Forex Jargon

Forex Jargon

Markets have a language all their own and within that language, forex has its own dialect. Here are some terms we commonly use in our commentary.

Accommodation/accommodative: Another way of referring to easy or easier monetary policy, often used as a code word by central bankers

All Ordinaries: An Australian stock index

APP: Asset Purchase Program: It’s not just something you find on your phone, it’s a BOJ initiative introduced in 2010 as a monetary easing tool where it buys government bonds with up to three years until maturity (and also corporate debt, ETFs and REITs) and trust funds investing in stocks and property.

ASX200: The main Australian stock index

Aussie: the Australian dollar

Bank for International Settlements (BIS): an international organization which fosters monetary and financial cooperation and serves as a bank for central banks. The BIS often acts as an agent in the forex market, allowing central banks to mask their identity in an attempt to dampen market impact.

Bid: A buy order placed at or below the market.

BOC: Bank of Canada

BOE: Bank of England

BOJ: Bank of Japan

BTFD: Buy the f****** dip!

BTPs: Italian government bonds

Buba: The market nickname for the Bundesbank, Germany’s inflation-obsessed central bank

Bunds: German 10-year government bonds. The Bobl is the 5 year and Schatz the 2-year.

Cable: Nickname for GBP/USD. Originates from the use of transatlantic cables to transact currency deals years ago. Anyone who uses terms like “Cable-yen” or “euro-cable” is to be dismissed as an amateur.

CAC: The French stock index, the CAC 40

Candle / Candlestick: A method of charting price action. The subject of multitudes of books and the preferred method of charting at ForexLive.

Corporates: The treasury departments of large multinational corporations. They are responsible for hedging the forex exposures of their firms, which can have dramatic impacts on earnings for firms with large overseas sales. For example, a company like Airbus has massive revenues in dollars but has most of its cost base in euros. They must hedge their currency exposures to try and offset this mis-match.

Custody bank: A bank which holds securities in custody for other financial institutions, does their bookkeeping and settles their trading activity. Examples include Bank of New York Mellon, State Street and Northern Trust Co. Also know as custodians

DAX: German stock index, the DAX 30

Delta: The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative. Sometimes referred to as the “hedge ratio”. Thanks to Investopia.com

Dovish: A statement related to monetary policy which implies looser policy (lower rates).

Easy (Easing): refers to monetary policy tending towards lower interest rates. Monetary authorities (a central bank) will want easy monetary policies (lower interest rates and even perhaps a program like quantitative easing, in order to encourage economic growth)

EBS (Electronic Broking Services): A wholesale electronic trading platform used to trade between interbank dealers. Its like an ECN for banks.

ECB: European Central Bank

Ecofin: A council consisting of the economy and finance ministers of the European Union. They meet once a month.

Emergency Liquidity Assistance: The provision of liquidity by member national banks of the European System of Central Banks (Eurosystem) to individual banks. The provision of liquidity is made under exceptional circumstances to illiquid institutions unable to obtain liquidity either in the market or from participation in monetary policy operations (shut out by the ECB). Loans are made against collateral and are at the risk of the national central bank.

ETF: An Exchange Traded Fund (the BOJ has bought ETFs as part of its APP easing program).

Eurodollar: Not the Euro; a pet peeve of many old FX traders is to hear the euro currency referred to as ‘eurodollar’. A eurodollar refers to a US dollar on deposit at banks outside the US. Similarly, eurodollar futures are a very popular interest-rate futures contract.

Eurogroup: A group of finance ministers of countries who are members of the euro. It’s spokesman is Jean-Claude Junckers, the finance minister of Luxembourg.

European Financial Stability Facility (ESFS): is a legal instrument agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing financial assistance to eurozone states in difficulty. Colloquially known as ‘euro SPV’ or ‘euro TARP’

Fade: to trade counter to. For instance, to “fade a trend” is to counter the trend. To fade a rumor is to believe it to be untrue and do the opposite of what the rumor would suggest.

Fed: The Federal Reserve, the central bank for the United States.

Fibonacci retracements: A useful tool for traders as markets correct during trends. Technicians look for support on pullbacks at 38.2% of the uptrend or rebounds in an downtrend, 50% and 61.8%. Derived from the “golden ratio” of Italian mathematician Fibonacci.

Footsie: UK stock index, the FTSE100

Forward guidance: Forward guidance can take many forms, but, in essence all of them involve a central bank saying, or at least hinting at, what its going to do with monetary policy do before they do it. There is a fuller explanation at this post.

FOMC: Federal Open Market Committee, the monetary policy-setting group within the Federal Reserve Bank of the USA. It consists of 12 members, the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents 9selected on a rotating basis for one-year terms).

Funds: Market nickname for the USD/CAD currency pair.

Gamma: Concepts in the options markets are expressed in terms of the Greek alphabet. Gamma refers to the rate of change in an option’s delta relative to the price of the underlying asset. A short gamma position will become shorter as the price of the underlying asset increases. As the market rallies, you are effectively selling more and more of the underlying asset as the delta becomes more negative.

Gilts: UK government bonds

Give: To transact a deal on the bid price, i.e. to sell at the bid price, to whoever is bidding

Given: Past tense of give, what has happened if you’ve crossed the spread and sold at the bid

Gotobi: a cultural tradition in Japan of settling accounts on the 5th day of the month (and on dates that are multiples of 5, so 5, 10, 15, 20, 25 and 30). In FX markets it relates to importer demand for USD/JPY, said to occur on the 5th of each month. Needs to be taken with a grain of salt, markets are not that simple: but at least now when you see commentators referring to Gotobi demand, you’ll know what they mean.

Governing Council (of the ECB): The Governing Council is the 23-member monetary policy-setting group within the European Central Bank. Generally, anyone who is referred to as part of the ECB on ForexLive is a member of the Governing Council.

Haircut: When bondholders are forced or voluntarily take a worse deal than the one outlined in the bond covenant.

Hawkish: A statement regarding monetary policy which implies tighter policy (higher rates)

Hindenburg Omen: A stock market technical indicator when two trading days within 30 days of each other where, on the same day, 10-week moving average is rising, new highs are greater than 2.2% of total issues traded, new lows are greater than 2.2% of total issues traded, and the McClellan Oscillator is negative.

HKMA: Hong Kong Monetary Authority, the central bank of Hong Kong

Ichimoku: (Ichimoku Kinko Hyo)A series of technical indicators packaged together and overlaid on a candlestick or bar chart to form the Ichimoku chart. Popularly used for yen crosses.

IMM: The International Monetary Market division of the Chicago Mercantile Exchange. This is the exchange where the bulk of the currency futures trading takes place worldwide. Net positions on the exchange are compiled each week and reported in the Commitments of Traders report on Friday afternoons.

Interbank: the bank-to-bank market in foreign exchange. Banks can deal directly with each other in currencies, most often over the phone, or through EBS or Reuters Dealing. ‘Interbank’ dealing usually refers to the direct dealing between banks with no broker intervening (classing EBS and Reuters as brokers in this context as they serve to match up buyers and sellers). Bank ‘A’ contacts Bank ‘B’ and asks for a price in (for example) USD/JPY, in an amount (20 million USD, for example). Bank ‘B’ ‘makes’ (in this way banks are market makers to each other) a price, showing a bid and an offer: Bank A is then free to transact a deal on the shown bid or offer, or to pass and not deal.

Jiji: a major Japanese news agency (like Reuters)

JGB: Japanese government bonds.

KCNA: Korean Central News Agency, the state news agency of North Korea

Kiwi: The New Zealand dollar, from the flightless kiwi bird, found only in New Zealand

Kospi: The South Korean stock index

Loonie: Nickname for the Canadian dollar. Derives from the picture of a Loon on the $1 coin. What is a $2 coin called? A twonie, of course!

Long: Being long is when you’ve bought with the intention of selling at a higher price in order to profit. For example, being long EUR/USD is have bought euro against USD, with the plan being to sell the euro at a higher price in order to profit.

Long-term refinancing operations (LTRO): Long-term collateralized loans extended by the ECB to member banks. Terms have ranged from 3 months up to 3-years.

Maple bonds: A foreign company bond that is sold in Canadian dollars.

Market Profile: A rarely-seen type of charting pioneered and patented by Peter Steidlmayer.

MAS: the Monetary Auuthority of Singapore, Singapore’s central bank

Mine: What an interbank dealer will say to a counterparty or voice broker when he (or she) wants to buy.

Model fund: Hedge fund which uses some form of quantitative model to initiate and liquidate trades. The most familiar type of funds are trend-followers like J.W. Henry and Co. Many of these funds trade at set times during the day, often at 10 am New York time.

MPC: Monetary Policy Committee of the Bank of England, which meets once a month to decide on the official interest rate in the UK.

Mrs. Watanabe: A collective term that originally applied to Japanese housewife speculators, but is now used to refer to Japanese retail margin FX traders. They can be a powerful force.

Nikkei: a major Japanese newspaper

Nikkei225: The main Japanese stock index

OATs: French government bonds

OMT: The ECB program introduced in August 2012 to directly buy government bonds in the secondary market. Can only be used after a government asks for financial assistance.

Offer: A sell order places at or above the market price.

Operation Twist: A monetary policy operation last used in the early 1960s in which the Fed sold shorter-dated Treasuries from their portfolio and purchased longer-dated maturities in order to drive down long-term interest rates. The overall size of the Fed’s balance sheet is not impacted by the move.

Outside day key reversal: Key reversals are outside days at either trend highs or trend lows. A key reversal occurs when a market makes a new high, then reverses down, takes out the previous day’s low and closes lower than the previous day’s close.

Paid: past tense of pay, what has just happened if you’ve crossed the spread an bought at the offer

Pari-passu: On equal footing, in Latin. Refers to bond holders having equal rights in the event of a debt restructuring.

Pay: to transact a deal on the offered price, i.e. to buy at the offered price, to whoever is offering.

PBOC: The People’s Bank of China, China’s central bank

Plain vanilla option: The most basic option type with a simple expiration date and strike price with no additional features.

Point and Figure: A method of charting price action.

Prime brokers: Firms which allow clients like hedge funds to use their credit facilities to access financial markets. For example, a hedge fund client of Bank X can trade in the interbank FX market using Bank X’s name in return for a fee.

Quantitative ease: A strategy used by central banks once targeting short-term interest rates becomes ineffective because rates have reached zero (or close to it). The central bank buys assets, typically government bonds, in an effort to inject money into the economy.

RBA: Reserve Bank of Australia (central bank)

RBNZ: The Reserve Bank of New Zealand, New Zealand’s central bank

Reflation trade: The purchase of asset classes that investors expect to do well in an economic recovery. Commodities, equities and emerging markets are examples. Asset classes to be avoided in a reflationary atmosphere include bonds and low-yielding currencies.

Real money: Generally refers to non-leveraged funds (mutuals, for example).

REIT: Real Estate Investment Trust (the BOJ has recently been buying Japan REITs as part of its APP easing program)

Rinban: refers to BOJ buying government bonds from the market in regular market operations (the other BOJ bond-buying program is the APP: Asset Purchase Program. The two were recently merged into one by the BOJ)

Securities Market Program: The program in which the ECB purchases government bonds of members states where the market has pushed yields up beyond what the ECB sees as fundamentally justifiable. The ECB sterilizes the euros added to the monetary system on a weekly basis so as not to impact overall money supply. It is a method of monetary policy transmission.

Short: In financial markets being short refers to selling something you don’t own (with the intention of buying it back at a lower price in order to profit). Its the same in the FX market. For example, to be short USD/JPY means you have sold USD against yen, with the intention of buying back USD/JPY when the rate has fallen in order to profit.

SPI: Australian Share Price index futures contract (based on the ASX200)

Spot market: In interbank FX the spot market is the market for currencies to be deleivered within a two-day period (or oneday in the case of the USD/CAD and some others)

Spread: the space between a bid an offer, eg. if the price is 35 bid and 36.5 offered, the spread is said to be one and a half points. In order to get set in a position with no waiting (when you simply must be on board NOW) it is necessary to cross the spread to pay the offer (i.e. if you want to be long and dont want to place a bid but just want in right now) or give the bid (i.e.if you want to be short and dont want to place an offer but just want to be short right now).

Stop-loss: An order which closes out a market position once a certain price level trades in the market. For example, a sell order placed below the market price to protect against accelerating losses.

Sovereign wealth fund (SWF): A fund set up by a country with large foreign exchange reserves to help manage those reserves. Typically SWFs purchase long-term securities to try and enhance investment returns beyond what central banks typically earn holding government debt. Examples include the Government of Singapore Investment Company and the Abu Dhabi Investment Authority.

Sovereign names: Used interchangeably for sovereign wealth funds or central banks.

SNB: Swiss National Bank, the Swiss central bank.

Taper / tapering: It is thought that the Federal Reserve will begin to slow down its asset purchasing in response to an improving US economy not requiring so much monetary accommodation. This slowing down (not stopping) of purchases is referred to as tapering

Thin: a market condition where prices are not as liquid as would normally be expected.

Tight: (Tightening) refers to monetary policy tending towards higher interest rates. Monetary authorities (a central bank) will want tighter monetary policies (higher interest rates, at times when inflation is too high or threatening to get too high)

Trend: Those things we always seem to be fighting. Just kidding. A tendency of a currency pair to move in a consistent direction. For example, USD/JPY had an uptrend from October 2012 to April 2013 (from around 78 to 99 as of writing).

Toshin: A Toshin fund is a Japanese investment trusts which invest in non-yen denominated assets, for example, foreign bonds or stocks. In brief, Japanese funds invested abroad.

Voice broker: On interbank dealing desks broking is conducted via screens but also via ‘voice brokers’, where dealers listen to brokers speaking/yelling out prices (eg. 35/38, i.e. 35 bid and 38 offered) and transact with the brokers by speaking/yelling back. It sort of like a permanently open telephone line on speaker. Voice broking persists, but electronic, screen-based trading has taken much of the volume.

Whipsaw: When a price heads off in one direction only to be followed very quickly by a move in the opposite direction. For example, EUR/USD may break technical resistance at a price, trade 10 or so points higher than a few minutes later have fallen 30 or more points. Longs have been ‘whipsawed’.

Xinhua News Agency: the official news agency of the People’s Republic of

Yard: Market slang for “billion”.

Yours: What an interbank dealer will say to a counterparty or voice broker when he (or she) wants to sell.