Glossary of Terms
American-style option An option contract that may be exercised at any time before it expires.
Ask The quoted price at which a customer can buy a currency pair. Also referred to as the offer, ask price, or ask rate.
Base Currency For foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. For example, in a USD/JPY currency pair, the US dollar is the base currency. Also may be referred to as the primary currency.
Bid The quoted price where a customer can sell a currency pair. Also known as the 'bid price' or 'bid rate.'
Bid/Ask Spread The point difference between the bid and ask (offer) price.
Currency pair The two currencies that make up a foreign exchange rate. For example, USD/YEN is a currency pair.
Dealer A firm in the business of acting as a counterparty to foreign currency transactions.
European-style option An option contract that can be exercised only on or near its expiration date.
Expiration This is the last day on which an option may either be exercised or offset.
Interbank market A loose network of currency transactions negotiated between financial institutions and other large companies.
Leverage The ability to control large dollar amount of a commodity with a comparatively small amount of capital. Also known as gearing.
Margin See Security Deposit.
Offer See Ask.
Open position Any transaction that has not been closed out by a corresponding opposite transaction.
Quote currency The second currency in a currency pair is referred to as the quote currency. For example, in a USD/JPY currency pair, the Japanese yen is the quote currency. Also referred to as the secondary currency or the counter currency.
Rollover The process of extending the settlement date on an open position by rolling it over to the next settlement date.
Security deposit The amount of money needed to open or maintain a position. Also known as margin.
Settlement The actual delivery of currencies made on the maturity date of a trade.
Spread The point difference between the ask and bid price of a currency pair.
Trader An individual who is on the other side of the trade with the dealer and whose objective is to profit from price movements.