. The situation triggered a contagion that swept over other emerging currencies in East Asia and the influence eventually spread to Latin America. This is the so-called Asian Financial Crisis.

Contract

Contract is a standard unit in FX trading.

Convertible currency

A convertible currency, or hard currency, is a currency that can be converted to any other currency with no restriction and at any time. In other words, it is a currency convertible with gold or other countries’ currencies requiring no special permission of the central bank.

Correspondent bank

Correspondent bank is a bank that provides receipt and payment services or other related operations to other banks.

Country Risk

Country risks are risks related to government interference (not including interference by the central government). Typical examples include legal and political events, such as war or domestic turbulence.

Credit limit

Credit limit is the maximum balance or limit a bank provides to a particular counterparty.

Cross rate

Cross rate is the ratio of two countries’ currencies expressed in a third country’s currency. For example, Euro and GBP are quoted relative to USD, but when the exchange rate between GBP and Euro is converted through USD, it is a cross rate.

Currency

Currency is a trading unit of a country issued by the government or the central bank. Its value is the basis of trading.

Country Risk

Currency risk refers to the risk of loss from opposite change in the exchange rate.

D

Day trade

Day trade is defined as trade closed before closing of the NY market on the following day.

Dealer

Dealer is a person acting as the trustor or counterparty in a transaction. The dealer places buy or sell orders.

Death Cross

Death cross is a technical analysis term. It results from the short-term moving average breaking above the medium-term and the long-term moving averages that used to form a bullish array with it, then moving downwards with the medium-term and long-term moving averages and forming a bearish array, which indicates a considerable decline and sends a strong sell signal.

Deficit

Deficit is the negative balance from trade (or revenue & expenditure) when expenditure is more than income/profit.

Delivery

Delivery is the action by which the trading parties transfer ownership of the currency traded.

Depreciation

Depreciation refers to a decrease in the value of a particular currency relative to other currencies due to market supply and demand pressure rather than government interference.

Derivative

Derivative is a trade which is constituted by or derived from another security (stock, bond, currency or commodity). Derivatives can be exchangeable or non-exchangeable (over-the-counter). Examples of derivatives include option, interest rate swap, forward rate agreement, upper limit, lower limit and Swaption (Swapping Options).

Descending Triangle

A descending triangle is a continuation pattern after which the market would break downward. The top resistance line slants downward to the right, meaning there are more short positions in the market and traders would seize every opportunity to sell their positions so each high is lower than the previous one; the lower support line is a horizontal trendline, meaning that traders are not much bearish on the market so every time the price falls to a certain level, traders would buy low, thus a descending triangle forms.

Dip

Dip means slight decline or trend change in continuous rise of the price. Because it is a temporary phenomenon, many analysts suggest investors buy at retracement.

Diversification

(1) Decentralize investments into companies in different fields;(2)buy different assets to minimize risks in securities investment.

Double Bottom

Double bottom (W pattern) is a technical analysis term describing two drops of a stock or exchange rate to the same level.

Double Top

Double top looks like the letter “M”, so it is also called the M pattern. It is a bearish reverse pattern, meaning the price rises to a top and then drops back, after a short retracement, it rises up to the similar level as the original rise, and then another drop, thus forming two tops. A horizontal neckline can be drawn from the first trough.

Dow Jones Industrial Average

The Dow Jones Industrial Average is an average based on 30 popular industrial securities using an unweighted method. It is quoted by pip rather than USD. The Dow Jones Industrial Average is used as a representative indicator of stock market changes, especially at the New York Stock Exchange.

E

Economic Indicator

Economic indicators are statistics issued by governmental or non-governmental organizations and showing current economic growth rate and stability (such as GDP, employment rate, trade deficit, value of gross output and business catalogue).

Equity

Equity is the net asset value in a trading account, i.e. the cash balance in the account plus/minus the floating profit/loss of open positions.

EURO

Euro is currency of the EMU. It replaced the position of European currency unit (ECU).

Euro currencies

A Eurocurrency is a currency deposited or credited in countries other than the issuing country, such as Eurodollar (USD deposited in a non-US country). In nature, Eurocurrency is a supranational currency not subject to governance, supervision or support of any central bank.

European Central Bank [ECB]

The European Central Bank is the central bank of the EMU.

European Monetary System

The European Monetary System was officially founded on March 13, 1979. All European countries having a particularly close economic and financial relationship with the European Community can join in the exchange rate and interference mechanism of the system. The system aims to create a stable currency zone in Europe and exercising certain exchange rate, credit and resource transfer policies to ensure the instability of currency won’t interfere with integration of the EC. The UK joined the European Monetary System in October 1990.

European Monetary Union [EMU]

The primary target of the European Monetary Union (EMU) is to establish a single European currency called Euro. In 2002, Euro officially replaced currencies of member countries of the European Union. Member countries of the EMU include Germany, France, Belgium, Luxembourg, Austria, Ireland, Holland, Italy, Spain, Portugal and Greece.

Even Up

Even up is a securities term meaning buyers and sellers of securities evenly spread out their balances. Before the exchange opens, it represents the open price for the day which shows slight change between the close price of the previous trading day and the current open value.

Exchange control

Exchange control is a type of interference with foreign exchange holding, foreign trade or capital flow the government or the central bank adopts to prevent overexpansion of currency supply of the country or exhaustion of foreign exchange reserves.

Exchange rate

Exchange rate is the rate at which one currency can be exchanged for another.

Exhaustion Gap

The occurrence of an exhaustion gap indicates a boom is over and the trend is about to descend precipitously. A gap that occurs when a trend is about to reach the top/bottom is called an exhaustion gap. Because the climbing space is very limited when a trend is going to reverse, the turnover will reduce with the reversal. The turnover on the day when a gap occurs is often the largest. Instead of increasing with halt of the price, it will later begin to decrease. Therefore, when an exhaustion gap occurs, the price would normally turn around, so investors should withdraw from or enter the market as soon as possible.

F

Falling Flag

When the stock price declines sharply, turnover increases greatly. Later, the stock price temporarily rebounds and then drops down again after the minor rebounce. Because market confidence is limited, the turnover wouldn’t increase. Although the price doesn’t fall back to the recent low this time, the turnover decreases. Such a repeatedly upward short-term fluctuation forms a rectangle slanting in the opposite direction to the original downtrend. The concentrated area of the small ascending channel is a falling flag.

Falling Wedge

A falling wedge is a counterpart of a rising wedge. The stock price in a medium-and-long-term uptrend signals profit-taking. The price falls to a certain level and then rebounces, but not back to the high before the rebounce, and the increase is small. During the rebounce and fall-back, the turnover gradually decreases, indicating both the buying pressure and the selling pressure are not strong, so the upper resistance and the lower resistance both slant downwards. The upper resistance is a line formed by peaks while the lower resistance is formed by troughs.

Far Option

Far option is the option in a pair of arbitraged options that loses effectiveness after performance of the other option.

Federal funds

Federal Funds is called Fed Funds or Feds for short. Strictly speaking, it shall be called the funds in the Fed. Federal funds are funds in the Federal Reserve Bank that can be used immediately. In liquidation, federal funds represent funds that can be used immediately to buy treasury bonds of the US in the US currency market or other currency market tools.

Federal Open Market Committee[FOMC]

The Federal Open Market Committee (FOMC) is the most important decision-making group in the Federal Reserve System. It is responsible for making policies for the system to buy and sell governmental and other securities in open markets. The FOMC consists of 12 commissioners, a president and a vice president. The 12 commissioners include seven directors and five chairmen of Federal Reserve Banks. The FOMC meets eight times per year on 2/2~3, 3/30, 5/18, 6/29~30, 8/24, 10/5, 11/16 and 12/21. 14 days prior to each meeting, the FOMC would issue a Beige Book from which present opinions of the FOMC on interest rate decisions.

Federal Reserve [Fed]

The Federal Reserve (Fed) is the central bank of the US.

Federal Reserve Bureau [FRB]

The Federal Reserve Bureau is a seven-member administrative organization of the Federal Reserve System. The members are appointed by the president and recognized by the congress, and the term of service for them is 14 years. The Federal Reserve Board, founded in 1913, aims to manage all national banks and state-government chartered banks as members of the Federal Reserve System. The Board has jurisdiction over bank holding companies and is responsible for establishing national currency and credit policies.

Federal Reserve System [FRS]

The Federal Reserve System (FRS) is a central bank system of the US set up according to the Federal Reserve Act of 1913. The system manages currency supply, determines legal reserve of its member banks, supervises mint, influences fund transfer, promotes liquidation and collection of cheques, examines member banks and carries out other functions. The Federal Reserve Bureau is similar to a central bank. It is responsible for management of currency supply and demand, reserves funds of all banks, and examination of all banks’ stability. The organization has an independent position. It includes 12 administrative regions divided according to regional structure and Federal Reserve banks. The Federal Reserve Bureau is legislatively authorized and supervised by the Congress. It is currently operating with self-owned profits. The Federal Reserve System is composed of 12 federal reverse banks, 12 branches, and national banks and state banks as its members. All national banks are shareholding members of relevant regional Federal Reserve Banks.

Financial Derivatives

Financial derivatives include futures, options, interest rate exchange and exchange rate exchange, etc. For example, index future is a derivative of stock spot and its value is dependent on the underlying stock spot.

Financial Service Authority[FSA]

On May 20, 1997, UK PM Blair announced that UK’s financial supervision system would be restructured. The banking system as pivot in the fund supply & demand and payment & liquidation system and various financial institutions under the Securities Investment Commission would be integrated into one supervision organization, the Financial Service Authority (FSA). Power granted by law to the FSA is: a). Authorize and cautiously supervise banks, building societies, insurance companies and unions; b). Supervise financial market and liquidation and payment system; and c). solve problems that influence enterprises, markets and liquidation and payment system. Under some special circumstances, if the Bank of England fails to implement its interest rate policies and the influence endangers stability of the economic system, the FSA will cooperate with the Bank of England.

Fixed exchange rate

Fixed exchange rate is a set exchange ratio between currencies, but there is a limited fluctuation range.

Flag

Flag is a continuation pattern, including rising flag and falling flag. It refers to the period of correction after rising/falling for some time. Because of the seesaw battle between buying and selling, the stock price can only fluctuate slightly and closely in a shape resembling a parallelogram. The pattern looks like a flying flag, so it’s called flag. A rising flag usually occurs in the third phase of a bull market, indicating the bull market is about to end; a falling flag usually occurs in the first or third phase of a bull market. A flag normally extends for three or four weeks. Whenever a rising flag occurs, it’s better to buy when the price breaks above a level of resistance; whenever a falling flag occurs, it’s better to sell as soon as possible when the price breaks below support.

Flat/Square

Flat/square is a condition when there is no long position or short position, which is flat or square. If a trader holds no position or his positions have offset each other, his account is square.

Floating exchange rate

The value of a currency depends on market supply and demand. Where the exchange rate of a currency can fluctuate with no limitation, it’s called a clean float. If the central bank interferes with the market to restrict the trend of exchange rate, it’s called a dirty or manage float.

Floating Loss/Profit
Federal Open Market Committee[FOMC]

The Federal Open Market Committee (FOMC) is the most important decision-making group in the Federal Reserve System. It is responsible for making policies for the system to buy and sell governmental and other securities in open markets. The FOMC consists of 12 commissioners, a president and a vice president. The 12 commissioners include seven directors and five chairmen of Federal Reserve Banks. The FOMC meets eight times per year on 2/2~3, 3/30, 5/18, 6/29~30, 8/24, 10/5, 11/16 and 12/21. 14 days prior to each meeting, the FOMC would issue a Beige Book from which present opinions of the FOMC on interest rate decisions.

Foreign Currency Deposits

Foreign currency deposits refer to deposits of foreign currencies in a bank, including current deposit and bank notes. According to the Rules on Foreign Exchange Administration of Japan, there are two types of foreign currency deposit account, cash account and foreign exchange account. A cash account holder depositing foreign currency cash can withdraw foreign currency cash but cannot apply for remittance; a foreign exchange account holder depositing foreign exchange or foreign notes can apply for remittance abroad but cannot withdraw foreign currency cash.

Foreign Currency Futures

Foreign currency future is a futures contract that stipulates the currency, quantity, time and price at which a specified currency can be bought or sold at a future date.

Foreign Exchange [Forex, FX]

Foreign exchange (Forex, FX) is the process of simultaneously buying one currency and selling another in an over-the-counter market. Most foreign exchanges are quoted against USD.

Foreign Exchange Market

Foreign exchange market is a place for trading currencies. Foreign exchange holding is a current or liquid right of claim priced in another currency.

Forward

Forward is a transaction to start at an agreed future date. Forward transactions in the FX market are often expressed as the difference above (premium) or below (discount) the spot exchange rate. The actual forward foreign exchange price is the sum of the difference and the spot exchange rate. The exchange rate will reflect an inevitable status of the foreign exchange rate on the delivery date. If funds are exchanged at this exchange rate, there will be no profits or losses (such as: neutral trading). The exchange rate can be calculated by summing up corresponding deposit rate and spot foreign exchange rate of two base currencies. Unlike in a futures market, forward transactions can be set according to both parties’ needs, so it’s more flexible and can avoid concentration of transactions.

Forward exchange rate

1.The price at which a currency is delivered on a future date 2.Exchange rate at which a forward foreign exchange contract is performed

Forward points

Forward points are points added to or subtracted from current exchange rate for calculation of the forward price.

Fundamental analysis

Fundamental analysis is a thorough analysis of economic and political data for the purpose of determining the future trend of the financial market.

Futures Contract

Futures contract is a method of trading financial instruments, currencies or commodities at a specified price on a future date. Unlike options, futures grant the obligation to buy or sell an instrument on a future date (rather than the right of option). Futures can be used to protect the future value of an appointed article and speculate on this value.

Futures Exchange

Futures exchange is an organization set up for commodity futures trading. A futures exchange would establish a standard futures contract and consistent trading regulations for its members to comply with in trading. A futures exchange shall also supervise the trading process of all contracts and execute the trading regulations. A futures exchange itself does not buy or sell futures.

G

Gap

When important news that influences the stock market comes after the stock market closes, (bullish news include acquisition or merger, while bearish news include financial crisis or demission of major management members), investors would have accumulated huge buy/sell orders before the market opens. When the market opens, investors are impatient to complete the buy/sell orders, so they’d like to buy stocks at a price higher than the highest of the previous day, or sell stocks at a price lower than the lowest of the previous day. In the case of bullish news, the lowest price for the day is higher than the highest price of the previous day; while in the case of bearish news, the highest price for the day is lower than the lowest price of the previous day. Between the two prices, there is break, an area with no trading occurring. On a price chart, a gap occurs between the two trading days. In technical analysis of gap patterns, there are four types, namely common gap, breakaway gap, runaway gap and exhaustion gap.

Gold Bullion Standard System

Currency standard: (1) a country’s currency unit defined according to a published weight of gold; (2) the government retains gold in the form of gold bar rather than gold coin; (3) gold does not circulate in economic life; (4) gold is used for international transactions in industry and between banks and financial organizations.

Golden Cross

Golden cross is a technical analysis term meaning of the short-term, medium-term and long-term moving averages that used to be in a bearish array, the short-term moving average breaks above the medium-term and long-term moving averages and a bullish array forms. The crossover is called golden cross. It indicates an uptrend and for long positions, it usually is a strong buying signal.

Good till Cancelled Order [GTC]

Good till cancelled order is valid before cancellation. It is an order bought or sold at a fixed price determined by the entrusted trader. GTC is always valid before it is executed or cancelled.

Gross Domestic Product [GDP]

The gross domestic product (GDP) is the market value of all finished products produced within a country’s border in a specified period of time. All investments and productions included in the calculation of GDP must be within the country. GDP is the net value of GNP minus foreign factors.

Gross National Product[GNP]

Gross national product (GNP) is the market value of products and labor services for end uses that are produced within a specified period of time by all citizens of a country. It is the market value of all goods and labor services produced by all citizens of a country within a given period of time. GNP is a measure of a country’s economic development speed. GNP includes not only investment and production within the country and but also investment and production by citizens of the country overseas, but GDP only includes investment and production within the country.

H

Hang Seng Index [HSI]

The Hang Seng Index (HSI) is a market capitalization-weighted index with 50 largest companies that trade on the Hong Kong Exchange as components, coving 70% of the total market value of the Hong Kong Exchange. The Hang Seng Index, founded on November 24, 1969, is compiled, modified and published by Hang Seng Indexes Company Limited. When HSI was first published on July 31, 1964, the index figure was set to 100 points. Because of its wide coverage, the rises and falls of its components have great impact on the trend of other stocks, and therefore, it’s commonly used to forecast the general market trend.

Head and Shoulders Top

Head and shoulders top is a reversal pattern. Once the pattern is confirmed, there may be sharp decline. The destructive power of the reversal is much greater than other reversal patterns. The uptrend of the stock price or index will reverse and decline. Before confirmation of the pattern, aggressive investors shall clear stocks and withdraw from the market before the uptrend ends; after the price breaks the neckline, it is a real sell signal. The left shoulder forms when volume increases significantly and price rises gradually, and then volume shrinks and price slightly declines. Then volume increases or holds the line and price rises higher than the left shoulder, and thus the head forms. Next, volume lowers again or holds the line and price increases to a similar height to the left shoulder, and the right shoulder forms. After that, volume decreases or holds the line, and price drops and slumps after breaking down the neckline. The slump may be accompanied by high volume or small volume.

Hedging/ Hedge

Hedging is an investment strategy to reduce risks by buying low-risk securities. A perfect hedging can completely avoid risks. However, fee is charged for the process, so hedging would reduce profits. Both options and selling short can be used as hedging methods. To protect future transactions on spot markets, reverse futures positions can be built first to avoid risks with price fluctuation. In commodities markets, to avoid losses from price changes of a certain commodity (such as cotton, corn, soybean and precious metal, etc), you can buy spot goods and sell futures (or buy futures and sell spot goods) at the same time. There are hedging instruments in the financial market as well, such as option and interest rate swap. In FX margin trading, hedging is a method to avoid risks by placing reverse orders when the exchange rate fluctuates against your expectation.

Hot Money / (Refugee Capital)

Hot money (refugee capital) refers to short-term speculative funds flowing rapidly in global financial markets in pursuit of maximum returns and minimum risks. Speculative movements of idle short-term funds in the worlds are mainly for escaping political risks, pursuing exchange rate changes, and seeking profits from price fluctuation of important commodities or international negotiable securities. Hot money is a speculative action for profits from exchange rate fluctuation. Speculators sell forward foreign exchange of a currency when they expect the currency will drop so that after maturity, they can buy at a lower spot foreign exchange and earn profits from the exchange difference. This is a pure speculative action of buying long/selling short, so it’s different from arbitrage. In the FX market, because such speculative funds usually change from a currency that is likely to depreciate o a currency that is likely to appreciate, they increase instability of the FX market. Therefore, as long as the speculative psychology exists, only wild fluctuation of the appreciating currency or foreign exchange control can stop the flow of such speculative funds.

Hung Up

Hung up refers to the situation when the price of a negotiable security (such as stock and bond) has dropped below the buying price, the investor will suffer great losses if he sells the security.

Hurdle Rate

Hurdle rate is used in cash flow analysis to evaluate the capital budget in an investment proposal. If the expected rate of return is lower than the hurdle rate, the investment plan will be given up.

I

Inflation

Inflation is an economic state in which prices of consumables increase and subsequently, the purchasing power of a currency decreases.

Initial margin

The initial margin is the collateral deposit required when opening a position to guarantee future performance.

Inter-Bank

The interbank market is an FX trading market among banks which individuals cannot join in.

Inter-bank rates

Interbank rates are foreign exchange rates which a large international banks based on when quoting another large international bank.

Interest arbitrage

Interest arbitrage means switching from a currency to another currency in order to lend or deposit. It is covered interest arbitrage when the principal and interest of the lending currency is sold through forward foreign exchange; otherwise, it is uncovered interest arbitrage.

Internal Revenue Service [IRS]

The Internal Revenue Service (IRS) is the state administration of taxation of the US.

International Balance of Payment

International balance of payment is the record of all transactions between one particular country and all other countries within a specified period of time. It is different from regular payments and capital payments.

International Fund

International funds are funds invested in different foreign countries to spread national interests and earn exchange gains.

International Monetary Market of Chicago Mercantile Exchange [IMM]

The International Monetary Market of Chicago Mercantile Exchange (IMM), founded in May 1972, is the first futures trading market in the US. It provides three types of trades: 1. Currency trading, started when the IMM was first opened; 2. Metal trading, started in 1974; and 3. Monetary policy tools, started in 1976.

Intervention

Central banks or other official bodies would interfere in the FX market to influence and stabilize price or fund supply.

Inventory

Inventory includes materials, work in progress and goods in stock.

Inverted Symmetrical Triangle

Inverted symmetrical triangle is an opposite pattern of symmetrical triangle. The volatility gradually expands. An inverted symmetrical triangle starts from a narrow fluctuation and then extends upwards and downwards. The major peaks and troughs (at least two) can be connected to form two lines making a trumpet-shaped inverted symmetrical triangle. The inverted symmetrical triangle occurs mainly because of irrational behaviors of investors. It is characterized by rises and falls and great volatility.

Investment Banking

Investment banks are financial institutions engaged in issuance, underwriting and distribution of new securities. Investment banks also play as brokers and dealers in secondary markets. The main purpose of investment banks is to promote securitization of the industry and help industry and commerce obtain long-term funds by direct financing. A pure investment bank is different from an ordinary bank in that it can neither lend money nor accept current deposits. However, there are actually very few such banks. It is mostly commercial banks and securities companies that transit to or sideline in investment banking business.

J

Joint Account

Joint account is a bank account or an investment account jointly opened by two or more people. For withdrawal or trading, some joint accounts require signatures of all account holders; some only require the signature of any account holder. In addition, joint accounts normally involve the rights of survivorship, meaning when a holder passed away, survivors have the right to take over rights of the deceased. A future trading account is normally opened in an individual’s name. It may also be opened jointly by two or more people, in which case it is called a joint account.

Joint Stock Company

(1) Limited liability company. (2) Joint stock company: In the US, it is a joint-stock company organization. Like stock companies, a joint stock company can transfer shares and has to elect directors and supervisors, but shareholders shall bear unlimited liability to the company’s debts like the case with partners in a partnership organization. Compared with stock companies, a joint stock company has the following merits: it has less tax burden, it is incorporated according to the Company Law, the bond holders have more guarantees, its operation is more flexible, and it is less restricted by the Company Law. The demerits of a joint stock company are that according to law, it cannot hold immovable property and shareholders’ liabilities are unlimited. Because the demerits outweigh the merits, joint stock companies are rare.

Joint Venture

A joint venture is an enterprise incorporated by two or more companies for a certain goal. The term of a joint venture is normally 10-15 years. In the financial service industry, there are many examples of enterprises existing in the form of a joint venture.

Junk Bond

Junk bonds, also called inferior bonds, refer to bonds issued by enterprises with a very low credit rating. Generally speaking, a credit rating of BB or lower would be considered low. Bonds issued by enterprises with a low credit rating involve relatively high investment risks. Therefore, they have to attract investors with higher interest rate. According to credit ratings of the S&P, debts or issuers investing in BB, B, CCC, CC or C are speculative to some extent. In unstable conditions, even the issuer or company provides some guarantee to investors, the role of the guarantee would be offset. For bonds with lowest quality, i.e. bonds rated BBB or lower by the S&P or rated BBB or lower by Moodys, there is a relatively high risk that the principal cannot be repaid. Bonds with a rating below BAA or BBB are speculative bonds with relatively high default risk.

K

K Chart

K chart represents the wane and wax of long positions and short positions. It is also a record of the long vs. short war in the stock market. With data reflected on a K chart, one can understand the status of long and short positions and read the trend of stock price.

L

Labor Force

Labor force refers to anyone nonmilitary, aged 15 or above, employed or unemployed, that is able to take production activity and actively looks for a job.

Labor Productivity

Labor productivity is the output of per unit labor input within a given period of time. Suppose Y is domestic income, L is total labor input (total employment) and y is labor productivity, y=Y/K.

Leading Indicators

Leading indicators are economic variables considered to be able to predict future economic activities (such as unemployment rate, CPI, PPI, retail price, personal income, major interest rates, discount rate and Federal Funds Rate).

LIBOR(London Inter-bank Offered Rate)

The LIBOR (London Inter-bank Offered Rate) is the interest rate at which banks in the London interbank market carry out deposit and loan transactions in GBP or Eurodollar. According to agreement among five major banks, the LIBOR has two types, 3-month and 6-month and the unit of trading is 10million US Dollars. The rate not only applies to the London market. It is also an interest rate benchmark for borrowing among international banks and in international short-term fund market.

Limit Order

Limit order is an order that prescribes buying at a fixed price or a price lower than the fixed price, or selling at a fixed price or a price higher than the fixed price.

Line Chart

Line chart is a style of chart. It only records closing prices, but is deficient in presenting opening prices, highest price for the day, biggest change for the day, and volatility. It can catch a long-term trend but is difficult to capture short-term and medium-term trend. It is not commonly used any more. Line charges are simple and easy to draw. They can help beginners learn about past trends of a stock.

Liquidation

Liquidation is execution of an offset transaction to close out an open position.

Liquidity

Liquidity is the ability of a market to buy or sell without influencing the price stability. When the ask-bid difference is small, the market would be described as liquid. Another measure of liquidity is the number of sellers and buyers. More players mean less price difference. Players in a non-liquid market are relatively small, and the price difference is relatively big.

Long(Long Position)

A long position is a position with more instruments bought than sold. If the market price goes up, a long position will appreciate.

M

Margin

Margin is the deposit required from a customer for any possible loss from reverse price movements.

Margin call

In margin trading or futures trading, when the loss of an investor’s investment target exceeds a specified percentage of the margin, the investor’s broker would call the investor, asking the investor to supplement his/her margin within a specified period of time, or the broker would close out the investor’s investment to avoid larger loss.

Margin trading

In margin trading, an investor can trade an amount that is several times of the margin he/she has paid according to regulations of the broker (or financial institution, etc).

Market Maker

Market maker is a dealer that offers prices and plans to buy or sell at such prices. One market maker manages one trading log.

Market Risk

Market risks are risks related to the general market that cannot be spread by hedging or holding diverse securities.

Mark-to-Market

Dealers calculate their positions by two means: accrual or mark-to-market. Accrual only calculates existing fund flows, so it only indicates profits obtained or losses incurred. The mark-to-market method measures a dealer’s book assets value using closing rate or reevaluation rate when each trading day ends. All profits or losses are recorded, and the dealer will start trading of the second day with net position.

Maturity date

1.The day when an FX contract is delivered. 2.The day when a loan or deposit is received or paid.

Money Market

Money market is a capital market for trading short-term bonds, including treasury bonds, short-term bonds within three years issued by the federal government, guaranteed investment certificates (GIC) and other one-year investment securities, etc. Some long-term investment securities, if the term is shortened within 1-3 years, may also be traded on a money market. Money market is a link of the financial market. It provides short-term bonds (such as treasury bonds, commercial bills and bank acceptance bills) for trading and trades short-term negotiable securities (mature within a year). MMDA is short for Money Market Deposit Account.

Money Market Fund

A general money market fund is a short-term negotiable security with high liquidity but no risks, such as treasury bond and fixed-term deposit certificate. It not only guarantees the investor’s principal, but also brings stable profits to the investor. You may think you can invest in a general money market fund at your own discretion, but the fund may require redemption at any time based on the status of your funds. If you want to cancel a fixed-term deposit in advance, the bank may refuse to pay the interests in full. For investors who want to break even and get highly marketable and stable profits, the fund is a good choice. Money market fund is a mutually beneficial fund that mainly invests in treasury bonds and other low-risk short-term investment projects.

Moving Average

Moving average is used in chart and technical analysis. It shows average prices of a security or commodity within a specified period of time and estimates the latest trend. When a new variable is added to the calculation, the old variable will be deleted.

Moving Average Convergence Divergence(MACD)

Moving average convergence divergence (MACD): The MACD uses difference between the short-term moving average and the long-term moving average to get buy/sell signals. The MACD is the difference between the 26-day exponential moving average (EMA) and the 12-day EMA, and uses a nine-day EMA as the "signal line". From the MACD, investors can get three types of signals: 1. When the MACD breaks above the signal line, it’s a buy signal; 2. When the MACD drops below the signal line, it’s a sell signal; 3. When the MACD rises, it may be an overbought signal.

N

Naked Option

Named option, also called uncovered option, has no long positions and short positions as in a futures contract but can buy call and sell put, so the positions are exposed to risks.

NASDAQ Composite Index

The NASDAQ Composite Index is acronym for National Association of Securities Dealers Automated Quotation. There are about 3,500 stocks, mostly tech stocks, traded on it. The NASDAQ rapidly and efficiently provides optimal quotations on over-the-counter markets to promote selling and buying. It began to use modern computerized information system in February 1971. It is distinctive because it has no trading place and trades are carried out through offices of traders.

Natural Rate Of Unemployment, Normal Rate Of Unemployment

Natural rate of unemployment, or normal rate of unemployment, is the rate of unemployment that will not always fall with expansive overall policy. In other words, when the labor market is in a state of natural unemployment, if the government employees fiscal or monetary policies to increase demand for higher employment and lower unemployment, price inflation will occur and the rate of unemployment will be temporarily lower than the natural rate of unemployment. However, after the economy adjusts itself and prices return to stable, the rate of unemployment will rise back to the natural rate of unemployment. Therefore, when the rate of unemployment is higher than the natural rate of unemployment, it indicates the economy is in a state of depression with insufficient effective demand and expansive overall policy can be used to reduce the rate of employment.

New Home Sales

The New Home Sales is an economic indicator compiled by the US Department of Commerce on a monthly basis. It records sales of newly constructed residences.

New York Commodity Exchange Incorporation, COMEX

The New York Commodity Exchange Incorporation (COMEX), founded in 1933 and currently located at the World Trade Center, is the most famous commodities and futures trading market in the world. Its commodities and futures include gold, silver, copper, zinc, lead, foreign currency, financial instruments, cotton, coffee and sugar, etc. It provides a trading place and ensures buyers and sellers of each particular commodity and futures trade under the rule of fairness and standard. The exchange exercises a member system. There are three types of members, brokers, dealers, and floor brokers and dealers, amounting to more than 700.

Nikkei

Nikkei is a price-weighted index of 225 stocks sampled from companies listed on the Tokyo Stock Exchange in 1949. It has become the most representative index of Japan’s stock market. Although the stocks of Nikkei 225 only account for 20% of first-class stocks on the Tokyo Stock Exchange, the index represents nearly 20% of the first-class stocks’ trading volume and approximately 50% of the total market value.

NYSE

The New York Stock Exchange (NYSE) is the largest, oldest and most popular market. The boisterous scenes captured of the market in movies can’t be found in the NASDAQ which trades with computer and telephone. To feel the fever of the money game, it’s best to come to the New York Stock Exchange located at 11 Wall Street. The NYSE has a history of over 200 years, and includes most time-honored Fortune 500 enterprises. The total market value has reached 7trillion US Dollar. In contrast, NASDAQ-traded companies are mostly small and emerging ones. At the NYSE, the brokers walk around and shout to find the best sellers. At the NASDAQ, transactions are talked over the phone or computer. At the NYSE, the brokers look for sellers at the site according to customers’ requests but they do not manipulate the price. The buyers and sellers trade directly. At the NASDAQ, the buyers or sellers deal with dealers. The dealers can name the price at will, and the buyers and sellers have no way to know the cost.

O

OCO (One Cancel the other)

One-cancels-the-other order is an order that stipulates that of the two opposite orders placed at the same time, when one is executed, the other will be automatically cancelled. For example, you buy USD at 1USD=105JPY and then place a sell limit order at 115 Japanese Yen (to profit from close-out) and a sell stop order at 102 Japanese Yen (to prevent loss) simultaneously. Once either one is executed, the other one will be automatically cancelled.

Offer rate

Offer rate is the price at which the market offers to sell foreign exchange or lend deposit.

Offsetting transaction

Offsetting transaction is a transaction to cancel or offset part or all market risks with open positions.

One Cancels the Other Order [OCO]

One-cancels-the-other order is an order that stipulates that of the two opposite orders placed at the same time, when one is executed, the other will be automatically cancelled. For example, you buy USD at 1USD=105JPY and then place a sell limit order at 115 Japanese Yen (to profit from close-out) and a sell stop order at 102 Japanese Yen (to prevent loss) simultaneously. Once either one is executed, the other one will be automatically cancelled.

Open Market Operations

Open market operations are often used by the central bank to adjust the monetary policies. When the market rate is too high, the central bank will buy qualified bonds or bills and release funds to lead the market rate to fall. When market funds are in a state of excessive disorder, the central bank will issue negotiable time-deposit slips to contract market funds and lead market rate to rise.

Open Order

An open order is an order bought or sold when the market price moves to the designated price.

Open Position

Open positions are trades not cancelled or settled. With open positions, the interests of investors are subject to the influence of foreign exchange rate movements.

Organization for Economic Cooperation and Development [OECD]

The Organization for Economic Cooperation and Development (OECD), founded in September 1961 and headquartered at Paris, has its historical roots in the Organization for European Economic Cooperation. The organization is dedicated to developing international economic resources, improving productivity, developing agricultural and industrial equipments, reducing trade barriers, pursuing full employment, and rebuilding all nations’ economic stability and confidence. It has 21 member countries, including members of the original OECD and the US, Canada, Spain and Japan.

Organization of Petroleum Exporting Countries [OPEC]

The Organization of Petroleum Exporting Countries (OPEC) is founded in 1960 and headquartered at Vienna. Its main function is to promote establishment of crude oil price in the world to increase interests of petroleum countries. Member countries of the organization include Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela, etc.

OTC (Over The Counter)

Over the counter transaction is a direct transaction between the buyer and seller which does not involve the exchange.

Outright

Outright means to buy or sell forward exchange but do not trade spot exchange, or it is a swap transaction.

Over Bought

Overbought is a situation when a currency is bought beyond a reasonable degree. It describes that when the market or a certain stock is followed by too many people, the price rises far above its true value. But after the sharp rise, when the bid market discontinues, the price may witness a technical pullback.

Overnight

Overnight transaction is a transaction that remains open till the second trading day. For us, transactions past 7:00am (Summer 6:00, Saturday 6:00, Summer 5:00) of the second day are overnight transactions.

Over Sold

Overbought is a situation when a currency is bought beyond a reasonable degree. It describes that when the market or a certain stock is followed by too many people, the price rises far above its true value. But after the sharp rise, when the bid market discontinues, the price may witness a technical pullback.

Over-valuation

Over-valuation means the exchange rate of a currency is higher than the purchasing power parity. Therefore, goods of the country will be less competitive in international markets.

P

Pips

Pip is a term used in the money market. It is the smallest change that a given exchange rate can make. For Euro/USD, GBP/USD, and USD/CHF, a pip is 0.0001; for USD/JPY, a pip is 0.01.

Political Risk

Political risks refer to changes to a government’s polices. Such changes may have negative impacts on investors’ positions.

Position

Position refers to the amount of a certain currency one holds in his/her account.

Premium

In the money market, premium is the number of pips added to the spot rate for judging the price of a forward or future.

Price Transparency

Price transparency means all market players enjoy equal accessibility to explanations about quotes.

Profit /loss

Profit/loss refers to profit/loss when a transaction is settled.

Purchasing Power Parity (PPP)

Purchasing power parity (PPP): the purchasing power parity between two currencies means the holder of a certain amount of one currency is given the same purchasing power of a certain amount of another currency, i.e the power to buy commodities or labor services, and the exchange rate of the country that does not exchange paper currency will be adopted. The determinant of the purchasing power parity is the purchasing power ratio of the two currencies, i.e. the ratio of price level or the ratio of price index, which is the purchasing power valuation index. The fluctuation of exchange rate will be equal to the difference between the inflation rates.

Q

Quanto Options

Quanto options means when the investment target is the option of a foreign security, if the exchange rate is fixed in the contract, all possible profits will be

Quote

Quote is an indicative market price. It shows the effective maximum buying price and/or selling price of a security within a particular period of time.

R

Recovery

Recovery refers to the uptrend of price after a decline.

Rectangle

Rectangle, or box, is a correction or continuation pattern depicting repetitive rises and falls of the exchange rate in which long positions and short positions are well-matched in strength. It also indicates no major trend in future market. Once the price breaks the rectangle and the process is accompanied by a large volume, it is a buy signal; conversely, if the price breaks through the rectangle, no matter the process is accompanied by volume, it is a sell signal and one should sell as soon as possible.

Relative Strength Index(RSI)

Relative strength index (RSI) is used to show the strength of a trend. It is especially usefully in judging overbought and oversold conditions. The RSI value ranges between 0 and 100. Generally speaking, it is a bullish market when RSI remains above 50 and a bearish market when it is below 50. RSI is considered overbought when above 80 and oversold when below 20. It is a reversal signal when the price enters the overbought/oversold zones, and one shall pay close attention to the price movements. It’s called divergence when the price records a new high but RSI doesn’t or when the price records a new low but RSI doesn’t. The divergence between RSI and price is a very important confirmation signal, indicating weakening uptrend or downtrend. When two divergences occur in particular, the price is likely to reverse.

Reserve requirement

Reserve requirement is a certain percentage of deposits collected by commercial banks which is required to be kept in the central banks. The original purpose of reserve requirement is to prevent the situation when the bank is incapable of payment. At present, all central banks have taken adjustment of the reserve requirement as a means to control money supply in the entire financial system. Increase of the reserve ratio would influence negotiability of a commercial bank and reduce its lending ability.

Resistance

Resistance is a technical analysis term indicating the price cannot surpass a certain price. Failure to break the price several times would form a straight line.

Retracement

Retracement means the price movement is opposite to the price trend before.

Return

Return is the gain on an investment or the value lost. It is sum earned from an investment. Total return is the profit/loss by adding income and value, and normally expenditure is deducted.

Revaluation

Revaluation is the market exchange rate used to determine profit and loss of the day at daily settlement.

Rising Flag

When the exchange rate surges, the turnover would increase greatly. After that, the exchange rate falls temporarily but at a moderate rate, and then rebounds because holders of long positions are confident in the market. Although the rebound fails to challenge the recent peak, when the price drops again, the turnover keeps falling and the speed isn’t fast, indicating the selling pressure is limited. The repetitive drops form a compact, narrow and slightly downward parallel zone. The peaks connected form an upper resistance and the troughs connected form a lower support. It’s worth noticing that it normally takes three to four weeks to form a rising flag. If there is no breakout within the period, the pattern may collapse. In addition, the turnover gradually decreases in the downward period, but breakout of the lower resistance requires a big turnover.

Rising Wedge

After slump of the exchange rate, a strong technical reverse occurs. However, when it rises to a certain level, it falls again but the downtrend is slow and a support arises before it comes to the previous trough. In the second rebound, the peak will be higher than the first, and a rising trend shows. When the price rises to a certain level, it will fall again but the trough is higher than the previous one. The line connecting the two peaks and the line connecting the two troughs make a rising wedge.

Risk

Risk is the variability of profits with uncertain changes and more importantly the possibility that the profits are less than expected.

Risk disclosure statement

Risk disclosure statement notifies customers of possible risks in trading and responsibilities the customers shall undertake, such as margin flow and restrictions on market activities. The report helps customers decide whether to start trading, so it must be signed before trading.

Roll-over

Rollover involves selling of an instrument and buying the instrument back later at a designated date and time. Rollover ususally happens in short-term currency markets. (1)Applicable date for exchange rate change in circulation lending.(2)Extension of an existing forward contract or extend of an expiring contract to a future date via swap trading.

Rounding Top

Rounding top, or saucer top, is a reversal pattern shaped like an up-side-down semi-circle or saucer, depicting a decrease in turnover after the top takes shape. The rounding top occurs when the uptrend of the price slows down and each new high is close to the previous one. As the uptrend slows down, some sensitive investors would withdraw from the market and then the selling power gains. Short positions confront long positions at the rounding top, then long positions gradually reduce, and short positions take control. Then, the price continues to drop until the market is completely controlled by short positions and supply exceeds demands. After that, the decline turns rapid. Because the process takes long, a rounding top sometimes forms in a couple of months.

S

SEC (Securities and Exchange Commission)

The Securities and Exchange Commission (SEC) is an independent organization. The members of the commission are nominated by the president and appointed with approval of the Congress. The commission enjoys quasi-judicial power. For those suspected of violating laws on securities trading, the commission can collect evidence, call witnesses, detain exhibits or enforce apprehension. Because it has legal and securities-related functions, the commission can timely handle law-breaking cases without addressing a note to the judicial authority.

Short (Short position)

Short position is an investment position resulted from selling. Because the position has not been written off, it can pocket profits from price decline.

Slippage

Slippage is the difference between the execute price of a trade and the expected price. Slippage is normally 10-20 below the expected price. When the exchange rate fluctuates wildly, the difference may widen.

Spot Price

Spot price is the current market price. Settlement of a spot transaction is usually within two trading days. A spot trading usually happens within two trading days.

Spot trading

Spot trading means to directly buy/sell a certain foreign currency with an equivalent amount of another currency when the designated day comes.

Spread

Spread is the difference between ask and bid. It is used to measure market liquidity. In normal cases, the smaller the spread, the higher the liquidity.

Speculate

Speculation is a risky transaction for profits. It is not hedging or investment.

Spot rate of exchange

Spot rate of exchange is the applicable exchange rate at the exchange of FX delivery within two business days from completion of a contract.

Spot value

Spot value is the delivery date of a spot exchange transaction which normally falls on the second business day from the contract day.

Support

Support is a term for the price level which cannot be easily broken from above.

Stop Loss Order

Stop loss order is an order bought/sold at an agreed price. Dealers can preset a stop loss order and automatically liquidate open positions with it when the price reaches or exceeds the fixed price.

Stand-in rate

Stand-in rate is not a trading price. It is the exchange rate or interest rate that reflects accrued profits or losses of unmatched positions.

Swap Points

Swap points, or interest differential, are the interest rate difference between two currencies traded. Interest differential is the interest difference from this.

T

Technical Analysis

Technical analysis is the practice of analyzing market data like charts, price trend and volume in an attempt to predict future market activities.

Time deposit

Time deposit is interest-bearing deposit that has a fixed term. Principal and interest can be drawn against the deposit receipt when it’s due.

Tokyo Stock Price Index

Tokyo Stock Price Index, or TOPIX, is an index of large stocks on the Tokyo Stock Exchange.

Topheavy Market

Top heavy market is a market situation when the price is too high and is quite likely to drop.

Topping Out

Topping out means the price loses the rising dynamics after a long period of climbing.

Trade Balance

Trade balance is the difference between imports and exports. It represents transfer of a country’s commodity resources with the outside world. If exports are less than imports, it means commodity resources of the country are flowing abroad in a given period, which is usually called a trade surplus; conversely, if exports are more than imports, it means commodity resources are flowing into the country, which is called a trade deficit.

Transaction Date

Transaction date is the date when a transaction occurs.

Treasury bill(note, bond)

Treasury bills (notes, bonds) refer to bonds issued by the US Department of Treasury in response to financial needs.

Triangle

Triangle is a common continuation pattern on technical analysis charts. There are four types of triangle, namely symmetrical triangle, inverted symmetrical triangle, ascending triangle and descending triangle.

Triple Bottoms

Triple-bottom, as the name implies, has one more bottom than double-bottom. It includes three troughs at nearly the same price level. It is a reversal pattern occurring at the end of a bear market. When the price turns up for the third time, the neckline connecting the previous two troughs is broken, and a medium-to-long-term uptrend starts. The period of triple-bottom is longer than double-bottom, but the two patterns share many similar features.

Triple Tops

Triple-top is identified with three peaks. It is a reversal pattern occurring at the end of a bull market. The pattern is especially clear on a weekly K chart. Because it takes a long time for the top to form, the future breakout at the neckline and correction also take long. Each rise is accompanied by volume and volume contracts when the price drops, and the price starts to fall when volume is insufficient at last. The focus of observation is that the turnover at the third peak is obviously less than that at the second peak and the breakout at the neckline (connecting the previous troughs). If the neckline is not broken, the pattern is a rectangle rather than a triple-top. In real stock market, a quadruple-top is also possible, only that it’s like a correction.

Turnover

Turnover is the trading volume or size within a given period (normally one day or one year).

Two-way quotation

In the FX market, it means the bank dealers give both the bid and offer rates to show the bank’s willingness to trade in either direction. In the Eurocurrency market, debit or credit interest rate is also quoted. The spread/margin of the two prices can guarantee profits of the quoting bank, no matter in the case of buy (debit) or sell (credit), and can show relative quality of the quotes. If the bank wants to cover previous positions or create new positions or expect that its customers hold buy or sell orders, it can adjust the two-way quotes. If it wants to buy, it can drive up the offer price and the bid price; if it wants to sell, it can weigh down the offer price and the bid price. This is the main reason for different quotes between banks.

U

Under-valuation

Under-valuation means the exchange rate of a given currency is lower than its purchasing power parity and the result is that products of the country will be under-valuated and sell too cheap in international markets, which is favorable for competitive sale.

Uptick

Uptick is the latest quote for a given currency which is higher than the previous quote for the same currency.

Uptick Rule

According to US laws, a security cannot be sold short unless the price before selling short is lower than the price if selling short is executed.

W

Wave Theory

Wave theory, established by R.N. Elliott in his Wave Theory in 1938, is a theory that systematically analyzes market trends. It applies to trend analysis of various indexes and stock prices. Elliott holds that the price fluctuation of a stock or a commodity is a never-ending cycle like natural waves. As long as the fluctuation regularity is found, we can use these regular waves to predict the future trend of stock market.

Weak

Weak means the price of a security or commodity declines.

Whipsaw

Whipsaw is used to describe a volatile market state, i.e. a drastic price fluctuation cycle followed by another one in the opposite direction.

World Bank

World Bank was established at the end of 1945 according to the Bretton Woods system and started operation in 1945. It is headquartered in Washington. Most funds of the World Bank are mostly borrowed from international capital markets and some are subscribed capital and reserve provision. By the end of April 1995, it has 179 member countries.

W-Type Bottom

W-type bottom (W pattern) is a technical analysis term depicting a W-shaped double-bottom on the chart or of a trend index.

X

Xenocurrency

Xenocurrency is a currency that circulates or is traded in monetary markets outside the issuing country.

Y

Yard

Yard is another way of saying a billion.

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